Systems Design:

1
Chapter 4

• Systems Design
• Process Costing

2
Types of Costing Systems Usedto Determine
Product Costs
3
Types of Costing Systems Usedto Determine
Product Costs
Job-orderCosting
ProcessCosting

• Typical process cost applications
• Petrochemical refinery
• Paint manufacturer
• Paper mill

4
Differences Between Job-Orderand Process Costing

• Job order costing
• Many jobs are worked during the period.
• Costs are accumulated by individual jobs.
• Job cost sheet is the key document.
• Unit cost computed by job.

• Process costing
• A single product is produced for a long period of
  time.
• Costs are accumulated by departments.
• Department production report is the key document.
  
• Unit costs are computed by department.

5
Sequential Processing Departments
Start
Processing Department 1
Partially completed goods
Partially completed goods
Completed goods
6
Parallel Processing Departments
Start
Processing Department 1
Partially completed goods
Partially completed goods
Completed goods
7
Flow of Materials, Laborand Overhead Costs
Processing Department
8
Flow of Materials, Laborand Overhead Costs
Work in Process Mixing Department
Raw Materials
DirectMaterial
Purchases
IndirectMaterial
Manufacturing Overhead
Work in Process Finishing Department
Actual
Applied
OtherOverhead
IndirectMaterial
9
Flow of Materials, Laborand Overhead Costs
Work in Process Mixing Department
Wages Payable
Direct Material
Direct Labor
IndirectLabor
Manufacturing Overhead
Work in Process Finishing Department
Actual
Applied
Direct Material
OtherOverhead
IndirectMaterial
IndirectLabor
10
Flow of Materials, Laborand Overhead Costs
Work in Process Mixing Department
Wages Payable
Direct Material
Direct Labor
Direct Labor
IndirectLabor
Manufacturing Overhead
Work in Process Finishing Department
Actual
Applied
Direct Material
OtherOverhead
OverheadApplied to Work inProcess
Direct Labor
Indirect Material
IndirectLabor
11
Flow of Materials, Laborand Overhead Costs
Now, lets transfer the partially completed goods
fromthe Mixing Departmenttothe Finishing
Department.
12
Flow of Materials, Laborand Overhead Costs
Work in Process Finishing Department
Work in Process Mixing Department
Direct Material
Direct Material
Direct Labor
Direct Labor
AppliedOverhead
AppliedOverhead
13
Flow of Materials, Laborand Overhead Costs
The goods have been completed in the Finishing
Department and will be transferred to Finished
Goods Inventory when they are ready to be sold.
14
Flow of Materials, Laborand Overhead Costs
Work in Process Finishing Department
Finished Goods
Direct Material
Direct Labor
AppliedOverhead
Transferred from Dept. A
Cost of Goods Sold
15
Materials, Labor, and OverheadCost Entries
16
Flow of Materials, Labor andOverhead Costs
17
Flow of Materials, Labor andOverhead Costs
18
Flow of Materials, Labor andOverhead Costs
19
Flow of Materials, Labor andOverhead Costs
20
Flow of Materials, Labor andOverhead Costs
21
Equivalent Units of Production
Equivalent units are partially complete and are
part of work in process inventory. It is the
concept of expressing partially completed
products as a smaller number of fully completed
units.
Two one-half completed products are equivalent to
one completed product. So, 10,000 units 70
complete are equivalent to 7,000 completed units.
22
Quick Check ?
For the current period, Matrix started 15,000
units and completed 10,000 units, leaving 5,000
units in process 30 percent complete. How many
equivalent units of production did Matrix have
for the period? a. 10,000 b. 11,500
c. 13,500 d. 15,000
23
Quick Check ?
For the current period, Matrix started 15,000
units and completed 10,000 units, leaving 5,000
units in process 30 percent complete. How many
equivalent units of production did Matrix 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
24
Equivalent Units of Production

• To calculate the cost perequivalent unit for the
  period

25
Quick Check ?
Now assume that Matrix incurred 27,600 in
production costs for the 11,500 equivalent units
of production. What was Matrixs cost per
equivalent unit for the period? a. 1.84 b. 2.4
0 c. 2.76 d. 2.90
26
Quick Check ?
Now assume that Matrix incurred 27,600 in
production costs for the 11,500 equivalent units
of production. What was Matrixs cost per
equivalent unit for the period? a. 1.84 b. 2.4
0 c. 2.76 d. 2.90
27,600 11,500 equivalent units 2.40 per
equivalent unit
27
Weighted Average Method
Using the weighted-average method,
equivalentunits will always be calculated as
follows
28
Weighted Average Method

• Matrix, Inc. reported the following activity in
  Mixing Department for the month of June

29
Weighted Average Method

• Equivalent units are calculated as follows

30
Weighted Average Method

• Equivalent units are calculated as follows

31
Weighted Average Method

• Equivalent units are calculated as follows

32
Weighted Average Method
Equivalent units of production always equals
Units completed and transferred
Equivalent units remaining in work in process

• Equivalent units are calculated as follows

33
Weighted Average Method
Materials
6,000 Units Started
EndingWork in Process900 Units60 Complete
BeginningWork in Process300 Units40 Complete
5,100 Units Startedand Completed
5,400 Units Completed
5,400 Units Completed
900 60
540 Equivalent Units
5,940 Equivalent units of production
34
Weighted Average Method
Conversion
6,000 Units Started
EndingWork in Process900 Units30 Complete
BeginningWork in Process300 Units40 Complete
5,100 Units Startedand Completed
5,400 Units Completed
900 30
270 Equivalent Units
5,670 Equivalent units of production
35
Production Report
Production Report
Section 1
Section 2
Section 3
36
Production Report Example

• Double Diamond Skis uses process costing to
  determine unit costs in its Shaping and Milling
  Department.
• Double Diamond uses the weighted average cost
  procedure.
• Using the following information for the month of
  May, lets prepare a production report for
  Shaping and Milling.

37
Production Report Example
Cost

• Work in process, May 1 200 units
• Materials 55 complete. 9,600
• Conversion 30 complete. 5,575
• Units started into production in May 5,000
• Units completed and transferred out in May 4,800
• Costs added to production in May
• Materials cost 368,600
• Conversion cost 350,900
• Work in process, May 31 400 units
• Materials 40 complete.
• Conversion 25 complete.

38
Production Report Example
Section? Quantity Schedule with Equivalent Units
39
Production Report Example
Section? Quantity Schedule with Equivalent Units
40
Production Report Example
Section? Compute cost per equivalent unit
41
Production Report Example
Section? Compute cost per equivalent unit
42
Production Report Example
Section? Compute cost per equivalent unit
356,475 4,900 units 72.75
43
Production Report Example
Section ? Cost Reconciliation
44
Production Report Example
Section ? Cost Reconciliation
45
Production Report Example
Section ? Cost Reconciliation
160 units _at_ 76.25
100 units _at_ 72.75
46
End of Chapter 4