Title: Systems Design: Process Costing
1Systems DesignProcess Costing
2Types of Costing Systems Used to Determine
Product Costs
Job-orderCosting
ProcessCosting
- Many units of a single, homogeneous product
flow evenly through a continuous production
process. - One unit of product is indistinguishable from
any other unit of product.. - Each unit of product is assigned the same
average cost.
3Types of Costing Systems Used to Determine
Product Costs
ProcessCosting
Job-orderCosting
Job-orderCosting
ProcessCosting
- Typical process cost applications
- Petrochemical refinery
- Paint manufacturer
- Paper mill
4Differences Between Job-Order and 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 key document.
- Unit costs are computed by department.
5Process Costing
DirectMaterials
Direct labor costsmay be smallin comparison
toother product costs in processcost systems.
ManufacturingOverhead
Dollar Amount
DirectLabor
Type of Product Cost
6Process Costing
DirectMaterials
Direct labor costsmay be smallin comparison
toother product costs in processcost systems.
Conversion
Dollar Amount
Type of Product Cost
So, direct labor and manufacturing overhead are
oftencombined into one product cost called
conversion.
7Comparing Job-Order and Process Costing
Direct Materials
FinishedGoods
Work inProcess
Direct Labor
ManufacturingOverhead
Cost of GoodsSold
8Comparing Job-Order and Process Costing
Costs are traced andapplied to individualjobs
in a job-ordercost system.
Direct Materials
FinishedGoods
Jobs
Direct Labor
ManufacturingOverhead
Cost of GoodsSold
9Comparing Job-Order and Process Costing
Costs are traced and applied to departments in a
process cost system.
Direct Materials
FinishedGoods
Processing Department
Direct Labor
ManufacturingOverhead
Cost of GoodsSold
10Process Cost Flows
Work in Process Department B
Work in ProcessDepartment A
Transferred to Dept. B
11Process Cost Flows
Work in Process Department B
Finished Goods
- Cost of GoodsManufactured
- Cost of Goods Manufactured
Cost of Goods Sold
12Equivalent Units of Production
- Equivalent units are partially complete and are
part of work in process inventory. Partially
completed products are expressed in terms of a
smaller number of fully completed units.
13Equivalent Units of Production
Two half completed products are equivalent to one
completed product.
So, 10,000 units 70 percent completeare
equivalent to 7,000 complete units.
14Equivalent Units
For the current period, Jones 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 Jones have for
the period? a. 10,000 b. 11,500 c.
13,500 d. 15,000
15Calculating and Using Equivalent Units of
Production
- To calculate the cost perequivalent unit for the
period
Cost perequivalent unit
Costs for the periodEquivalent units of
productionfor the period
16Equivalent Units
Now assume that Jones incurred 27,600 in
production costs for the 11,500 equivalent units
of production. What was Jones cost per
equivalent unit for the period? a. 1.84 b. 2.4
0 c. 2.76 d. 2.90
17Equivalent Units of Production Weighted Average
Method
- The weighted average method . . .
- Makes no distinction between work done in prior
and current period. - Blends together units and costs from prior period
and current period.
Lets see how this works!
18Weighted Average Example
- Smith Company reported the following activity in
Department A for the month of June
19Weighted Average Example
- Equivalent units are calculated as follows
20Weighted Average Example
- Equivalent units are calculated as follows
21Weighted Average Example
- Equivalent units are calculated as follows
22Weighted Average Example
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
23Weighted Average Example
Conversion
6,000 Units Started
EndingWork in Process900 Units30 Complete
BeginningWork in Process300 Units20 Complete
5,100 Units Startedand Completed
5,400 Units Completed
900 30
270 Equivalent Units
5,670 Equivalent units of production
24Production Report
Shows the flowof units and coststhrough work
inprocess
Provides costinformation forfinancial
statements
Becomes thejob cost sheetin processcosting
Helps managerscontrol theirdepartments
25Production Report
- A quantity schedule showing the flow of units and
the computation of equivalent units.
- A computation ofcost per equivalent unit.
26Production Report
- A reconciliation of cost flows for the
period, including - Total cost for units completed and
transferred from the processing department. - Total cost for partially completed units
remaining in work in process.
27Production 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.
28Production Report Example
Cost
- Work in process, May 1 200 units
- Materials 50 complete. 3,000
- Conversion 30 complete. 1,000
-
- 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 74,000
- Conversion cost 70,000
-
- Work in process, May 31 400 units
- Materials 40 complete.
- Conversion 25 complete.
29Production Report Example
Section 1 Quantity Schedule with Equivalent
Units
30Production Report Example
Section 1 Quantity Schedule with Equivalent
Units
31Production Report Example
Section 1 Quantity Schedule with Equivalent
Units
32Production Report Example
Section 2 Compute cost per equivalent unit
33Production Report Example
Section 2 Compute cost per equivalent unit
77,000 4,960 units 15.524 (rounded)
34Production Report Example
Section 2 Compute cost per equivalent unit
71,000 4,900 units 14.490 (rounded)
35Production Report Example
Section 3 Cost Reconciliation
36Production Report Example
Section 3 Cost Reconciliation
4,800 units _at_ 30.014
37Production Report Example
Section 3 Cost Reconciliation
160 units _at_ 15.524
100 units _at_ 14.49
All costs accounted for
38Operation Costing
Operation costing employs some aspectsof both
job-order and process costing.
Job-order Costing
Process Costing
Operation Costing (Products produced in batches)
Conversion costsassigned to batchesas in
process costing.
Material Costs Chargedto batches as injob-order
costing.
39End of Chapter 4
Im going to processsome leisure time, unless
you want to see some journal entries.