342 wk0911 process costing student (1)
TRANSCRIPT
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Process Costing
Chapter 11
Objectives: Explain the basic ideas underlying processcosting and how they differ from job costing
Compute costs in process costing system
Demonstrate the weighted average and FIF
methods for process costing Analyze process costing with multipledepartments
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
ComparingJob Costing vs Process Costing
Job costing
Costs accumulated by thejob.
Work in process has a jobcost record for each job.
Many unique jobs.
Jobs built to customer order.
Job costing
Costs accumulated by thejob.
Work in process has a jobcost record for each job.
Many uniquejobs.
Jobs built tocustomerorder.
Process costing
Costs accumulated bydepartment or process.
Work in process has a
production report for eachbatch of products.
Homogenous products.
Units continuously producedfor inventory in automated
process.
Process costing
Costs accumulated bydepartment or process.
Work in process has a
production report for eachbatch ofproducts.
Homogenous products.
Unitscontinuouslyproducedfor inventory in automated
process.
Same objective: _________________________
Same inventory account: _________________________
Same OH assignment method: _________________________
Same objective: _________________________
Same inventory account: _________________________
Same OH assignment method: _________________________
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Comparing
Job Costing vs Process
Costing
Direct Materials
FinishedGoods
Cost ofGoods
Sold
Direct Labor
FactoryOverhead
Job Costing
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
FinishedGoods
Cost ofGoods
Sold
Process Costing
Comparing
Job Costing vs Process
Costing
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Characteristics of
Process Costing
________________________________________________
DirectMaterials
Type of Product Cost
D
ollarAmoun
t
DirectLabor
FactoryOverhead
So, direct labor and factory overhead are often
combined into one product cost called_______________.
DirectMaterials
Type of Product Cost
D
ollarAmou
nt Conversion
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Characteristics of ProcessCosting
Process costing accumulates costs by process ordepartment and then assigns them to a large number of
nearly identical products.
Process costing accumulates costs by process ordepartment and then assigns them to a large number of
nearly identical products.
Continuousmass production
Continuousmass production
Similarprocesses
Similarprocesses
Homogeneousproducts
Homogeneousproducts
costunit =
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Equivalent Units
Equivalent units is a concept expressing partially complete units as a smallernumber of fully complete units.
We want to find the unit cost of performing a certain process in a given period,but
A manufacturing firm typically has partially completed units at the end of anaccounting period
Equivalent units Physical Units
+ =Two one-half filled cups are equivalent to one full cup.
1
Cost perequivalent
unit =
Manufacturing costs for a period
Equivalent units for the period
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Equivalent Units
During its first month of business, Jones started 15,000 units and completed10,000 units, leaving 5,000 units in process 30 percent complete. How manyequivalent units of production did Jones have for the month?
a. 10,000
b. 11,500c. 13,500
d. 15,000
Now assume that Jones incurred $27,600 in production costs. What was Jonescost per equivalent unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Flow of Costs in ProcessCosting
Costs flow through different processes or departments
Use separate WIP Inventory account for each department
DM, DL, OH costs can be entered directly into either productiondepartments WIP Inventory account, not just the first department
Transfer of costs from a department subsequent departments FGInventory Cost of goods sold
Transfer-in-costs (TI): costs of goods completed in the prior departmentand transferred into the department during the period
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
5 Steps in ProcessCosting
Analyze the physical flow of physical units.Analyze the physical flow of physical units.
Calculate equivalent units of production for allCalculate equivalent units of production for allmanufacturing cost elements.manufacturing cost elements.
Determine total cost for each manufacturing costDetermine total cost for each manufacturing costelement.element.
Compute cost per equivalent unit for eachCompute cost per equivalent unit for eachmanufacturing cost element.manufacturing cost element.
Assign the total manufacturing costs to units completedAssign the total manufacturing costs to units completedand units of work in process at the end of the period.and units of work in process at the end of the period.________________
________________
________________
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Process Costing Method
Weighted-Average Method
__________________
__________________
__________________
__________________
Blends together units and
costs in beginning inventorywith units and costs in thecurrent period.
FIFO Method
__________________
____________________________________
Assumes units inbeginning work in process
inventory are completedand transferred first.
S 3 2 d i l C l i & C l
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Weighted Average vs FIFOWhich one is better?
FIFO costing results in a current period cost that can beused for performance evaluation.
If there is no beginning inventory (JIT) or if beginning
inventory is small, FIFO and weighted-average producethe same results.
IES 342 I d t i l C t A l i & C t l | D K d P i h t SIIT
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Ex 1: Basic Process Costing(No Beginning Inventory)Adapted from Horngren et al. (2002) page 587
XYC Inc. produces portable CD players in large quantities. Assume that the
company has two departments, assembly and testing. The manufacturing
costs in Assembly Dept during February were:
Assume no beginning inventory of WIP. Suppose work on 19,000 CD playerswas begun in the assembly department during February, but only 17,000 CD
players were fully completed. All the parts had been made or placed inprocess, but only half the labor had been completed for each of the CDplayers still in process
Compute the costs of units completed and transferred to the Testing
Dept and the cost of ending WIP.
DM added
DL
OH
$60,800
$50,000
$40,000
IES 342 I d t i l C t A l i & C t l | D K d P i h t SIIT
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Ex 2: Process Costing(with beginning inventory; use weighted-Average)Adapted from Horngren et al. (2002) page 587
ABC Inc. manufactures electric drills. Material is introduced at the beginning
of the process in the Assembly Department. Conversion costs are applied
uniformly throughout the process. As the process in completed, goods are
immediately transferred to Finishing Dept.
Data for the Assembly Dept for the July 20X1:
WIP, June 30: $175,500 .. 10,000 units
($138,000 materials and $37,500 conversion costs); completed for DM but only 25%completed for conversion costs
Units started during July .. 80,000 units
Units completed during July ... 70,000 unitsWIP, July 31: 100% completed forDM, but only 50% completed for conversion costs.. 20,000 units
DM added during July.. $852,000
Conversion costs added during July $634,500
IES 342 I d t i l C t A l i & C t l | D K d P i h t SIIT
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Process Costing withMultiple Departments
Multiple departments in a process result in units and costs that aretransferred from a prior department to the current department.
These transferred-in costs are treated exactly like a direct materialthat is added at the beginning of a production process.
IES 342 Industrial Cost Analysis & Control | Dr Karndee Prichanont SIIT
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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT
Ex 3: Process Costing with Transferred InCosts
Prior
Departme
nt's Costs
Direct
Materials
Conversion
Costs
Physical flow:
Beginning inventory 2000 100% 40% 80%
Ending inventory 4000 100% 25% 60%
Unit started (transferred in) 12000 100%
Started and completed 8000 100% 100% 100%
Costs incurred:
Beginning inventory 5,000$ 2,000$ 1,000$
Current Costs 52,000$ 20,000$ 7,000$
Deparment Costs
Units