Accounting Chapter 20

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<ul><li><p>Process CostingChapter 2020-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning ObjectivesDescribe the flow of costs through a process costing systemCalculate equivalent units of production for direct materials and conversion costsPrepare a production cost report using the weighted average method20-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning ObjectivesPrepare journal entries for a process costing systemUse a production cost report to make decisions Prepare a production cost report using the first-in, first-out method (Appendix 20A)20-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning Objective 1Describe the flow of costs through a process costing system20-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Job Order Costing vs.Process CostingCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Process Costing MethodsWeighted-averageFirst-in, first-out (FIFOsee Appendix 20A)Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Process CostingCalculating Cost per UnitCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Process CostingCalculating Cost per UnitCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*$600 10,000 crayons = $0.06 per crayon</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Cost per Unit ofEach Process Is Used to:Control costsSet selling pricesCalculate account balancesWork-in-Process InventoryFinished Goods InventoryCost of Goods SoldCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Comparison of Cost Flows: Job Order Costing and Process CostingCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*Direct Materials</p><p>Direct Labor</p><p>Manufacturing OverheadWork-in-Process Inventory</p><p>Job 27Job 28Job 29Finished Goods Inventory</p><p>Job 27Job 28Cost ofGoods Sold</p><p>Job 27Exhibit 20-2 Comparison of Cost Flows: Job Order Costing and Process CostingPANEL A: Job Order Costing (Smart Touch Learning)Balance SheetIncome Statement</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Comparison of Cost Flows: Job Order Costing and Process CostingCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*Direct Materials</p><p>Direct Labor</p><p>Manufacturing OverheadDirect Materials</p><p>Direct Labor</p><p>Manufacturing OverheadWork-in-Process Inventory</p><p>Job 27Job 28Job 29Finished Goods Inventory</p><p>Job 27Job 28Cost ofGoods Sold</p><p>Job 27FinishedGoods InventoryWork-in-Process InventoryMixingWork-in-Process InventoryMoldingWork-in-Process InventoryPackagingCostof GoodsSoldExhibit 20-2 Comparison of Cost Flows: Job Order Costing and Process CostingPANEL A: Job Order Costing (Smart Touch Learning)Balance SheetIncome StatementPANEL B: Process Costing (Cheerful Colors)Balance SheetIncome Statement</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Match each costing system characteristic to job order costing, process costing, or both.Used by companies that manufactures identical items through a series of uniform production steps or processes.</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Match each costing system characteristic to job order costing, process costing, or both.Used by companies that manufactures identical items through a series of uniform production steps or processes.Process costing</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Match each costing system characteristic to job order costing, process costing, or both.Transfers costs from Work-in-Process Inventory to Finished Goods Inventory to Cost of Goods Sold.</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Match each costing system characteristic to job order costing, process costing, or both.Transfers costs from Work-in-Process Inventory to Finished Goods Inventory to Cost of Goods Sold.Both</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Match each costing system characteristic to job order costing, process costing, or both.Used by companies that manufacture unique products or provide specialized services.Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Match each costing system characteristic to job order costing, process costing, or both.Used by companies that manufacture unique products or provide specialized services.Job order costingCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Match each costing system characteristic to job order costing, process costing, or both.Has multiple Work-in-Process Inventory accounts.Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Match each costing system characteristic to job order costing, process costing, or both.Has multiple Work-in-Process Inventory accounts.Process costingCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Match each costing system characteristic to job order costing, process costing, or both.Tracks direct materials, direct labor, and manufacturing overhead costs.Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Match each costing system characteristic to job order costing, process costing, or both.Tracks direct materials, direct labor, and manufacturing overhead costs.BothCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning Objective 2Calculate equivalent units of production for direct materials and conversion costs20-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>All Costs Must Be Accounted ForCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*Total Costs Incurredduring Period inDepartment 1Costs Transferred toDepartment 2at End of PeriodCosts Remaining inDepartment 1at End of Period=Exhibit 20-3 Assignment of Department 1 Costs at the End of the Period</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Equivalent Unitsof Production (EUP)Cheerful Colors production plant has 10,000 crayons in ending Work-in-Process InventoryPackaging. The crayons are 40% complete for direct materials and 80% complete for conver-sion. What are the equivalent units of pro-duction for direct materials? For conversion costs?</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Equivalent Unitsof Production (EUP)Cheerful Colors production plant has 10,000 crayons in ending Work-in-Process InventoryPackaging. The crayons are 40% complete for direct materials and 80% complete for conver-sion. What are the equivalent units of pro-duction for direct materials? For conversion costs?Direct materials10,000 crayons 40% = 4,000 EUP</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Equivalent Unitsof Production (EUP)Cheerful Colors production plant has 10,000 crayons in ending Work-in-Process InventoryPackaging. The crayons are 40% complete for direct materials and 80% complete for conver-sion. What are the equivalent units of pro-duction for direct materials? For conversion costs?Direct materials10,000 crayons 40% = 4,000 EUPConversion costs10,000 crayons 80% = 8,000 EUP</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*Direct Labor + Manufacturing Overhead</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>The Cutting Department has 6,500 units in process at the end of September that are 100% complete for direct materials and 85% complete for conversion costs. Calculate the equivalent units of production for direct materials and conversion costs.Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>The Cutting Department has 6,500 units in process at the end of September that are 100% complete for direct materials and 85% complete for conversion costs. Calculate the equivalent units of production for direct materials and conversion costs.Direct materials 6,500 units 100%=6,500 EUPCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>The Cutting Department has 6,500 units in process at the end of September that are 100% complete for direct materials and 85% complete for conversion costs. Calculate the equivalent units of production for direct materials and conversion costs.Direct materials 6,500 units 100%=6,500 EUPConversion costs6,500 units 85%=5,525 EUPCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning Objective 3Prepare a production cost report using the weighted average method20-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Flow of Costs in Producing PuzzlesCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*Exhibit 20-4 Flow of Costs in Producing PuzzlesPartiallycompletedpuzzlesCompletedpuzzles</p><p>AssemblyProcessDirectMaterialsCardboard, picture, glueDirectLaborWorkers operatingpressing machinesManufacturingOverheadMaintenance and depreciationon pressing machines</p><p>CuttingProcessDirectMaterialsBoxDirectLaborWorkers operatingcutting machinesManufacturingOverheadMaintenance and depreciationon cutting machines</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Steps to Preparing aProduction Cost ReportSummarize the flow of physical unitsCompute output in terms of equivalent units of productionCompute the cost per equivalent unit of productionAssign costs to units completed and units in process</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Production Cost Report TermsTo account forAmount in process at the beginning of the period+ Amount started or added during the periodAccounted forStill in processorCompleted and transferred outCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Production Cost Report July Data for Puzzle MeCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Step 1: Summarize theFlow of Physical UnitsTo account for = Beginning balance + Amount startedCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Step 1: Summarize theFlow of Physical UnitsTo account for = Beginning balance + Amount started= 0 units + 50,000 units= 50,000 unitsCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Step 1: Summarize theFlow of Physical UnitsTo account for = Beginning balance + Amount started= 0 units + 50,000 units= 50,000 unitsAccounted for = Transferred out + In processCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Step 1: Summarize theFlow of Physical UnitsTo account for = Beginning balance + Amount started= 0 units + 50,000 units= 50,000 unitsAccounted for = Transferred out + In process50,000 units= 40,000 units + In process50,000 units= 40,000 units + 10,000 unitsCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Production Cost ReportAssembly DepartmentWhole UnitsCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*Step 1: Physical flow of units</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Step 2: Compute Output in Terms of Equivalent Units of ProductionDirect Materials</p><p>Conversion CostsCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Step 2: Compute Output in Terms of Equivalent Units of ProductionDirect MaterialsCompleted units40,000 units 100%=40,000 EUPIn process units10,000 units 100%=10,000 EUPTotal EUP for direct materials50,000 EUPConversion CostsCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Step 2: Compute Output in Terms of Equivalent Units of ProductionDirect MaterialsCompleted units40,000 units 100%=40,000 EUPIn process units10,000 units 100%=10,000 EUPTotal EUP for direct materials50,000 EUPConversion CostsCompleted units40,000 units 100%=40,000 EUPIn process units10,000 units 25%=2,500 EUPTotal EUP for conversion costs42,500 EUPCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Production Cost ReportAssembly DepartmentEUPCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*Step 2: EUP</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Step 3: Compute the CostCost per EUP for Direct MaterialsCost per EUP for Direct Materials =Total direct materials costsEquivalent units of production for direct materials</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall20-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Step 3: Compute the CostCost per EUP for Direct MaterialsCost per EUP for Direct Materials =Total direct materials costsEquivalent units of production for direct materials</p><p>=$140,00050,000 EU...</p></li></ul>

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