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Process Costing

Process Costing. Chapter 4. Objective 1. Distinguish between the flow of costs in process costing and job order costing. Job 92. Job 91. Finished Goods. Job 90. Cost of Goods Sold. Job Order Costing. Materials Inventory. Manufacturing Wages. Work in Process. Manufacturing Overhead.

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Process Costing

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  1. Process Costing Chapter 4

  2. Objective 1 Distinguish between the flow of costs in process costing and job order costing

  3. Job 92 Job 91 FinishedGoods Job 90 Cost of GoodsSold Job Order Costing Materials Inventory Manufacturing Wages Work in Process Manufacturing Overhead

  4. Cost of GoodsSold Process Costing Materials Inventory Work in Process, Mixing Dept Manufacturing Wages Work in Process, Molding Dept FinishedGoods Manufacturing Overhead Work in Process, Packaging Dept

  5. Tracking Costs • Account for the goods completed and transferred out • Account for the cost of incomplete units that remain as a department’s ending work in process inventory

  6. Key Concepts • Conversion costs • Costs incurred to convert raw materials into a finished product • Direct labor plus manufacturing overhead • Equivalent unit of production • Amount of work done during a period in terms of fully complete units of output • Inventory flow assumptions • Weighted average • First-in, first-out

  7. Objective 2 Compute equivalent units

  8. E4-15 Step 1: Summarize the flow of physical units Blending Department Units to account for Units accounted for Beginning WIP Units placed in production Units completed Units in Ending WIP + + 0 8,000 6,000 2,000 + +

  9. Dyes added 30% complete 100% complete Start 6,000 units completed and transferred out 2,000 units startedbut not finished E4-15 • Step 2: Compute output in terms of equivalent units

  10. E4-15 • Equivalent units for direct materials: 8,000 units x 100% complete 8,000 • Equivalent units for conversion costs: 6,000 units x 100% complete 6,000 2,000 units x 30% complete 600 6,600

  11. Objective 3 Use process costing to assign manufacturing costs to units completed and to units in ending work in process inventory in a first department

  12. E4-15 Step 3: Summarize total costs to account for. Beginning work in process inventory $ 0 Costs added during May: Direct materials (dyes) 4,800 Direct labor 800 Manufacturing overhead 1,840 Total costs to account for $7,440

  13. E4-15 Blending Department Step 3: Compute the cost per equivalent unit $4,800 $2,640 ÷ 8,000 ÷ 6,600 $0.60 $0.40

  14. E4-15 Step 4: Assign costs to units completed and to units in ending work in process inventory $6,000 6,000 x ($0.60 + 0.40) $1,200 2,000 x $0.60 600 x 0.40 240 1,440 $7,440

  15. E4-16 Work in process inventory blending department 7,440 Materials inventory 4,800 Manufacturing wages 800 Manufacturing overhead 1,840

  16. E4-16 Work in process inventory packaging department 6,000 Work in process inventory blending department 6,000

  17. E4-16 Work in process inventory - blending 7,440 6,000 Bal. 1,440

  18. E4-16 Average cost per gallon transferred out of blending is: $6,000 ÷ 6,000 gallons = $1.00 per gallon

  19. Objective 4 Use process costing to assign manufacturing costs to units completed and to units in ending work in process inventory in a second department

  20. E4-22 Step 1: Summarize the flow of physical units Bottling Department Units to account for Units accounted for Beginning WIP Units placed in production Units completed Units in Ending WIP + + 8,000 27,000 26,000 9,000 + +

  21. E4-22 Step 1: Summarize the flow of physical units Work in process, bottling department (units) Beg. Bal. 8,000 26,000 Transferred in 27,000 End Bal. 9,000

  22. Materials added 100% complete Start 18,000 units started and completed 9,000 units started but not finished E4-22 • Step 2: Compute output in terms of equivalent units 70% complete 80% complete 8,000 units in process & completed

  23. Equivalent units transferred in: Completed and transferred out 26,000 Ending work in process 9,000 Total units to account for 35,000 E4-22

  24. Equivalent units: Direct materials Completed and transferred out 26,000 Ending work in process 9,000 Total 35,000 E4-22

  25. E4-22 Equivalent units for conversion costs: Completed and transferred out 26,000 Ending WIP -9,000 x 70% 6,300 Total 32,300

  26. E4-22 Step 3: Compute the cost per equivalent unit

  27. E4-22 Step 3: Compute the cost per equivalent unit

  28. E4-14 a. Raw materials inventory 9,000 Accounts payable 9,000 b. Work in process inventory Assembly 4,000 Work in process inventory Finishing 2,000 Raw materials inventory 6,000

  29. E4-14 c. Manufacturing wages 10,800 Wages payable 10,800 d. Manufacturing overhead 10,900 Property tax payable 1,900 Utilities payable 4,500 Prepaid insurance 1,100 Accumulated depreciation 3,400

  30. E4-14 e. Work in process inventory- Assembly 7,600 Manufacturing wages 4,700 Manufacturing overhead 2,900 f. Work in process inventory – Finishing 10,600 Manufacturing wages 4,400 Manufacturing overhead 6,200

  31. E4-14 g. Work in process inventory Finishing 10,250 Work in process inventory Assembly 10,250 h. Finished goods inventory 15,600 Work in process inventory Finishing 15,600

  32. End of Chapter 4

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