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Process Cost Accounting. Chapter. 20. Learning objectives. Process Operation Process Cost Accounting Equivalent Units of Production Process Costing Illustration – GenX Company Hybrid Costing System Process Costing Typical Accounting Entries. 1. Process Manufacturing Operations.

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learning objectives
Learning objectives
  • Process Operation
  • Process Cost Accounting
  • Equivalent Units of Production
  • Process Costing Illustration

– GenX Company

  • Hybrid Costing System
  • Process Costing Typical Accounting Entries
1 process manufacturing operations
1. Process Manufacturing Operations
  • Used for production of small, identical, low-cost items.
  • Mass produced in automated continuous production process.
  • Costs cannot be directly traced to each unit of product.
process operation comparing job order process production
Job Order Systems

Custom orders

Heterogeneous products

Low production volume

High product flexibility

Low to medium standardization

Process Systems

Repetitive operations

Homogeneous products

High production volume

Low product flexibility

High standardization

Process Operation- Comparing Job Order & Process Production

Exh.

20-2

2 process cost accounting comparing job order process production

The Goods in Process account consists of individualjobsin ajob ordersystem.

2. Process Cost Accounting- Comparing Job Order & Process Production

DirectMaterials

DirectLabor

FinishedGoods

Jobs

FactoryOverhead

Cost per unit for each job

2 process cost accounting comparing job order process production1
2. Process Cost Accounting- Comparing Job Order & Process Production

The Goods in Process account consists of specificprocessesin aprocess cost system.

DirectMaterials

DirectLabor

FinishedGoods

Processes

FactoryOverhead

Cost per unit processed

2 process cost accounting job and process costing similarities

Sameobjective:to determine the cost of products

Same inventory accounts:raw materials, work in process, and finished goods

Same overhead assignment method:predetermined rate times actual activity

2. Process Cost Accounting- Job and Process Costing Similarities
3 equivalent units of production
3. Equivalent Units of Production

Costs are accumulated for a period of time by process or department.

Unit cost is computed by dividing the accumulated costs by the number ofequivalentunits produced in the period.

equivalent units of production

+

=

Equivalent Units of Production

Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units.

Twoone-half full pitchers are equivalent to one full pitcher.

question
Question

For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did PencilCo have for the period?

a. 10,000

b. 11,500

c. 1,500

d. 15,000

slide11

Question

Question

For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did PencilCo have for the period?

a. 10,000

b. 11,500

c. 1,500

d. 15,000

10,000 units + (5,000 units × .30) = 11,500 equivalent units

cost per equivalent unit

Cost perequivalent unit

Product costs for the periodEquivalent units for the period

=

Cost Per Equivalent Unit
question1
Question

Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period?

a. $1.84

b. $2.40

c. $2.76

d. $2.90

slide14

Question

Question

Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period?

a. $1.84

b. $2.40

c. $2.76

d. $2.90

$27,600 ÷ 11,500 equivalent units

= $2.40 per equivalent unit

equivalent units
Equivalent Units

40% ofMaterial

Equivalent units may be different for material and labor and overhead at different stages of a process.

Stage 1

25% ofLabor andOverhead

At completion of Stage 1 of the process, materialis 40% complete, but labor and overhead are only25% complete.

equivalent units1
Equivalent Units

40% ofMaterial

60% ofMaterial

+

=

100%

Stage 1

Stage 2

25% ofLabor andOverhead

25% ofLabor andOverhead

=

+

50%

equivalent units2
Equivalent Units

40% ofMaterial

60% ofMaterial

Stage 1

Stage 2

Stage 3

25% ofLabor andOverhead

25% ofLabor andOverhead

50% ofLabor andOverhead

The process is now complete.

process manufacturing operations genx

FinishedGoods

DeliveredtoCustomers

Process Manufacturing Operations GenX

Exh.

20-5

Direct

Materials

Goods in ProcessGrinding

Indirect

Goods in ProcessMixing

FactoryOverhead

AppliedOverhead

Indirect

Direct

Labor

accounting for genx2
Accounting for GenX

Exh.

21-5B

Exh.

20-12

accounting for genx3
Accounting for GenX

GenX uses a FIFO cost flow systemwith the following four steps:

  • Physical flow of units.
  • Computing equivalent units of production.
  • Computing cost per equivalent unit.
  • Cost reconciliation.
computing equivalent units of production1
Computing Equivalent Units of Production

Exh.

20-14

100,000 units transferredfrom grinding to mixing.

}

100,000

computing equivalent units of production2
Computing Equivalent Units of Production

Exh.

20-14

Since materials are added at the beginning of the process in Grinding, no additional materials are necessary to complete the beginning inventory.

computing equivalent units of production4
Computing Equivalent Units of Production

Exh.

20-15

100,000Transferred

}

computing equivalent units of production5
Computing Equivalent Units of Production

Exh.

20-15

Since labor and overhead were 331/3 percent complete in the beginning inventory, 662/3 percent of the work must be completed in April.

cost reconciliation

In the cost reconciliation, we willaccount for all costs incurredby assigning unit costs to the:

    • A. 100,000 units transferred from grinding to mixing.
    • B. 20,000 units remaining in ending inventory.
Cost Reconciliation
slide34

Exh.

20-18

slide35

Exh.

20-18

slide36

Exh.

20-18

slide37

Exh.

20-18

process cost summary

Shows the flowof units and coststhrough work inprocess.

Provides costinformation forfinancial statements.

ProcessCostSummary

Helps factorymanagers evaluatedepartment managerperformance.

Helps managerscontrol theirdepartments.

Process Cost Summary
process cost summary1

We will illustrate the process cost summary for the Grinding Department of GenX in three sections:

    • Costs charged to department.
    • Equivalent unit processing costs.
    • Assignment of costs to output of department.
Process Cost Summary
slide41

Exh.

20-19

slide42

Exh.

20-19

slide43

Exh.

20-19

slide44

Exh.

20-19

slide46

Total coststransferred to Mixing

$6,350 + $15,050 = $21,400

Exh.

20-19

slide47

Total coststransferred to Mixing

$6,350 + $15,050 = $21,400

$21,400 ÷ 100,000 units transferred = $0.214

Exh.

20-19

slide48

These unit costs differ because the$0.214 contains costs incurred in March that differed in amount from costs incurred in April.

Exh.

20-19

slide54

Exh.

20-23

slide55

Exh.

20-23

slide56

Exh.

20-23

Total coststransferred to Finished Goods

$4,480 + $24,990 = $29,470

slide57

Exh.

20-23

Total coststransferred to Finished Goods

$4,480 + $24,990 = $29,470

Unit cost = $29,470 ÷ 101,000 units transferred = $0.2918 (rounded)

5 hybrid costing systems
5. Hybrid Costing Systems

Hybrid costing systems contain featuresof both job order and process operations.

Job OrderCosting

Hybrid Costing

ProcessCosting

Materialcosts areaccounted for usinga job order system.

Conversioncosts areaccounted for usinga process system.

6 process costing typical accounting entries

Let’s look at the accounting journal entries for a process cost system. We’ll omit the numbers so that we can focus on accounts.

6. Process CostingTypical Accounting Entries