Cost Management ACCOUNTING AND CONTROL

Cost ManagementACCOUNTING AND CONTROL HANSEN & MOWEN

6 CHAPTER Product and Service Costing: A Process Systems Approach

1 OBJECTIVE Tableting Bottling Process-Costing Systems: Basic Operational and Cost Concepts An Operational Process System Mixing Selecting Sifting Measuring Blending Loading Pressing Costing Loading Counting Capping Packaging

1 OBJECTIVE Job 205 Job 206 Job 207 Finished Goods Finished Goods Finished Goods Process-Costing Systems: Basic Operational and Cost Concepts Job-Order Costing Manufacturing Costs Direct Materials Direct Labor Applied Overhead

1 OBJECTIVE Picking Tableting Bottling Finished Goods Process-Costing Systems: Basic Operational and Cost Concepts Process Costing Manufacturing Costs Direct Materials Direct Labor Applied Overhead

1 OBJECTIVE Process-Costing Systems: Basic Operational and Cost Concepts Operational Model of an Accounting Information System

1 OBJECTIVE Process-Costing Systems: Basic Operational and Cost Concepts Basic Features of a Process Costing System

2 OBJECTIVE Process Costing with No Work-in-Process Inventories Services that are homogeneous and repetitively produced can use the process-costing approach. Examples: check processing in a bank, changing oil, dental cleaning, surgical procedures

2 OBJECTIVE Process Costing with No Work-in-Process Inventories JIT manufacturing firms minimize inventories and strive to reduce work-in-process inventories to insignificant levels.

3 OBJECTIVE Process Costing with Ending Work-in-Process Inventories PSA Department Production Report for January

3 OBJECTIVE Unit Information Units to be accounted for: Units in beginning work in process 0 Units started and completed 24,000 Units to be accounted for 24,000 Physical Flow Equivalent Units Units accounted for: Units 20,000 20,000 20,000 Units in ending work in process (25% complete) 4,000 1,000 Units accounted for 24,000 Work completed 21,000 Process Costing with Ending Work-in-Process Inventories • Analysis of the flow of physical units • Calculation of equivalent units • Computation of unit cost • Valuation of inventories (goods transferred out and ending work in process) • Cost reconciliation Cost of Production Report

3 OBJECTIVE Process Costing with Ending Work-in-Process Inventories Nonuniform Application of Productive Inputs

4 OBJECTIVE FIFO Costing Method Under the FIFO costing method, the equivalent units and manufacturing costs in beginning work in process are excluded from the current-period unit cost calculation. Thus, FIFO recognizes that the work and costs carried over from the prior period legitimately belong to that period.

4 OBJECTIVE FIFO Costing Method Estrella Company Mixing Department Product and Cost Data: October

4 OBJECTIVE FIFO Costing Method Step 1: Physical Flow Analysis Physical Flow Schedule: Mixing Department

4 OBJECTIVE FIFO Costing Method Step 2: Calculation of Equivalent Units Equivalent Units of Production: FIFO Method

4 OBJECTIVE FIFO Costing Method Step 3: Computation of Unit Cost

4 OBJECTIVE FIFO Costing Method Step 4: Valuation of Inventories

4 OBJECTIVE FIFO Costing Method Step 5: Cost Reconciliation

4 OBJECTIVE FIFO Costing Method Production Report: Mixing Department

4 OBJECTIVE FIFO Costing Method

5 OBJECTIVE Weighted Average Costing Method Step 1: Physical Flow Analysis Physical Flow Schedule: Mixing Department

5 OBJECTIVE Weighted Average Costing Method Step 2: Calculation of Equivalent Units Equivalent Units of Production: Weighted Average Method

5 OBJECTIVE Weighted Average Costing Method Step 3: Computation of Unit Cost

5 OBJECTIVE Weighted Average Costing Method Step 4: Valuation of Inventories

5 OBJECTIVE Weighted Average Costing Method Step 5: Cost Reconciliation

5 OBJECTIVE Weighted Average Costing Method Production Report: Mixing Department

5 OBJECTIVE Weighted Average Costing Method

5 OBJECTIVE Weighted Average Costing Method FIFO Compared with Weighted Average

6 OBJECTIVE Treatment of Transferred-In Goods Estrella Company Tableting Department Production and Cost Data: October

6 OBJECTIVE Treatment of Transferred-In Goods Step 1: Physical Flow Analysis

6 OBJECTIVE Treatment of Transferred-In Goods Step 2: Calculation of Equivalent Units Equivalent Units of Production: Weighted Average Method

6 OBJECTIVE Treatment of Transferred-In Goods Step 3: Computation of Unit Cost

6 OBJECTIVE Treatment of Transferred-In Goods Step 4: Valuation of Inventories

6 OBJECTIVE Treatment of Transferred-In Goods Production Report: Tableting Department

6 OBJECTIVE Treatment of Transferred-In Goods

7 OBJECTIVE Process 1 (a) Batch B (b) Batch B (c) Process 2 Batch A (f) (d) Batch B Operation Costing Basic Features of Operating Costing Direct Materials Continued on the next slide Panel A: Physical Flow

7 OBJECTIVE (g) Batch A Process 3 (h) (i) Batch A (j) (e) Finished Goods Operation Costing Process 1 (b) Batch B (c) Process 2 (d) Batch B

7 OBJECTIVE Operation Costing

7 OBJECTIVE Operation Costing Operation Costing Example

7 OBJECTIVE Operation Costing Operation Costing Example The following costs are collected from work orders:

7 OBJECTIVE Operation Costing Operation Costing Example 1. Work in Process—Picking 4,000 Materials 4,000 2. Work in Process—Picking 1,000 Conversion Costs Applied 1,000 3. Work in Process—Encapsulating 5,000 Work in Process—Picking 5,000 4. Work in Process—Encapsulating 3,000 Conversion Costs Applied 3,000 Continued

7 OBJECTIVE Operation Costing Operation Costing Example 5. Work in Process—Bottling 8,000 Work in Process—Encapsulating 8,000 6. Work in Process—Bottling 1,500 Conversion Costs Applied 1,500 7. Finished Goods 9,500 Work in Process—Bottling 9,500 The journal entries for the other work order are not shown but would follow a similar pattern.

8 OBJECTIVE Appendix: Spoiled Units

Cost Management ACCOUNTING AND CONTROL