principles of cost accounting 15 th edition edward j. vanderbeck © 2011 cengage learning. all...
TRANSCRIPT
Principles of Cost AccountingPrinciples of Cost Accounting1515thth edition edition
Edward J. VanDerbeckEdward J. VanDerbeck© 2011 Cengage Learning. All Rights Reserved. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in whole or in part, except for use as permitted in a license distributed with a certain product or a license distributed with a certain product or service or otherwise on a password-protected service or otherwise on a password-protected website for classroom use.website for classroom use.
11
Chapter 5Chapter 5
Process Cost Accounting Process Cost Accounting
General ProceduresGeneral Procedures
22
Learning ObjectivesLearning Objectives
LO1LO1 Recognize the differences Recognize the differences between job between job order and process cost order and process cost accounting accounting systems.systems.
LO2LO2 Compute unit costs in a process Compute unit costs in a process cost cost system.system.
LO3LO3 Assign costs to inventories, Assign costs to inventories, using using equivalent units of equivalent units of production with the production with the average cost average cost method.method.
33
Learning Objectives (cont.)Learning Objectives (cont.)
LO4LO4 Prepare a cost of production Prepare a cost of production summary summary and journal entries for and journal entries for one department one department with no beginning with no beginning inventory.inventory.
LO5LO5 Prepare a cost of production Prepare a cost of production summary summary and journal entries for and journal entries for one department one department with beginning with beginning inventory.inventory.
44
Learning Objectives (cont.)Learning Objectives (cont.)
LO6LO6 Prepare a cost of production Prepare a cost of production summary summary and journal entries for and journal entries for multiple multiple departments with no departments with no beginning beginning inventory.inventory.
LO7LO7 Prepare a cost of production Prepare a cost of production summary summary and journal entries for and journal entries for multiple multiple departments with beginning departments with beginning inventory.inventory.
55
Learning Objectives (cont.)Learning Objectives (cont.)
LO8LO8 Prepare a cost of production Prepare a cost of production summary summary with a change in the with a change in the prior prior department’s unit transfer department’s unit transfer cost.cost.
66
Comparison of Basic Cost Comparison of Basic Cost SystemsSystems
Job order cost systemJob order cost system is is appropriate when differentiated appropriate when differentiated products or services are provided products or services are provided on a special order basis.on a special order basis.
Process cost systemProcess cost system is used is used when goods or services of a when goods or services of a similar nature are provided.similar nature are provided.
77
Materials and Labor CostsMaterials and Labor Costs
The focus of a process system is the The focus of a process system is the factory factory cost centercost center..
In a In a processprocess cost system, the costs of cost system, the costs of materials and labor are charged directly to materials and labor are charged directly to the the departmentdepartment where they are incurred. where they are incurred.
Indirect materials that cannot be directly Indirect materials that cannot be directly associated with a particular department associated with a particular department are charged to factory overhead.are charged to factory overhead.
88
Factory Overhead CostsFactory Overhead Costs
Overhead costs are accumulated from the Overhead costs are accumulated from the various journals in the same manner as in a various journals in the same manner as in a job order cost system.job order cost system.
The applicable factory overhead from a The applicable factory overhead from a service department is distributed to the service department is distributed to the production departments.production departments.
The use of predetermined rates is common The use of predetermined rates is common in a process cost system, but overhead is in a process cost system, but overhead is applied to departments rather than to jobs.applied to departments rather than to jobs.
99
Product CostsProduct Costsin a Process Cost Systemin a Process Cost System
The total cost of each item produced is the The total cost of each item produced is the combined unit costs from the individual combined unit costs from the individual departments.departments.
Costs are recorded by department according Costs are recorded by department according to the following procedures:to the following procedures: Service department costs are allocated to the Service department costs are allocated to the
production departments.production departments. Costs from prior departments are carried over to Costs from prior departments are carried over to
successive departments.successive departments. Costs of materials and labor directly identifiable Costs of materials and labor directly identifiable
with a department, as well as applied overhead, with a department, as well as applied overhead, are charged to that department.are charged to that department.
1010
Work in Process InventoriesWork in Process Inventories
The primary problem in inventory costing The primary problem in inventory costing is the allocation of total costs between is the allocation of total costs between units finished during the period and units units finished during the period and units still in process at the end of the period.still in process at the end of the period.
The calculation of the degree of The calculation of the degree of completion of unfinished work in process completion of unfinished work in process presents one of the most important and presents one of the most important and difficult challenges in process costing.difficult challenges in process costing.
1111
Work in Process Inventories - Work in Process Inventories - Stages of CompletionStages of Completion
1.1. Units started in a prior period and Units started in a prior period and completed during the current completed during the current period.period.
2.2. Units started and finished during Units started and finished during the current period.the current period.
3.3. Units started during the current Units started during the current period but not finished by the end period but not finished by the end of the period.of the period.
1212
Allocating Total CostAllocating Total Cost
Total cost must be allocated between:Total cost must be allocated between: Units finished during the periodUnits finished during the period Units still in process at the end of the Units still in process at the end of the
periodperiod Procedures for assigning costs to Procedures for assigning costs to
inventories:inventories: Average cost methodAverage cost method First-in, first-out (FIFO) methodFirst-in, first-out (FIFO) method
1313
Information Needed for Information Needed for Inventory ValuationInventory Valuation
Accumulate costs for which the Accumulate costs for which the department is accountable.department is accountable.
Calculate the equivalent production Calculate the equivalent production for the period.for the period.
Compute the unit cost for the period.Compute the unit cost for the period. Summarize the disposition of the Summarize the disposition of the
production costs.production costs.
1414
Production ReportProduction Report
At the end of the period, the At the end of the period, the department manager submits a department manager submits a report showing the following:report showing the following:
1.1. Number of units in the beginning work in Number of units in the beginning work in process.process.
2.2. Number of units completed.Number of units completed.
3.3. Number of units in the work in process Number of units in the work in process and their estimated stage of completion.and their estimated stage of completion.
1515
Cost of Production SummaryCost of Production SummaryOne DepartmentOne Department
The reporting of production and The reporting of production and related costs in each department related costs in each department involves the following:involves the following:
1.1. Accumulating costs for which the Accumulating costs for which the department is accountable.department is accountable.
2.2. Calculating equivalent production for the Calculating equivalent production for the period.period.
3.3. Computing the unit cost for the period.Computing the unit cost for the period.4.4. Summarizing the disposition of the Summarizing the disposition of the
production costs.production costs.
1616
Journal Entries for One DepartmentJournal Entries for One Department
Recording Factory OperationsRecording Factory Operations
Work in Process xx Materials xx
Work in Process xx Payroll xx
Work in Process xx Factory Overhead xx
Factory Overhead xx Various Accounts xx
Recording Cost of Goods CompletedRecording Cost of Goods Completed
Finished Goods xx Work in Process xx
1717
Cost of Production SummaryCost of Production SummaryMultiple DepartmentsMultiple Departments
When there is more than one department, it When there is more than one department, it is necessary to keep separate control is necessary to keep separate control accounts in the general ledger for recording accounts in the general ledger for recording the costs of operating each department.the costs of operating each department.
A cost of production summary must be A cost of production summary must be prepared for each department along with prepared for each department along with separate journal entries to record the separate journal entries to record the operations of each department and the operations of each department and the transfer of costs.transfer of costs.
1818
Cost of Production SummaryCost of Production SummaryMultiple Departments (cont.)Multiple Departments (cont.)
Costs accumulated in each department Costs accumulated in each department are transferred to the next department are transferred to the next department in the production cycle.in the production cycle.
The transferred units and their related The transferred units and their related costs are treated as completed units in costs are treated as completed units in the one department and as raw the one department and as raw materials in the next department.materials in the next department.
1919
Cost of Production SummaryCost of Production SummaryMultiple Departments (cont.)Multiple Departments (cont.)
The transferred-in costs and units from the The transferred-in costs and units from the prior department are not included in the prior department are not included in the calculation of unit cost and equivalent units calculation of unit cost and equivalent units on the next department’s cost of production on the next department’s cost of production summary.summary.
If there is still another department, the first If there is still another department, the first department’s costs must be considered in department’s costs must be considered in transferring cost to the next department.transferring cost to the next department.
The first department’s costs are also The first department’s costs are also considered in the costing of the ending work considered in the costing of the ending work in process inventory in the second in process inventory in the second department.department.
2020
Journal Entries for Multiple Journal Entries for Multiple DepartmentsDepartments
Record Direct MaterialsRecord Direct Materials Work in Process – Blanking xx Work in Process – Forming xx Work in Process – Finishing xx Factory Overhead xx
Materials xx
Record Direct LaborRecord Direct Labor Work in Process – Blanking xx Work in Process – Forming xx Work in Process – Finishing xx Factory Overhead xx
Payroll xx
2121
Journal Entries for Multiple Journal Entries for Multiple Departments (cont.)Departments (cont.)
Record Factory Overhead Work in Process – Blanking xx Work in Process – Forming xx Work in Process – Finishing xx
Factory Overhead - Blanking xx Factory Overhead – Forming xx Factory Overhead – Finishing xx
Factory Overhead xx Various Accounts xx
Factory Overhead – Blanking xx Factory Overhead – Forming xx Factory Overhead – Finishing xx
Factory Overhead xx
2222
Journal Entries for Multiple Journal Entries for Multiple Departments (cont.)Departments (cont.)
Transfers to Various DepartmentsTransfers to Various Departments Work in Process – Forming xx
Work in Process – Blanking xx Work in Process – Finishing xx
Work in Process – Forming xx Finished Goods xx
Work in Process – Finishing xx
BLANKING BLANKING FORMING FORMING FINISHING FINISHING
Department Department Department Department DepartmentDepartment
2323
Finished Goods Not Finished Goods Not TransferredTransferred
Finished goods in a department may not Finished goods in a department may not be transferred until the following period.be transferred until the following period.
These units should be treated as These units should be treated as completed and priced out at the full unit completed and priced out at the full unit price.price.
Their costs should be left in the work in Their costs should be left in the work in process account for financial statement process account for financial statement purposes.purposes.
2424
Change in Prior Department’s Change in Prior Department’s Unit Transfer CostsUnit Transfer Costs
A prior department’s transfers from A prior department’s transfers from two different periods will often have two different periods will often have different unit costs each month.different unit costs each month.
The previous department costs must The previous department costs must be averaged as a separate grouping be averaged as a separate grouping so that these transferred-in costs can so that these transferred-in costs can be properly allocated to the products be properly allocated to the products being produced in the department.being produced in the department.
2525