Copyright © 2003 by M. Ray Gregg. All rights reserved. 1
Men Women
6 p.m., Monday noon, Monday
6 p.m., Tuesday * 2:00 p.m., Tuesday *
* on ESPN * on ESPNU
Copyright © 2003 by M. Ray Gregg. All rights reserved. 2
Mid-term GradesMid-term grades will be submitted this week. Shortly thereafter, you will be able to view them on Vision, accessible through the ORU home page.
A printed copy of mid-term grades will be mailed only to the parents of undergraduate dependent students.
Copyright © 2003 by M. Ray Gregg. All rights reserved. 3
Mid-term GradesPossible
First Exam 100
Second Exam 100
Pop Quizzes 50
Homework to Date about 34
Total
Your Points
Possible= Avg for Mid-term Grade
Note: Low grade dropped at end of semester
Copyright © 2003 by M. Ray Gregg. All rights reserved. 5
Overview• Which method for which industry?• Similarities and Differences• Allocation of Costs
– Equivalent Units– FIFO vs. Weighted Average– Steps
• Cost of Goods– Finished– Not Finished
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ComparisonJob Order Process
Wide variety of distinct products
Homogenous products
Costs accumulated by jobs
Costs accumulated in departments
Unit cost determined by dividing cost of job by # of units
Unit cost determined by dividing process costs of period by units produced during period
Copyright © 2003 by M. Ray Gregg. All rights reserved. 9
ComparisonJob Order Process
Print Shop Publisher
Auto Mechanic Auto Manufacturer
Furniture Upholster Furniture Manufacturer
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WIP - A WIP - B WIP - C
Process CostsAccumulated by Departments
Departments vs.Job Cost Sheets
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Equivalent Units of Production
• A measure of productive effort expressed in fully completed units
• Becomes the basis for the allocation of costs
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Production Time Line
Conversion Costs Added Throughout the Process
Materials Addedat the Beginningof the Process
Unfinished Units
Beginning Inventory
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Production Time LineMaterials Addedat the Beginningof the Process
Goods finished and “transferred
out”
Conversion Costs Added Throughout the Process
Unfinished Units
Beginning Inventory
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EUP for Materials
Materials
Materials Addedat the Beginningof the Process
Materials
Materials
EUP forMaterials=
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EUP for Conversion Costs
Finished
Materials Addedat the Beginningof the Process
Unfinished Units
EUP forConversion Costs
=
Beg Inv
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Allocating Process Costs
• FIFO Method– For a long, long time!– Tied for 1st place (with Bonds) for difficulty
• Weighted Average Method– 6th edition – 2003– “It is the method most widely used in practice.” –
W,K,K– “…is simpler than the FIFO method…” – H,H,B pg
862– “But W-A costs per EUP are not as useful for
evaluating the efficiency [for the period] because they are affected by costs incurred [in the previous period].” -- H,H,B pg 865
Copyright © 2003 by M. Ray Gregg. All rights reserved. 30
Allocating Process Costs1. Determine “physical flow” in units2. Determine EUP
• for materials and• for conversion costs
3. Determine unit costs• for materials• for conversion costs• and total
4. Allocate costs incurred to goods• Finished and• Not Finished
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IllustrationX Company has several processing departments. Costs charged to Department 1 for February totaled $258,600 as follows:
Work in Process, 2/1Materials $12,000Conversion Costs 9,000 $21,000
Materials added 72,000Labor 103,500Overhead 62,100
Records indicate that 3,000 units were in beginning Work in Process 30% complete as to conversion costs, 18,000 units were started into production, and 4,000 units were in ending work in process 60% complete as to conversion costs. Materials are entered at the beginning of each process.
Instructions: (a) Determine the equivalent units of production and the unit costs for Department 1. (b) Determine the assignment of costs to goods transferred out and in process.
Copyright © 2003 by M. Ray Gregg. All rights reserved. 33
General Ledger
BI - M 12,000 to Dept 2 ???BI - CC 9,000DM 72,000
DL 103,500MO 62,100
258,600Bal ???
Work in Process -- Dept 1
Copyright © 2003 by M. Ray Gregg. All rights reserved. 34
General Ledger
BI - M 12,000 to Dept 2 ???BI - CC 9,000DM 72,000
DL 103,500MO 62,100
258,600Bal ???
Work in Process -- Dept 1
ConversionCosts$165,600
Copyright © 2003 by M. Ray Gregg. All rights reserved. 35
Step 1: Determine physical units
PhysicalUnits
Beg Inv 3,000Started 18,000 Units TO account for 21,000
Finished 17,000Not Finished 4,000 Units ACCOUNTED for 21,000
Step 1: Determine physical units
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Determine EUP for M and CC
Step 2: Determine EUP
Direct ConversionMaterials Costs
Finished 17,000 17,000Not Finished 4,000 2,400 Total EUP 21,000 19,400
Equivalent Units
4,000 x 60%
Copyright © 2003 by M. Ray Gregg. All rights reserved. 40
Determine EUP for M and CC
Step 2: Determine EUP
Direct ConversionMaterials Costs
Finished 17,000 17,000Not Finished 4,000 2,400 Total EUP 21,000 19,400
Equivalent Units
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Determine unit costsStep 3: Determine unit costs
Direct ConversionMaterials Costs
Beg Inv $12,000 $9,000Incurred this month 72,000 165,600
Total costs to account for $84,000 $174,600
Copyright © 2003 by M. Ray Gregg. All rights reserved. 43
Determine unit costsDirect Conversion
Materials CostsBeg Inv $12,000 $9,000Incurred this month 72,000 165,600
Total costs to account for $84,000 $174,600
Step 3: Determine unit costs
$84,00021,000 = $4.00M:
Copyright © 2003 by M. Ray Gregg. All rights reserved. 44
Determine unit costsDirect Conversion
Materials CostsBeg Inv $12,000 $9,000Incurred this month 72,000 165,600
Total costs to account for $84,000 $174,600
Step 3: Determine unit costs
$84,00021,000 = $4.00M:
$174,60019,400 = $9.00CC:
Copyright © 2003 by M. Ray Gregg. All rights reserved. 45
Determine unit costsDirect Conversion
Materials CostsBeg Inv $12,000 $9,000Incurred this month 72,000 165,600
Total costs to account for $84,000 $174,600
Step 3: Determine unit costs
$84,00021,000 = $4.00M:
$174,60019,400 = $9.00CC:
$13.00
Copyright © 2003 by M. Ray Gregg. All rights reserved. 46
Determine unit costs
Assignment of Costs: Units Per Unit TotalFinished 17,000 $13.00 $221,000Not Finished Materials 4,000 $4.00 $16,000 CC 2,400 $9.00 21,600 37,600
Total costs accounted for $258,600
Step 4: Allocate costs to goods
Copyright © 2003 by M. Ray Gregg. All rights reserved. 47
Determine unit costs
Assignment of Costs: Units Per Unit TotalFinished 17,000 $13.00 $221,000Not Finished Materials 4,000 $4.00 $16,000 CC 2,400 $9.00 21,600 37,600
Total costs accounted for $258,600
Step 4: Allocate costs to goods
Copyright © 2003 by M. Ray Gregg. All rights reserved. 48
Determine unit costs
Assignment of Costs: Units Per Unit TotalFinished 17,000 $13.00 $221,000Not Finished Materials 4,000 $4.00 $16,000 CC 2,400 $9.00 21,600 37,600
Total costs accounted for $258,600
Step 4: Allocate costs to goods
Journalize and post the necessary journal entry:
Work in Process – D2 221,000
Work in Process – D1 221,000
Copyright © 2003 by M. Ray Gregg. All rights reserved. 49
General Ledger
BI - M 12,000 to Dept 2 221,000BI - CC 9,000DM 72,000
DL 103,500MO 62,100
258,600Bal ???
Work in Process -- Dept 1
Copyright © 2003 by M. Ray Gregg. All rights reserved. 50
General Ledger
BI - M 12,000 to Dept 2 221,000BI - CC 9,000DM 72,000
DL 103,500MO 62,100
258,600Bal 37,600
Work in Process -- Dept 1
Copyright © 2003 by M. Ray Gregg. All rights reserved. 51
Determine unit costs
Assignment of Costs: Units Per Unit TotalFinished 17,000 $13.00 $221,000Not Finished Materials 4,000 $4.00 $16,000 CC 2,400 $9.00 21,600 37,600
Total costs accounted for $258,600
Step 4: Allocate costs to goods
Copyright © 2003 by M. Ray Gregg. All rights reserved. 52
Determine unit costs
Assignment of Costs: Units Per Unit TotalFinished 17,000 $13.00 $221,000Not Finished Materials 4,000 $4.00 $16,000 CC 2,400 $9.00 21,600 37,600
Total costs accounted for $258,600
Step 4: Allocate costs to goods
BI - M 12,000 to Dept 2 221,000BI - CC 9,000DM 72,000
DL 103,500MO 62,100
258,600Bal 37,600
Work in Process -- Dept 1
Copyright © 2003 by M. Ray Gregg. All rights reserved. 55
Sources• Dell computer logo
– http://www.hubspan.com/partners_tech.asp• Home Construction
– http://www.rtsonline.com/builder-info.asp– http://www.continentalweather.com
• Accounting logos– Ernst & Young
http://www.rgu.ac.uk/abs/undergraduate/page.cfm?pge=4857– Deloitte & Touche
http://www.columbia.edu/cu/finance/report99/fin_statements13.html