Process Costing Chapter 04

1. Process Costing Chapter 04 Introduction to Managerial Accounting Brewer, Garrison,Noreen Power Points from website - adapted by Cynthia Fortin, CPA, CMA http://highered.mheducation.com/sites/0078025419/student_view0/chapter4/powerpoint_presentations.html

2. Similarities Between Job-Order and Process Costing Material, labor, and overhead costs assigned to products to compute unit product costs. Same manufacturing accounts. Same flow of costs

3. Quick Check  Process costing is used for products that are: a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors.

4. Quick Check  Process costing is used for products that are: a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors.

5. Differences

6. FinishedGoods Work inProcess Cost of GoodsSold Job-Order Costing Direct Materials Direct Labor Manufacturing Overhead

7. Comparing Job-Order Costs are traced andapplied to individualjobs in a job-ordercost system. Direct Materials FinishedGoods Jobs Direct Labor Manufacturing Overhead Cost of GoodsSold

8. Process Costing Costs are traced and applied to departments in a process cost system. Direct Materials Processing Department FinishedGoods Direct Labor Manufacturing Overhead Cost of GoodsSold

9. Sequential processing departments

10. T-Account Views of Process Cost Flows Megan's Classic Cream Soda, a company that has two processing departments—Formulating and Bottling. Formulating Department ingredients are checked for quality (Raw material: water, sugar, carbon dioxide and flavours) mixed and injected with carbon dioxide to create bulk cream soda. Bottling Department (Raw material: bottles, caps and packing) bottles are checked for defects, filled with cream soda, capped, visually inspected again for defects, packed for shipping.

11. Direct Materials • DirectMaterials • Direct Materials Process Cost Flows: The Flow of Raw Materials Work in Process Formulating Raw Materials Work in Process Bottling To record materials used in each department

12. Direct Labor • Direct Labor • Direct Labor Process Cost Flows: The Flow of Labor Costs Salaries and Wages Payable Work in Process Formulating • Direct Materials Work in Process Bottling • Direct Materials To record labor costs in each department

13. Process Cost Flows: The Flow of Manufacturing Overhead Costs Work in Process Formulating • Direct Materials Manufacturing Overhead • Direct Labor • Actual Overhead • OverheadApplied to Work inProcess • AppliedOverhead Work in Process Bottling • Direct Materials • Direct Labor • AppliedOverhead To record applied mfg overhead in each department

14. Transferred to Bottling • Transferred from Formulating Process Cost Flows: Transfers from WIP-Formulating to WIP Bottling Work in Process Bottling Work in ProcessFormulating • Direct Materials • Direct Materials • Direct Labor • Direct Labor • AppliedOverhead • AppliedOverhead

15. Cost of GoodsManufactured Process Cost Flows: Transfers from WIP Bottling to Finished Goods Work in Process Bottling Finished Goods • Direct Materials • Cost of Goods Manufactured • Direct Labor • AppliedOverhead • Transferred from Formulating

16. Process Cost Flows: Transfers from Finished Goods to COGS Work in Process Bottling Finished Goods • Direct Materials • Cost of Goods Manufactured • Cost of GoodsManufactured • Cost of GoodsSold • Direct Labor • AppliedOverhead • Transferred from Formulating Cost of Goods Sold • Cost of GoodsSold

17. Equivalent units After materials, labor, and overhead costs have been accumulated in a department, the department's output must be determined so that unit product costs can be computed. W.I.P. has partially completed units which will be translated into an equivalent number of completed units.

18. + = 1 Equivalent Units – The Basic Idea Two half-completed products are equivalent to one complete product. So, 10,000 units 70% completeare equivalent to 7,000 complete units.

19. Quick Check  For the current period, Jones 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 Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000

20. Quick Check  For the current period, Jones 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 Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 10,000 units + (5,000 units × 0.30) = 11,500 equivalent units

21. Equivalent Units of Production The weighted-average method . . . Makes no distinction between work done in prior or current periods. Blends together units and costs from prior and current periods. Equivalent units = Units transferred out + equivalent units in ending Work in Process Inventory.

22. Cost of beginningWork in ProcessInventory Cost perequivalent unit + Cost added during the period = Equivalent units of production Compute and Apply Costs The formula for computing the cost per equivalent unit is:

23. Treatment of Direct Labor DirectMaterials Direct labor costsmay be smallin comparison toother product costs in processcost systems. ManufacturingOverhead Dollar Amount DirectLabor Type of Product Cost

24. Treatment of Direct Labor DirectMaterials Direct labor and manufacturing overhead may be combined into one classification of product cost called conversion costs. Conversion DirectLabor DirectLabor Dollar Amount ManufacturingOverhead Type of Product Cost

25. Double Diamond SkisProduction Process

26. Shaping and Milling Dept.Data for May operations

27. Skis process.docx