ch 18 - process costing.ppt
TRANSCRIPT
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PROCESS COSTING
Chapter
18
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Learning Objective
LO1
To distinguish production
procedures that match
with process costing fromthose that correspond
with job order costing.
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Job Order Costing
Custom orders
Unique products
Low production volume
High product flexibility
Low to mediumstandardization of laborand material
Process Costing
Repetitive operations
Identical products
High production volume
Low product flexibility
High standardization of
labor and material
Production of Goods and Servicesand Costing Systems
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Used for production of small,identical, low-cost items.
Mass produced in automatedcontinuous production process.
Costs cannot be directly traced toeach unit of product.
Process Costing
Typical process cost applications:
Petrochemical refinery
Paint manufacturer
Paper mill
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Learning Objective
LO2
To account for the physical
flows and related costflows when using
process costing.
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DirectMaterials
FinishedGoods
Direct Laborand FactoryOverhead
(Conversion)
Processes
The Work in Processaccount consists of
specific processesinprocess costing.
Cost perunit
processed
Tracking the Physical Flow andRelated Production Costs
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Sameobjective: to determinethe cost of products
Sameinventory accounts: raw materials,work in process, and finished goods
Sameoverhead assignment method:predetermined rate times actual activity
Tracking the Physical Flow andRelated Production Costs
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Work in
ProcessAssembly
Labor
Materials
Indirect
FinishedGoods
ConversionCosts
Direct
Deliveredto
Customers
Work inProcess
Packaging
Understanding Cost Flows
Factory
Overhead
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Costs are accumulated for a period of timeby process or department.
Unit cost is computed by dividing theaccumulated costs by the number of
units produced in the period.
Understanding Cost Flows
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Learning Objective
LO3
To demonstrate how to
calculate equivalent units.
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Equivalent units is a concept expressing anumber of partially completed units as asmaller number of fully completed units.
Twoone-half full pitchers areequivalent to one full pitcher.
+ = 1
Process Costing andEquivalent Units
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For the current period, PencilCo started15,000 units and completed 10,000 units,leaving 5,000 units in process 30 percent
complete. How many equivalent units ofproduction did PencilCo have for the period?
a. 10,000
b. 11,500c. 1,500
d. 15,000
Process Costing andEquivalent Units
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For the current period, PencilCo started15,000 units and completed 10,000 units,leaving 5,000 units in process 30 percent
complete. How many equivalent units ofproduction did PencilCo have for the period?
a. 10,000
b. 11,500c. 1,500
d. 15,000
10,000 units + (5,000 units .30)
= 11,500 equivalent units
Process Costing andEquivalent Units
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Learning Objective
LO4
To use the costs of resources
consumed to calculate thecost per equivalent unit
of production.
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Cost perequivalent
unit
=Product costs for the period
Equivalent units for the period
Cost per Equivalent Unit
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Now assume that PencilCo incurred$27,600 in production costs. What wasPencilCos cost per unit for the period?
a. $1.84
b. $2.40
c. $2.76d. $2.90
Cost per Equivalent Unit
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Now assume that PencilCo incurred$27,600 in production costs. What wasPencilCos cost per unit for the period?
a. $1.84
b. $2.40
c. $2.76d. $2.90
$27,600 11,500 equivalent units
= $2.40 per equivalent unit
Cost per Equivalent Unit
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Equivalent units may bedifferent for material and
conversion at different stagesof a process.
At completion of Stage 1 of the process,material is 40% complete, but conversion
is only 25% complete.
Stage 1
40% ofMaterial
25% ofConversion
Process Costing andEquivalent Units
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Stage 2
25% ofConversion
60% ofMaterial
Stage 1
40% ofMaterial
25% ofConversion
+
+
=
=
100%
50%
Process Costing andEquivalent Units
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Stage 3
50% ofConversion
The process is now complete.
Stage 2
25% ofConversion
60% ofMaterial
Stage 1
40% ofMaterial
25% ofConversion
Process Costing andEquivalent Units
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Owl Inc. usesFIFOprocesscosting in itsFabrication
Department wherea product calledStrata is made.
Process Costing
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Process Costing
Owl Inc Fabrication Department Data For April
Beginning Inventory:
Units of product 30,000
Percentage of completion - direct material 100%Percentage of completion - conversion 40%
Units started in April 90,000
Units transferred from fabrication to mixing 100,000
Ending Inventory:
Units of product 20,000
Percentage of completion - direct material 100%
Percentage of completion - conversion 25%
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April Fabrication Department Physical Flow
Units to account for:
Beginning inventory 30,000Units started during April 90,000
Total number of units 120,000
Units accounted for as:Units transferred from Fabrication to Mixing 100,000
Ending inventory 20,000
Total number of units 120,000
Physical Flow of Units
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Fabrication DepartmentDirect MaterialEquivalent Units of Production - April
Units of Percent Added Equivalent
Product This Period Units
Beginning goods in process 30,000 0% 0Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 100% 20,000
Total units 120,000 90,000
Computing EquivalentUnits of Production
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Fabrication DepartmentDirect MaterialEquivalent Units of Production - April
Units of Percent Added Equivalent
Product This Period Units
Beginning goods in process 30,000 0% 0Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 100% 20,000
Total units 120,000 90,000
Since materials are added at thebeginning of the process, no additionalmaterials are necessary to complete the
beginning inventory.
Computing EquivalentUnits of Production
C i E i l
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Fabrication Department
Direct MaterialEquivalent Units of Production - April
Units of Percent Added Equivalent
Product This Period Units
Beginning goods in process 30,000 0% 0Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 100% 20,000
Total units 120,000 90,000
} 100,000
100,000 units completedand transferred.
Computing EquivalentUnits of Production
C ti E i l t
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Fabrication Department
Conversion Equivalent Units of Production - April
Units of Percent Added Equivalent
Product This Period Units
Beginning goods in process 30,000 60% 18,000Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 25% 5,000
Total units 120,000 93,000
Computing EquivalentUnits of Production
C ti E i l t
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Fabrication Department
Conversion Equivalent Units of Production - April
Units of Percent Added Equivalent
Product This Period Units
Beginning goods in process 30,000 60% 18,000Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 25% 5,000
Total units 120,000 93,000
Since conversion is 40 percentcomplete in the beginning inventory,
60 percent of the work must becompleted in April.
Computing EquivalentUnits of Production
C ti E i l t
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Fabrication Department
Conversion Equivalent Units of Production - April
Units of Percent Added Equivalent
Product This Period Units
Beginning goods in process 30,000 60% 18,000Goods started and completed 70,000 100% 70,000
Ending work in process 20,000 25% 5,000
Total units 120,000 93,000
} 100,000Transferred
Computing EquivalentUnits of Production
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P C ti d
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Fabrication Department
April Work in Process Costs
Beginning work in process 22,380$
Costs added in April:
Direct material 45,000
Conversion 55,800Total costs to account for 123,180$
Process Costing andEquivalent Units
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Fabrication Department
Cost Per Equivalent Unit - April
Materials Conversion
Total cost of resource for
April 45,000$ 55,800$
Equivalent units of production
in April 90,000 93,000
Cost per equivalent unit for
April = 0.50$ = 0.60$
Direct
Cost per Equivalent Unit
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Learning Objective
LO5
To use the cost per
equivalent unit to
assign costs to thework completed
during the period.
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Fabrication Department Work in Process
Cost Summary for April
Cost of completed units
From beginning work in processApril 1 balance 22,380$
Costs to complete April 1 inventory
Direct material
Conversion
Started and completed
Total completed and transferred
Cost of Completed Units
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Cost of Completed Units
Fabrication Department Work in Process
Cost Summary for April
Cost of completed units
From beginning work in processApril 1 balance 22,380$
Costs to complete April 1 inventory
Direct material 0$
Conversion (18,000 $0.60) 10,800 10,800
Started and completed
Total completed and transferred
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Fabrication Department Work in Process
Cost Summary for April
Cost of completed units
From beginning work in processApril 1 balance 22,380$
Costs to complete April 1 inventory
Direct material 0$
Conversion (18,000 $0.60) 10,800 10,800
Started and completed (70,000 $1.10) 77,000Total completed and transferred (100,000 units) 110,180$
$0.50 + $0.60 = $1.10
Cost of Completed Units
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Learning Objective
LO6
To create a process costing
production report anduse the report for
decision making.
Tracking Costs Using a Process
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We will account for all costs incurredby assigning unit costs to the:
A. 100,000 units completed andtransferred.
B. 20,000 units remaining in ending
work in process inventory.
Tracking Costs Using a ProcessCosting Production Report
Tracking Costs Using a Process
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Fabrication Department Work in Process
Cost Summary for April
Cost of completed units
From beginning work in process
April 1 balance 22,380$
Costs to complete April 1 inventoryDirect material 0$
Conversion (18,000 $0.60) 10,800 10,800
Started and completed (70,000 $1.10) 77,000
Total completed and transferred (100,000 units) 110,180$
Cost of ending work in process
Direct material (20,000 $0.50) 10,000$
Conversion
Total cost accounted for
Tracking Costs Using a ProcessCosting Production Report
Tracking Costs Using a Process
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Fabrication Department Work in Process
Cost Summary for April
Cost of completed units
From beginning work in process
April 1 balance 22,380$
Costs to complete April 1 inventoryDirect material 0$
Conversion (18,000 $0.60) 10,800 10,800
Started and completed (70,000 $1.10) 77,000
Total completed and transferred (100,000 units) 110,180$
Cost of ending work in process
Direct material (20,000 $0.50) 10,000$
Conversion (5,000 $0.60) 3,000 13,000
Total cost accounted for 123,180$
Tracking Costs Using a ProcessCosting Production Report
Tracking Costs Using a Process
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Fabrication Department Work in Process
Cost Summary for April
Cost of completed units
From beginning work in process
April 1 balance 22,380$
Costs to complete April 1 inventoryDirect material 0$
Conversion (18,000 $0.60) 10,800 10,800
Started and completed (70,000 $1.10) 77,000
Total completed and transferred (100,000 units) 110,180$
Cost of ending work in process
Direct material (20,000 $0.50) 10,000$
Conversion (5,000 $0.60) 3,000 13,000
Total cost accounted for 123,180$
All costs accounted for
Tracking Costs Using a ProcessCosting Production Report
Ethics Fraud and
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Ethics, Fraud, andCorporate Governance
Overstating equivalent units of
resources in ending inventory will
understate cost of goods sold, and
thereby overstate income.
Equivalent units of production can be
overstated by inflating the applicationof direct labor and overhead
(conversion costs) to work in process.
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End of Chapter 18