Chap004 7e Edited

8/3/2019 Chap004 7e Edited

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Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Chapter 4Chapter 4

Process Costingand Hybrid

Product-Costing Systems

Process Costingand Hybrid

Product-Costing Systems





1-3

Comparison of JobComparison of Job--Order CostingOrder Costing

and Process Costingand Process CostingProcessCosting

ProcessCosting

Job-order Costing

Used for production of small,identical, low cost items.

Mass produced in automatedcontinuous production process.

Costs cannot be directly traced toeach unit of product.



1-4

ProcessCosting

ProcessCosting

Job-order Costing

Typical process cost applications:

Petrochemical refinery

Paint manufacturer

Paper mill


and Process Costingand Process Costing



1-5

Job-order costing

± Costs accumulated by

the job. ± Work in process has a

job-cost sheet for each job.

± Many unique, high cost jobs.

± Jobs built to customer order.

Process costing

± Costs accumulated by

department or process. ± Work in process has a

production report for each batch of products.

± A few identical, low costproducts.

± Units continuouslyproduced for inventoryin automated process.





1-6

Direct Material

FinishedGoods

Cost of GoodsSold

Direct Labor

ManufacturingOverhead

Jobs

The work-in-processaccount consists of individual jobs in a

job-order cost system.

Differences Between JobDifferences Between Job--Order Order




1-7

Direct Material

FinishedGoods

Cost of GoodsSold

Products

The work-in-processaccount consists of

individual products in a

process cost system.

Differences Between JobDifferences Between Job--Order Order


Direct Labor & Overhead

(Conversion)

When direct labor is a relatively small amountcompared to material and overhead, it is often

combined with overhead.




L

earningObjective2

L

earningObjective2



1-9

Process Cost FlowsProcess Cost Flows

Direct material

Direct labor

Applied manufacturing and transferred to during current

overhead finished goods period

Cost of goods completed Cost of goods sold

Work-in-Process Finished Goods

Cost of Goods Sold

One Production Department

Inventory Inventory



1-10

Process Cost FlowsProcess Cost Flows

Direct material

Direct labor

Applied manufacturing transferred to and transferred to

overhead department B finished goods

Direct material

Direct labor

Applied manufacturing

overhead

during current period

Cost of goods sold

Cost of goods completed

in department A and Cost of goods completed

Finished Goods Inventory Cost of Goods Sold

Two Sequential Production DepartmentsWork-in-Process Inventory Work-in-Process Inventory

Production Department A Production Department B




L

earningObjective3

L

earningObjective3



1-12

Equivalent Units: A Key ConceptEquivalent Units: A Key Concept

Costs are accumulated for a period of time for products in work-in-process inventory.

Products in work-in-process inventory at thebeginning and end of the period are onlypartially complete.

Equivalent units is a concept expressing

these partially completed products as asmaller number of fully completed products.

Costs are accumulated for a period of time for products in work-in-process inventory.

Products in work-in-process inventory at thebeginning and end of the period are onlypartially complete.

Equivalent units is a concept expressing

these partially completed products as asmaller number of fully completed products.



1-13

Equivalent Units ExampleEquivalent Units Example

Two one-half completed products areequivalent to one completed product.

So, 10,000 units 70 percent completeare equivalent to 7,000 complete units.

+ = l



1-14

For the current period, Jones started15,000 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

Equivalent Units Question 1Equivalent Units Question 1



1-15

For the current period, Jones started15,000 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 × .30

)= 11,500 equivalent units

Equivalent Units Question 1Equivalent Units Question 1



1-16

Calculating and Using EquivalentCalculating and Using EquivalentUnits of ProductionUnits of Production

To calculate the cost per equivalent unit for the period:

Cost per equivalent

unit

=Costs for the period

Equivalent units for the period



1-17

If Jones incurred $27,600 inproduction costs for the 11,500 equivalent units. What was Jones¶s

cost per equivalent unit for the period?a. $1.84

b. $2.40

c. $2.76

d. $2.90

Equivalent Units Question 2



1-18

If Jones incurred $27,600 inproduction costs for the 11,500 equivalent units. What was Jones¶s

cost per equivalent unit for the period?a. $1.84

b. $2.40

c. $2.76

d. $2.90

Equivalent Units Question 2

$27,600 ÷ 11,500 equivalent units

= $2.40 per equivalent unit



1-19

Calculating and Using EquivalentCalculating and Using EquivalentUnits of ProductionUnits of Production

To calculate the direct materials and conversioncosts per equivalent unit for the period:

Materialscost per

equivalentunit

=Materials cost for the period

Materials equivalent units for

the period

Materialscost per

equivalentunit

=Materials cost for the period

Materials equivalent units for

the period



1-20

Departmental Production ReportDepartmental Production Report

ProductionReport

Analysis of physical flow

of units.

Calculationof equivalent

units.

Computationof unit costs.

Analysis of total costs.



1-21

Equivalent Units of ProductionEquivalent Units of Production ± ±WeightedWeighted--Average Method Average Method

The weighted-average method . . .

± Makes no distinction between work done in the

prior period and work done in the current period. ± Blends together units and costs from the prior period and the current period.

The FIFO method is a morecomplex method and israrely used in practice.



1-22

MVP Sports Equipment Company makes baseball glovesin two departments, Cutting and Stitching.

MVP uses the weighted-average cost procedure.

Material is added at the beginning of the CuttingDepartment, and conversion is incurred uniformlythroughout the process.

Using the following information for the month of March,let¶s prepare a production report for the CuttingDepartment.

Production Report ExampleProduction Report Example



1-23

Work in process, March 1: 20,000 units CostMaterials: 100% complete. $ 50,000

Conversion: 10% complete. 7,200

Units started into production in March: 30,000 units

Units completed and transferred out in March: 40,000 units

Work in process, March 31: 10,000 units

Materials 100% complete.

Conversion 50% complete.

Costs incurred during March

Materials cost 90,000Conversion costs:

Direct labor $ 86,000

Applied manufacturing overhead 107,500

Total conversion costs 193,500

Total costs to account for $ 340,700




1-24

Analysis of Physical Flow of Units

Physical

UnitsWork in process, March 1 20,000

Units started during March 30,000

Total units to account for 50,000

Units completed and transferred out during March 40,000

Work in process, March 31 10,000

Total units accounted for 50,000




1-25

Conversion Equivalent Units

Physical Percentage Direct

Units Complete Material Conversion

Work in process, March 1 20,000 10%



Units completed and transferred 40,000 100% 40,000 40,000 Work in process, March 31 10,000 50% 10,000 5,000


Total equivalent units 50,000 45,000


Calculation of Equivalent Units

50% of 10,000 units

Beginning inventory % is not used in weighted-average method.



1-26

Conversion Equivalent Units

Physical Percentage Direct

Units Complete Material Conversion




Units completed and transferred 40,000 100% 40,000 40,000 Work in process, March 31 10,000 50% 10,000 5,000





100% of 10,000 units, allmaterial added at beginning




LearningObjective

4

LearningObjective

4



1-28

Direct

Material Conversion Total

Work in Process, March 1 50,000$ 7,200$ 57,200$

Costs incurred during March 90,000 193,500 283,500

Total costs to account for 140,000$ 200,700$ 340,700$

Equivalent units 50,000 45,000

Cost per equivalent unit 2.80$ 4.46$ 7.26$

Computation of unit costs




$2.80 + $4.46




LearningObjective

5

LearningObjective

5



1-30


Analysis of total costs

Cost of goods completed and transferred during March

40,000 units x $7.26 per equivalent unit 290,400$

Costs remaining in work-in-process on March 31

Direct Material:

10,000 equivalent units x $2.80 per equivalent unit 28,000$

Convserion:

5,000 equivalent units x $4.46 per equivalent unit 22,300

Total cost of March 31 work-in-process 50,300

Total costs accounted for 340,700$



1-31






Direct Material:


Convserion:






1-32






Direct Material:


Convserion:




All costsaccounted for




LearningObjective

6

LearningObjective

6



1-34

Percentage of

Completion Equivalent Units

Physical with Respect to Direct

Units Conversion Material Conversion




Units completed and transferred 40,000 100% 40,000 40,000

Work in process, March 31 10,000 50% 10,000 5,000



Direct

Material Conversion Total

Work in Process, March 1 50,000$ 7,200$ 57,200$Costs incurred during March 90,000 193,500 283,500

Total costs to account for 140,000$ 200,700$ 340,700$

Equivalent units 50,000 45,000

Cost per equivalent unit 2.80$ 4.46$ 7.26$




Direct Material:


Conversion:




MVP SPORTS EQUIPMENT COMPANY

Production Report: Cutting Department



1-35

Manufacturingoverhead is

appliedto Work-in-Process Inventory

using apredetermined

overhead rate

Actual costs of manufacturing overheadare entered in Work-in-

Process Inventory

Actual Costing vs. Normal Costing



1-36

Departmental Production ReportDepartmental Production Report

Analysis of physical flow

of units. Calculationof equivalent

units.

Computationof unit costs.

Analysis of total costs.




LearningObjective

7

LearningObjective

7



1-38

Operation CostingOperation Costing

Operation costing employs some aspectsof both job-order and process costing.

Job-order Operation CostingOperation Costing ProcessCosting (Products produced in batches)(Products produced in batches) Costing



1-39

Operation CostingOperation Costing

Operation costing employs some aspectsof both job-order and process costing.

Job-order Operation CostingOperation Costing ProcessCosting (Products produced in batches)(Products produced in batches) Costing

Conversion costsassigned to batches

as in process costing.

Material Costs chargedto batches as in

job-order costing.




Learning

Objective8

(appendix)

Learning

Objective8

(appendix)



1-41

Sequential Production DepartmentsSequential Production Departments

Direct material Cost of goods Transferred-

completed and in costs

Conversion: transferred out

Direct labor Direct materialManufacturing

overhead Conversion:

Direct labor

Manufacturing

overhead

Work-in-Process Inventory:

Cutting Department

Work-in-Process Inventory:

Stitching Department



1-42

Work in process, March 1: 10,000 units Cost

Transferred in: 100% complete. $ 61,000Materials: none -0-

Conversion: 20% complete. 7,600

Units transferred in during March: 40,000 units

Units completed and transferred out in March: 30,000 units

Work in process, March 31: 20,000 unitsTransferred in: 100% complete.

Materials: noneConversion: 90% complete.

Costs incurred during MarchTransferred in 290,400

Materials cost 7,500Conversion costs:

Direct labor $115,000

Applied manufacturing overhead 115,000

Total conversion costs 230,000

Total costs to account for $ 596,500

Exh.

4-4




1-43

Analysis of Physical Flow of Units


Physical

Units

Work in process, March 1 10,000

Units transferred in during March 40,000 Total units to account for 50,000

Units completed and transferred out during March 30,000

Work in process, March 31 20,000 Total units accounted for 50,000



1-44



Conversion

Physical Percentage Transferred Direct

Units Completion In Material Conversion


Units transferred in during March 40,000


Units completed and transferred out during March 30,000 30,000 30,000 30,000

Work in process, March 31 20,000 90% 20,000 -0- 18,000 Total units accounted for 50,000

Total equivalent units 50,000 30,000 48,000

90% of 20,000 units



1-45

Transferred Direct

In Material Conversion Total

Work in Process, March 1 61,000$ -0- 7,600$ 68,600$

Costs incurred during March 290,400 7,500$ 230,000 527,900 Total costs to account for 351,400$ 7,500$ 237,600$ 596,500$

Equivalent units 50,000 30,000 48,000

Cost per equivalent unit 7.028$ 0.25$ 4.95$ 12.228$

$351,400 $7,500 $237,600 7.028$

50,000 30,000 48,000 + $.25

+ $4.95


Computation of unit costs



1-46

Cost of goods completed and transferred out of Stitching Dept. during March


Costs remaining in work-in

-process in Stitching

Dept. on March

31

Direct Material:


Convserion:






All costsaccounted for



I¶m ready to processsome leisure time.

End of Chapter 4End of Chapter 4

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Chap004 7e Edited