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Process Cost System

Process Cost System . Chapter M2. Process Cost. Used by business that produce large amounts of the same product Work in process accounts exist for each process or department

raphael-hardy
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Process Cost System

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  1. Process Cost System Chapter M2

  2. Process Cost • Used by business that produce large amounts of the same product • Work in process accounts exist for each process or department • Costs are transferred from work in process account to the next work in process as products are processed from one department to another

  3. First –In, First Out Method • Assume that the product moves in order throughout the production process • Determine units to be assigned costs • Units in beginning work in process • Units started and completed during period • Units in ending work in process

  4. FIFO Method • Calculate Equivalent Units of Production • Process manufacturers often have some partially processed materials remaining at the end of the period • EUP • Number of units that could have been completed within a given accounting period

  5. Example 1 • A company processes their production in two departments. Beg inventory was 500 units 70% completed, 1,100 units transferred out to the next department and ending inventory of 400 units 25% completed

  6. Example 1

  7. Example 2

  8. Example 3 • A company process their production in two departments. The beginning inventory was 4,000 units 50% completed, transferred into the department 5,000 units and an ending inventory of 2,000 units 40% completed.

  9. Example 3

  10. Determine cost per equivalent unit • Material cost = based on actual units transferred into the department • Conversion costs • Direct labor + Factory overhead • Based on EUP

  11. Example 4 • Using the information in Example 1 • Calculate the costs for the period • Materials transferred in $50,000 • Direct labor $6,690 • Factory overhead $3,000 • Beg WIP $28150

  12. Example 4 • Direct materials per actual unit • $50,000/1000 = $50 per unit • 1000 units = S&C + End Inv • Conversion costs = DL + FO • Conversion costs = 6690 + 3000 = 9690 • CC per EUP = 9690/850 = $11.40

  13. Example 4

  14. Example 5 • Example 2 • Materials transferred in $30,600 • Direct labor 19800 • Factory overhead 9240 • Beg WIP $35,000

  15. Example 5

  16. Example 6

  17. Questions • What is the total cost of units completed this period? • How many actual units are in ending inventory this period? • How many actual units are in next month’s beginning inventory?

  18. Questions • What is conversion costs per unit? • What is the amount of work done on this month’s beginning inventory? • What is the amount of work to be done next month on beginning inventory?

  19. Homework • Ex 2-6, ex2-7, ex 2-8, ex2-9

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