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Chapter 16. Process Costing and Analysis. Conceptual Learning Objectives. C1: Explain process operations and the way they differ from job order operations. C2: Define equivalent units and explain their use in process cost accounting.
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Chapter 16 Process Costing and Analysis
Conceptual Learning Objectives C1: Explain process operations and the way they differ from job order operations. C2: Define equivalent units and explain their use in process cost accounting. C3: Explain the four steps in accounting for production activity in a period. C4: Define a process cost summary and describe its purposes. C5: Appendix 16A: Explain and illustrate the four steps in accounting for production activity using FIFO. NOT COVERED
Analytical Learning Objectives A1: Compare process cost accounting and job order cost accounting. A2: Explain and illustrate a hybrid costing system.
Procedural Learning Objectives P1:Record the flow of direct materials costs in process cost accounting. P2: Record the flow of direct labor costs in process cost accounting. P3: Record the flow of factory overhead costs in process cost accounting. P4: Compute equivalent units produced in a period. P5: Prepare a process cost summary. P6: Record the transfer of completed goods to Finished Goods Inventory and Cost of Goods Sold.
Process Manufacturing Operations C1 • 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. • Examples: Crude Oil; Chemicals • Profen: Pain Reliever by GenX Co
FinishedGoods DeliveredtoCustomers Process Manufacturing Operations GenX C3 Direct Materials Indirect Goods in Process FactoryOverhead AllocatedOverhead Indirect Direct Labor
Process Manufacturing Operations C1 PROCESS OPERATIONS: CHEMICALS EXHIBIT 16.1: PAGE 675 -PREPARING the chemicals;-MIXING the chemicals;-BOTTLING the chemical mix;-Packaging the bottles.
Process Manufacturing Operations C1 PRODUCTION FLOOR : PROFEN EXHIBIT 16.3: PAGE 676 Profen is produced by: -Mixing its active ingredient, Profelene, with flavorings and preservatives, -Molding it into tablets, and -Packaging the tablets.
Process Manufacturing Operations C1 Process Operations & Costs: GenX EXHIBIT 16.4: PAGE 676: FLOWCHART How GenX uses Process Cost Accounting to compute product costs: COST FLOWS 1 thru 10 EXHIBIT 16.21: PAGE 688: Cost Flow thru GenXSummary of Cost Flows: COST FLOWS 1 thru 10
FinishedGoods DeliveredtoCustomers Process Manufacturing Operations GenX C3 Direct Materials Indirect Goods in Process FactoryOverhead AllocatedOverhead Indirect Direct Labor
Job Order Systems Custom orders Heterogeneous products Low production volume High product flexibility Low to medium standardization Example: Aircraft Process Systems Repetitive operations Homogeneous products High production volume Low product flexibility High standardization Exhibit 16.1 (Page 675): Chemicals Processing Comparing Job Order and Process Production A1
Sameobjective:to determine the cost of products Sameinventory accounts:raw materials, work in process, and finished goods Sameoverhead assignment method:predetermined rate times actual activity Job and Process Costing Similarities A1
The difference between job order and process costing lies in how the cost of goods transferred to finished goods is determined. Journal entries for both job order and process costing are identical Job and Process Costing Similarities and Differences A1
Job Order and Process Costing Differences A1 Process costing The cost of goods transferred to finished goods equals the number of completed units times the cost per equivalent unit Job order costing The cost of goods transferred to finished goods is equal to the sum of all of the completed jobs for that period
+ = Equivalent Units of Production C2 Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units. Twoone-half full pitchers are equivalent to one full pitcher.
Cost perequivalent unit Product costs for the periodEquivalent units for the period = Cost Per Equivalent Unit C2
Equivalent Units C2 40% ofMaterial 60% ofMaterial Stage 1 Stage 2 Stage 3 25% ofLabor andOverhead 25% ofLabor andOverhead 50% ofLabor andOverhead The process is now complete.
FinishedGoods DeliveredtoCustomers Process Manufacturing Operations GenX C3 Direct Materials Indirect Goods in Process FactoryOverhead AllocatedOverhead Indirect Direct Labor
Accounting for GenX C5 GenX uses a weighted average cost flow system with the following four steps: • Determine physical flow of units. • Compute equivalent units of production. • Compute cost per equivalent unit. • Assign and reconcile costs.
Compute Equivalent Units of Production – Direct Labor and Factory Overhead C5
In the cost reconciliation, we willaccount for all costs incurredby assigning unit costs to the: • A. 100,000 units transferred out. • B. 20,000 units remaining in ending inventory. Cost Reconciliation C5
Shows the flowof units and coststhrough work inprocess. Provides costinformation forfinancial statements. ProcessCostSummary Helps factorymanagers evaluatedepartment managerperformance. Helps managerscontrol theirdepartments. Process Cost Summary C4
Hybrid Costing Systems A2 Hybrid costing systems contain featuresof both job order and process operations. Job OrderCosting Hybrid Costing ProcessCosting Materialcosts areaccounted for usinga job order system. Conversioncosts areaccounted for usinga process system.
FinishedGoods DeliveredtoCustomers Process Manufacturing Operations GenX C3 Direct Materials Indirect Goods in Process FactoryOverhead AllocatedOverhead Indirect Direct Labor
FinishedGoods DeliveredtoCustomers Process Manufacturing Operations GenX C3 Direct Materials Indirect Goods in Process FactoryOverhead AllocatedOverhead Indirect Direct Labor
