TF2
WHEN IS A YARD NOT A YARD?
► Bradley Textile Mills started working on 500,000 yards of jersey fabric
► The month-end report showed only 450,000 yards in process
► So how do you reconcile the 50,000 yard difference when you know there was no spoilage?
TF2
HOW DO THEY DIFFER?
Custom Cabinetmaker Textile Mill
• Each job is unique• Product costs are easy
to trace to a specific job/product
• Fabric is mass-produced• Impossible to trace
product costs to a specific yard of fabric
How do you determine the cost of a product in a mass-production environment?
TF2
COSTING SYSTEM COMPARISON
Process CostingJob Order Costing
Similarities
Objective To accumulate and assign manufacturing costs to products
To accumulate and assign manufacturing costs to products
Product costs Direct material, direct labor, manufacturing overhead
Direct material, direct labor, manufacturing overhead
Cost flows From RM to WIP to FG to COGS
From RM to WIP to FG to COGS
Differences
Production schedule Identical products produced over a long period, often in a continuous production process
Many different products produced, each with different materials, labor, and/or overhead requirements
Cost accumulation By production department
By job
Key document Department production report
Job cost sheet
TF2
THINK ABOUT IT…
When are direct materials added in this process?
What are conversion costs
and when are they incurred?
Which of these departments could have ending WIP?
How is the product in Mixing WIP ending inventory different from the product being transferred from mixing to baking?
TF2
PROCESS COSTING ISSUES
► Materials costs versus conversion costs• Timing differences lead to costing differences
► Equivalent units• Often not the same as the number of physical units• May be different for direct materials and for
conversion• 10 cookies that are 60% complete = 6 equivalent
units (10 × 60%)
TF2
EQUIVALENT UNITS
Two units that are 50% complete have required the same inputs and effort as one unit that is 100% complete. So
these two physical units are one equivalent unit.
# of physical units × % of completion = Equivalent Units
TF2
CALCULATING UNIT COST
Beginning WIP $ + Costs added during the period
Completed physical units + Ending WIP equivalent units
Weaving Dept. – Materials
Work in process, June 1 $ 37,120
+ Costs added during June 565,020
= Total costs to be accounted for $266,800
Completed yards transferred 400,000
+ Ending WIP equivalent yards 60,000
÷ Equivalent yards 460,000
= Cost per equivalent unit $ 0.58