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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.
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.
Types of Costing Systems Used to Determine Product Costs
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Types of Costing Systems Used to Determine Product Costs
Job-orderCosting
ProcessCosting
Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill
Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill
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Job order costing Many products are
produced during the period.
Costs are accumulated by individual jobs.
Job cost sheet is the key document.
Unit cost computed by job.
Job order costing Many products are
produced 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.
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.
Differences Between Job-Order and Process Costing
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Process Costing
Type of Product Cost
Do
llar
Am
ou
nt Conversion
So, direct labor and manufacturing overhead are oftencombined into one product cost called conversion.
So, direct labor and manufacturing overhead are oftencombined into one product cost called conversion.
Direct labor costsmay be small
in comparison toother product
costs in processcost systems.
Direct labor costsmay be small
in comparison toother product
costs in processcost systems.
DirectMaterials
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Comparing Job-Orderand Process Costing
FinishedGoods
FinishedGoods
Cost of GoodsSold
Cost of GoodsSold
Direct LaborDirect Labor
ManufacturingOverhead
ManufacturingOverhead
JobsJobs
Costs are traced andapplied to individualjobs in a job-order
cost system.
Costs are traced andapplied to individualjobs in a job-order
cost system.Direct
Materials
Direct Materials
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Comparing Job-Orderand Process Costing
FinishedGoods
FinishedGoods
Cost of GoodsSold
Cost of GoodsSold
Direct LaborDirect Labor
ManufacturingOverhead
ManufacturingOverhead
ProcessingDepartmentsProcessing
Departments
Costs are traced and applied to departments
in a process cost system.
Costs are traced and applied to departments
in a process cost system.
Direct Materials
Direct Materials
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Process Cost Systems
Exh. 4-2 Sequential Processing, p.152
Exh. 4-3 Parallel Processing, p. 153
Exh. 4-4 T-Account Model, p. 154
Exh. 4-5 Double Diamond, p. 156
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Process Cost Flows
Let’s look at cost flows in a process cost system with
Departments A and B.We will use
T-accounts andstart with materials.
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Raw Materials•Purchases •Direct
Materials
Process Cost Flows
•Indirect Materials
•Direct Materials
Work in Process Department B
Work in Process Department A
•OtherOverhead
Manufacturing Overhead
Actual Applied
•IndirectMaterials
•Direct Materials
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Process Cost Flows
Work in Process Department B
•Direct Labor
Work in Process Department A
•OtherOverhead
Manufacturing Overhead
Actual Applied
•IndirectMaterials•Indirect
Labor
Wages Payable
•Direct Labor
•IndirectLabor
•Direct Materials
•Direct Labor
•Direct Materials
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Process Cost Flows(MOH is applied using Departmental rates)
Work in Process Department B
Work in Process Department A
•OverheadApplied to
Work inProcess
•POHR
•AppliedOverhead
•AppliedOverhead
•OtherOverhead
Manufacturing Overhead
Actual Applied
•IndirectMaterials•Indirect
Labor
•Direct Labor
•Direct Materials
•Direct Labor
•Direct Materials
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Process Cost Flows
Next, transfer workfrom Department Ato Department B.
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Process Cost Flows
Work in Process Department B
Work in ProcessDepartment A
•Direct Materials
•Direct Labor
•AppliedOverhead
•Direct Materials
•Direct Labor
•AppliedOverhead
Transferred to Dept. B
•Transferred from Dept. A
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Process Cost Flows
Now let’s completethe goods in
Department Band sell them.
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Finished Goods
Cost of Goods Sold
Process Cost Flows
Work in Process Department B
•Cost of Goods
Manufactured
•Direct Materials
•Direct Labor
•AppliedOverhead
•Transferred from Dept. A
•Cost of GoodsSold
•Cost of GoodsSold
•Cost of Goods
Manufactured
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Equivalent Units of Production(Accounting for partially completed units in WIP)
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.
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Equivalent 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.
So, 10,000 units 70 percent completeare equivalent to 7,000 complete units.
+ = 1
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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
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
Quick Check
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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
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
10,000 units + (5,000 units × 0.30) = 11,500 equivalent units
Quick Check
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Calculating and Using Equivalent Units of Production
To calculate the cost perequivalent unit for the period:
Cost perequivalent
unit
=Costs for the period
Equivalent units of productionfor the period
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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. $2.40
c. $2.76
d. $2.90
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. $2.40
c. $2.76
d. $2.90
Quick Check
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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. $2.40
c. $2.76
d. $2.90
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. $2.40
c. $2.76
d. $2.90
$27,600 ÷ 11,500 equivalent units
= $2.40 per equivalent unit
$27,600 ÷ 11,500 equivalent units
= $2.40 per equivalent unit
Quick Check
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Equivalent 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.
Let’s see how this works!
Weighted Average Method
Equivalent units of production = Units completed and transferred
to the next department + equivalent units in ending WIP
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Weighted Average Example
Smith Company reported the following activity in Department A for the month of June:
Percent Completed
Units Materials Conversion
Work in process, June 1 300 40% 20%
Units started into production in June 6,000
Units Available 6,300 Units completed and transferred out
of Department A during June 5400
Work in process, June 30 900 60% 30%
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Equivalent units are calculated as follows:
Weighted Average Example
Materials Conversion
Units completed and transferred out of Department A in June 5,400 5,400
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Equivalent units are calculated as follows:
Weighted Average Example
Materials Conversion
Units completed and transferred out of Department A in June 5,400 5,400
Work in process, June 30:
900 units × 60% 540
Equivalent units of Production in Department A during June 5,940
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Equivalent units are calculated as follows:
Weighted Average Example
Materials Conversion
Units completed and transferred out of Department A in June 5,400 5,400
Work in process, June 30:
900 units × 60% 540
900 units × 30% 270
Equivalent units of Production in Department A during June 5,940 5,670
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Materials Conversion
Units completed and transferred out of Department A in June 5,400 5,400
Work in process, June 30:
900 units × 60% 540
900 units × 30% 270
Equivalent units of Production in Department A during June 5,940 5,670
Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in process
Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in process
Weighted Average Example
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Production Report
ProductionReport
Helps managerscontrol theirdepartments
Provides costinformation for
financial statements
Shows the flowof units and coststhrough work in
process
Becomes thejob cost sheet
in processcosting
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Production Report
A computation ofcost per equivalent unit.
A computation ofcost per equivalent unit.
Section 1
Section 2
Section 3
Production Report A quantity schedule showing the flow of units and the computation of
equivalent units.
A quantity schedule showing the flow of units and the computation of
equivalent units.
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Production 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.
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.
Section 1
Section 2
Section 3
Production Report
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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, let’s prepare a production report for Shaping and Milling.
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, let’s prepare a production report for Shaping and Milling.
Production Report ExamplePage 160
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Work in process, May 1: 200 units Materials: 55% complete. $ 9,600Conversion: 30% complete. 5,575
Production started during May: 5,000 unitsProduction completed during May: 4,800 units
Costs added to production in MayMaterials cost $ 368,600Conversion cost 350,900
Work in process, May 31: 400 unitsMaterials 40% complete.Conversion 25% complete.
Work in process, May 1: 200 units Materials: 55% complete. $ 9,600Conversion: 30% complete. 5,575
Production started during May: 5,000 unitsProduction completed during May: 4,800 units
Costs added to production in MayMaterials cost $ 368,600Conversion cost 350,900
Work in process, May 31: 400 unitsMaterials 40% complete.Conversion 25% complete.
Production Report Example
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Section 1: Quantity Schedule with Equivalent Units
Production Report Example
Units to be accounted for: Work in process, May 1 200 Started into production 5,000 Total units 5,200
Equivalent unitsMaterials Conversion
Units accounted for as follows: Completed and transferred 4,800 4,800 4,800 Work in process, May 31 400
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Production Report Example
Units to be accounted for: Work in process, May 1 200 Started into production 5,000 Total units 5,200
Equivalent unitsMaterials Conversion
Units accounted for as follows: Completed and transferred 4,800 4,800 4,800 Work in process, May 31 400 Materials 40% complete 160
5,200 4,960
Section 1: Quantity Schedule with Equivalent Units
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Production Report Example
Units to be accounted for: Work in process, May 1 200 Started into production 5,000 Total units 5,200
Equivalent unitsMaterials Conversion
Units accounted for as follows: Completed and transferred 4,800 4,800 4,800 Work in process, May 31 400 Materials 40% complete 160 Conversion 25% complete 100
5,200 4,960 4,900
Section 1: Quantity Schedule with Equivalent Units
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Section 2: Compute cost per equivalent unit
Production Report Example
TotalCost Materials Conversion
Cost to be accounted for: Work in process, May 1 15,175$ 9,600$ 5,575$ Costs added in the Shipping and Milling Department 719,500 368,600 350,900
Total cost 734,675$ 378,200$ 356,475$
Equivalent units 4,960 4,900
Cost per equivalent unit
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TotalCost Materials Conversion
Cost to be accounted for: Work in process, May 1 15,175$ 9,600$ 5,575$ Costs added in the Shipping and Milling Department 719,500 368,600 350,900
Total cost 734,675$ 378,200$ 356,475$
Equivalent units 4,960 4,900
Cost per equivalent unit 76.25$
Production Report Example
Section 2: Compute cost per equivalent unit
$378,200 ÷ 4,960 units = $76.25
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TotalCost Materials Conversion
Cost to be accounted for: Work in process, May 1 15,175$ 9,600$ 5,575$ Costs added in the Shipping and Milling Department 719,500 368,600 350,900
Total cost 734,675$ 378,200$ 356,475$
Equivalent units 4,960 4,900
Cost per equivalent unit 76.25$ 72.75$ Total cost per equivalent unit = $76.25 + $72.75 = $149.00
Production Report Example
$356,475 ÷ 4,900 units = $72.75
Section 2: Compute cost per equivalent unit
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Section 3: Cost Reconciliation
Production Report Example
Total Equivalent UnitsCost Materials Conversion
Cost accounted for as follows: Transferred out during May 4,800 4,800 Work in process, May 31: Materials 160 Conversion 100
Total work in process, May 31
Total cost accounted for
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Total Equivalent UnitsCost Materials Conversion
Cost accounted for as follows: Transferred out during May 715,200$ 4,800 4,800 Work in process, May 31: Materials 160 Conversion 100
Total work in process, May 31
Total cost accounted for
4,800 units @ $149.00
Production Report Example
Section 3: Cost Reconciliation
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Total Equivalent UnitsCost Materials Conversion
Cost accounted for as follows: Transferred out during May 715,200$ 4,800 4,800 Work in process, May 31: Materials 12,200 160 Conversion 7,275 100
Total work in process, May 31 19,475
Total cost accounted for 734,675$
160 units @ $76.25
Production Report Example
Section 3: Cost Reconciliation
All costs accounted for(See VG 42)
100 units @ $72.75
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I’m going to end this chapter and process some leisure time, unless
you want to see some journal entries. Noooo!
Do You Want to SeeJournal Entries?