Accounting principles 8th weygars kieso kimmel chapter 21

Chapter 21-1 CHAPTER 21 PROCESS COST ACCOUNTING Accounting Principles, Eighth Edition Chapter 21-2 Study Study Objectives Objectives Understand who uses process cost systems Explain the similarities and differences between job order and process cost systems Explain the flow of costs in a process cost system Make the journal entries to assign manufacturing costs in a process cost system Chapter 21-3 Study Study Objectives Objectives Chapter 21-4 Compute equivalent units Explain the four steps necessary to prepare a production cost report Prepare a production cost report Explain just-in-time (JIT) processing Explain activity-based costing (ABC) Preview Preview of of Chapter Chapter Process cost accounting focuses on massproduction of products that are identical or very similar in nature In contrast, job order cost accounting focuses on the individual job Chapter 21-5 Process Process Cost Cost Accounting Accounting Nature Nature of of Process Process Cost Cost Systems Uses Similarities and Differences Process Cost Flow Assignment of Manufacturing Costs Equivalent Equivalent Units WeightedAverage Method Refinements Production Cost Report Comprehensive Comprehensive Example Example of of Process Costing Costing Physical Units Equivalent Units of Production Unit Production Costs Cost Reconciliation Schedule Production Cost Report Costing Systems – Final Comment Chapter 21-6 Contemporary Contemporary Developments Just-in-Time Processing Activity-Based Costing Nature Nature of of Process Process Cost Cost Systems Systems Use to apply costs to similar products that are massed produced in a continuous fashion Examples include the production of Cereal, Paint, and Soft Drinks Chapter 21-7 LO 1: Understand who uses process cost systems Comparison Comparison of of Products Products Produced Produced Under Under Process Process and and Job Job Order Order Cost Cost Systems Systems Chapter 21-8 LO 1: Understand who uses process cost systems Let’s Let’s Review Review Which of the following items is not a characteristic of a process cost system: a Once production begins, it continues until the finished product emerges emerges b The focus is on continually producing homogenous products c When the finished product emerges, all units have precisely the same amount of materials, labor, and overhead d The products produced are heterogenous in nature Chapter 21-9 LO 1: Understand who uses process cost systems Job Job Order Order Cost Cost and and Process Process Cost Cost Flow Flow Job Order Cost Systems Chapter 21-10 Process Cost Systems Costs are assigned to each job Costs are tracked through a series of connected manufacturing processes or departments Products have unique characteristics Products are uniform or relatively homogeneous and produced in a large volume LO 2: Explain the similarities and differences between job order cost and process cost systems Comprehensive Comprehensive Example Example Continued Continued Step 1: Compute Physical Unit Flow -continued Chapter 21-38 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Comprehensive Example Example Continued Continued Step 2: Compute Equivalent Units of Production Measure of a department’s productivity Two computations required: one for materials and one for conversion costs Beginning work in process ignored Chapter 21-39 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Comprehensive Example Example Continued Continued Step 3: Compute Unit Production Costs Costs expressed in terms of equivalent units of production When equivalent units of production are different for materials and for conversion costs, three unit costs are computed: Materials Conversion Total Manufacturing Chapter 21-40 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Comprehensive Example Example Continued Continued Step 3: Compute Unit Production Cost - continued Total Materials Cost Computation: Direct Materials Cost in Beginning Work in Process $ 50,000 Conversion Costs Added to Production During Month 400,000 Total Materials Costs $450,000 The Computation of Unit Materials Costs: Chapter 21-41 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Comprehensive Example Example Continued Continued Step 3: Compute Unit Production Cost - continued Conversion Cost Computation: Conversion Costs in Beginning Work in Process $ 35,000 Conversion Costs Added to Production During Month 170,000 Total Conversion Costs $205,000 The Computation of Unit Conversion Costs: Chapter 21-42 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Comprehensive Example Example Continued Continued Step 3: Compute Unit Production Cost – continued Total Manufacturing Cost Per Unit The computation of unit total manufacturing cost: Chapter 21-43 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Comprehensive Example Example Continued Continued Step 4: Prepare Cost Reconciliation Schedule Costs Charged to Mixing Department: Cost of Beginning Work in Process Costs Started into Production During Period Total Costs to be Accounted For Chapter 21-44 $ 85,000 570,000 $ 655,000 LO 6: Explain the four steps necessary to prepare a production cost report Production Production Cost Cost Report Report Mixing Mixing Department Department Chapter 21-45 LO 7: Prepare a production cost report Let’s Let’s Review Review Largo Company has unit costs of $10 for materials and $30 for conversion costs If there are 2,500 units in ending work in process, 40% complete as to conversion costs and fully complete as to materials cost, the total cost assignable to the ending work in process inventory is: Chapter 21-46 a $45,000 $45,000 b $55,000 c $75,000 d $100,000 LO 6: Explain the four steps necessary to preprae a production cost report Contemporary Contemporary Developments Developments Just-in-Time (JIT) Processing A processing system that is dedicated to having the right products or parts as they are needed Objective: To eliminate all manufacturing inventories to make funds and space available for more productive purposes Elements of JIT: Dependable suppliers; Multi-skilled workforce; Total quality control system Benefits of JIT: Reduced inventory; Enhanced product quality; Reduced rework and storage costs; Savings from improved flow of goods Chapter 21-47 LO 8: Explain just-in-time (JIT) processing Contemporary Developments - JIT Chapter 21-48 LO8: Explain just-in-time (JIT) processing Contemporary Contemporary Developments Developments Activity-Based Costing (ABC) An overhead cost allocation system that focuses on activities performed in producing a product Traditional Costing System: allocates overhead to products using predetermined unit-based output rate ABC System: allocates overhead to multiple activity cost pools and assigns cost pools to products using cost drivers that represent activities used Assumptions of ABC: All overhead costs for an activity must have the same cost driver and should respond proportionally to changes in the activity of the cost driver Chapter 21-49 LO 9: Explain activity-based costing (ABC) Contemporary Contemporary Developments Developments Activity-Based Costing (ABC) continued May be used with either a job order or a process costing system Primary Benefit: More accurate and meaningful product costing Secondary Benefit: Improved cost data regarding an activity may lead to reduced costs for that activity ABC makes managers realize that activities not products ultimately determine company profitability Chapter 21-50 LO 9: Explain activity-based costing (ABC) Chapter Chapter Review Review Brief Brief Exercise Exercise 21-8 21-8 Production costs chargeable to the Finishing Department in June in Castilla Company are materials $15,000, labor $29,500, overhead $18,000 Equivalent units of production are materials 20,000 and conversion costs 19,000 Compute the unit costs for materials and conversion costs Unit costs for Materials: $15,000 ÷ 20,000 units = $.75 per unit Unit costs for Conversion Costs: Conversion Costs = $29,500 + 18,000 = $47,500 $47,500 ÷ 19,000 = $2.50 per unit Total Manufacturing Costs per Unit: $.75 + $2.50 = $3.25 per unit Chapter 21-51 LO 6: Explain the four steps necessary to prepare a cost production report Copyright Copyright Copyright © 2008 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein Chapter 21-52 .. .CHAPTER 21 PROCESS COST ACCOUNTING Accounting Principles, Eighth Edition Chapter 21- 2 Study Study Objectives Objectives Understand who uses... journal entries to assign manufacturing costs in a process cost system Chapter 21- 3 Study Study Objectives Objectives Chapter 21- 4 Compute equivalent units Explain the four steps necessary to prepare... Preview Preview of of Chapter Chapter Process cost accounting focuses on massproduction of products that are identical or very similar in nature In contrast, job order cost accounting focuses on