© the mcgraw-hill companies, inc., 2005 mcgraw-hill/irwin 18-1 process costing chapter 18
TRANSCRIPT
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
18-1
PROCESS COSTINGChapter
18
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18-2
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 CostingProcess Costing
Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill
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Job Costing
Custom orders
Unique products
Low production volume
High product flexibility
Low to medium standardization of labor and material
Process Costing
Repetitive operations
Identical products
High production volume
Low product flexibility
High standardization of labor and material
Comparing Job and Process CostingComparing Job and Process Costing
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DirectMaterials
FinishedGoods
Cost per unit for
each job
DirectLabor
FactoryOverhead
Jobs
The Work in Process account consists of
individual jobs in job costing.
Job and Process CostingJob and Process Costing
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DirectMaterials
FinishedGoods
DirectLabor
FactoryOverhead
Processes
The Work in Process account consists of specific processes in
process costing.
Cost per unit
processed
Job and Process CostingJob and Process Costing
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Same objective: 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
Job and ProcessCosting Similarities
Job and ProcessCosting Similarities
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Work in Process
Assembly
Labor
Materials
Ind
irec
tIn
dir
ect
FinishedGoods
FactoryOverhead
Direct
Direct
Deliveredto
Customers
AppliedOverhead
Work in Process
Packaging
Work in Process Accounts — The Key to Process Costing
Work in Process Accounts — The Key to Process Costing
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Costs are accumulated for a period of time by process or department.
Costs are accumulated for a period of time by process or department.
Unit cost is computed by dividing the accumulated costs by the number of
units produced in the period.
Unit cost is computed by dividing the accumulated costs by the number of
units produced in the period.
Computing Unit Cost Computing Unit Cost
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Unit cost is computed by dividing the accumulated costs by the number of
units produced in the period.
Unit cost is computed by dividing the accumulated costs by the number of
units produced in the period.
If partially complete units remain in process, we must use equivalent units
as the divisor to obtain unit costs.
If partially complete units remain in process, we must use equivalent units
as the divisor to obtain unit costs.
Computing Unit Cost Computing Unit Cost
Costs are accumulated for a period of time by process or department.
Costs are accumulated for a period of time by process or department.
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Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units.
Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units.
Two one-half full pitchers are equivalent to one full pitcher.
+ =
Process Costing and Equivalent Units Process Costing and Equivalent Units
1
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Process Costing and Equivalent Units Process Costing and Equivalent Units
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
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
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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
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
Process Costing and Equivalent Units Process Costing and Equivalent Units
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Cost perequivalent
unit
= Product costs for the periodEquivalent units for the period
Cost Per Equivalent UnitCost Per Equivalent Unit
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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
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
Cost Per Equivalent UnitCost Per Equivalent Unit
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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
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
Cost Per Equivalent UnitCost Per Equivalent Unit
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Equivalent units may be different for material and labor
and overhead at different stages of a process.
Equivalent units may be different for material and labor
and overhead at different stages of a process.
At completion of Stage 1 of the process, materialis 40% complete, but labor and overhead are only
25% complete.
At completion of Stage 1 of the process, materialis 40% complete, but labor and overhead are only
25% complete.
Stage 1
40% ofMaterial
25% ofLabor andOverhead
Process Costing and Equivalent Units Process Costing and Equivalent Units
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Stage 2
25% ofLabor andOverhead
60% ofMaterial
Stage 1
40% ofMaterial
25% ofLabor andOverhead
+
+
=
=
100%
50%
Process Costing and Equivalent Units Process Costing and Equivalent Units
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Stage 3
50% ofLabor andOverhead
The process is now complete. The process is now complete.
Stage 2
25% ofLabor andOverhead
60% ofMaterial
Stage 1
40% ofMaterial
25% ofLabor andOverhead
Process Costing and Equivalent Units Process Costing and Equivalent Units
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Owl Inc uses FIFO process costing in its Fabrication
Department where a product called Strata is made.
Process Costing andEquivalent Units
Process Costing andEquivalent Units
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Process Costing andEquivalent Units
Process Costing andEquivalent Units
Owl Inc Fabrication Department Data For April 2005Beginning Inventory:
Units of product 30,000
Percentage of completion - direct material 100%
Percentage of completion - direct labor 40%
Percentage of completion - overhead 40%
Units started in April 90,000
Units transferred from fabrication to mixing 100,000
Ending Inventory:
Units of product 20,000
Percentage of completion - direct material 100%
Percentage of completion - direct labor 25%
Percentage of completion - overhead 25%
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Owl Inc Fabrication Department Data For April 2005Beginning Inventory:
Units of product 30,000
Percentage of completion - direct material 100%
Percentage of completion - direct labor 40%
Percentage of completion - overhead 40%
Units started in April 90,000
Units transferred from fabrication to mixing 100,000
Ending Inventory:
Units of product 20,000
Percentage of completion - direct material 100%
Percentage of completion - direct labor 25%
Percentage of completion - overhead 25%
Material is added at thebeginning of the process soit is always 100% complete.
Process Costing andEquivalent Units
Process Costing andEquivalent Units
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Owl Inc Fabrication Department Data For April 2005Beginning Inventory:
Units of product 30,000
Percentage of completion - direct material 100%
Percentage of completion - direct labor 40%
Percentage of completion - overhead 40%
Units started in April 90,000
Units transferred from fabrication to mixing 100,000
Ending Inventory:
Units of product 20,000
Percentage of completion - direct material 100%
Percentage of completion - direct labor 25%
Percentage of completion - overhead 25%
Overhead is applied on the basis of labor, so both are at the
same percentage of completion.
Process Costing andEquivalent Units
Process Costing andEquivalent Units
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April Fabrication Department Physical Flow
Units to account for:Beginning inventory 30,000 Units started during April 90,000 Total number of units 120,000
Units accounted for as:Units transferred from Fabrication to Mixing 100,000 Ending inventory 20,000 Total number of units 120,000
Physical Flow of Units Physical Flow of Units
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Fabrication DepartmentDirect Material Equivalent Units of Production - April 2005
Units of Percent Added EquivalentProduct This Period Units
Beginning goods in process 30,000 0% 0
Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 100% 20,000
Total units 120,000 90,000
Computing EquivalentUnits of Production
Computing EquivalentUnits of Production
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Fabrication DepartmentDirect Material Equivalent Units of Production - April 2005
Units of Percent Added EquivalentProduct This Period Units
Beginning goods in process 30,000 0% 0
Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 100% 20,000
Total units 120,000 90,000
Since materials are added at the beginning of the process, no additional materials are necessary to complete the
beginning inventory.
Computing EquivalentUnits of Production
Computing EquivalentUnits of Production
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Fabrication DepartmentDirect Material Equivalent Units of Production - April 2005
Units of Percent Added EquivalentProduct This Period Units
Beginning goods in process 30,000 0% 0
Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 100% 20,000
Total units 120,000 90,000
} 100,000
100,000 units completed and transferred.
Computing EquivalentUnits of Production
Computing EquivalentUnits of Production
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Fabrication Department Direct Labor and FactoryOverhead Equivalent Units of Production - April 2005
Units of Percent Added EquivalentProduct This Period Units
Beginning goods in process 30,000 60% 18,000
Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 25% 5,000
Total units 120,000 93,000
Computing EquivalentUnits of Production
Computing EquivalentUnits of Production
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Fabrication Department Direct Labor and FactoryOverhead Equivalent Units of Production - April 2005
Units of Percent Added EquivalentProduct This Period Units
Beginning goods in process 30,000 60% 18,000
Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 25% 5,000
Total units 120,000 93,000
Since labor and overhead were 40 percent complete in the beginning
inventory, 60 percent of the work must be completed in April.
Computing EquivalentUnits of Production
Computing EquivalentUnits of Production
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Fabrication Department Direct Labor and FactoryOverhead Equivalent Units of Production - April 2005
Units of Percent Added EquivalentProduct This Period Units
Beginning goods in process 30,000 60% 18,000
Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 25% 5,000
Total units 120,000 93,000
} 100,000Transferred
Computing EquivalentUnits of Production
Computing EquivalentUnits of Production
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Summary of Fabrication DepartmentEquivalent Units of Production - April 2005
Direct Direct FactoryActivities during April 2002 Material Labor OverheadUnits from beginning inventory
processed in current period 0 18,000 18,000
Units started and completedin current period 70,000 70,000 70,000
Units in ending inventory at end of current period 20,000 5,000 5,000
Equivalent units of productionfor period 90,000 93,000 93,000
Computing EquivalentUnits of Production
Computing EquivalentUnits of Production
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Fabrication DepartmentApril Work in Process Costs
Beginning work in process 22,380$ Costs added in April: Direct material 45,000 Direct labor 11,160 Overhead 44,640 Total costs to account for 123,180$
Process Costing andEquivalent Units
Process Costing andEquivalent Units
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Fabrication DepartmentCost Per Equivalent Unit - April 2005
Direct Direct FactoryMaterials Labor Overhead
Total cost of resource for April 45,000$ 11,160$ 44,640$
Equivalent units of productionin April ÷ 90,000 ÷ 93,000 ÷ 93,000
Cost per equivalent unit forApril = 0.50$ = 0.12$ = 0.48$
Cost per Equivalent UnitCost per Equivalent Unit
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We will account for all costs incurred
by assigning unit costs to the: A. 100,000 units completed and
transferred.
B. 20,000 units remaining in ending work in process inventory.
We will account for all costs incurred
by assigning unit costs to the: A. 100,000 units completed and
transferred.
B. 20,000 units remaining in ending work in process inventory.
Cost Reconciliation Cost Reconciliation
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Fabrication Department Work in ProcessCost Summary for April 2005
Cost of completed unitsFrom beginning work in process
April 1 balance 22,380$ Costs to complete April 1 inventory
Direct materialDirect labor Overhead
Started and completed Total completed and transferred
Cost of ending work in processDirect material Direct labor Overhead
Total cost accounted for
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Fabrication Department Work in ProcessCost Summary for April 2005
Cost of completed unitsFrom beginning work in process
April 1 balance 22,380$ Costs to complete April 1 inventory
Direct material 0$ Direct labor (18,000 × $0.12) 2,160 Overhead (18,000 × $0.48) 8,640 10,800
Started and completed Total completed and transferred
Cost of ending work in processDirect material Direct labor Overhead
Total cost accounted for
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Fabrication Department Work in ProcessCost Summary for April 2005
Cost of completed unitsFrom beginning work in process
April 1 balance 22,380$ Costs to complete April 1 inventory
Direct material 0$ Direct labor (18,000 × $0.12) 2,160 Overhead (18,000 × $0.48) 8,640 10,800
Started and completed (70,000 × $1.10) 77,000 Total completed and transferred (100,000 units) 110,180$
Cost of ending work in processDirect material Direct labor Overhead
Total cost accounted for
$0.12 + $0.48 + $0.50 = $1.10
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Fabrication Department Work in ProcessCost Summary for April 2005
Cost of completed unitsFrom beginning work in process
April 1 balance 22,380$ Costs to complete April 1 inventory
Direct material 0$ Direct labor (18,000 × $0.12) 2,160 Overhead (18,000 × $0.48) 8,640 10,800
Started and completed (70,000 × $1.10) 77,000 Total completed and transferred (100,000 units) 110,180$
Cost of ending work in processDirect material (20,000 × $0.50) 10,000$ Direct labor (5,000 × $0.12) 600 Overhead (5,000 × $0.48) 2,400 13,000
Total cost accounted for 123,180$
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End of Chapter 18End of Chapter 18