Managerial accounting 6e jams jambalvo chapter 03

Prepared by Debby Bloom-Hill CMA, CFM CHAPTER CHAPTER 33 Process Costing Difference Difference Between Between Job-Order Job-Order and and Process Process Costing Costing Systems Systems  Job-Order Costing  Each unique product or batch is considered a job for which cost information is needed   Necessary to trace manufacturing costs to specific jobs When completed, cost of job is removed from Work in Process and included in Finished Goods Slide 3-3 Learning objective 1: Describe how products flow through departments and how costs flow through accounts Difference Difference Between Between Job-Order Job-Order and and Process Process Costing Costing Systems Systems  Process Costing    Large quantities produced of homogeneous products Average cost = total costs divided by total number of items produced When completed, number of units completed times average cost determines cost to be moved from WIP to Finished Goods Slide 3-4 Learning objective 1: Describe how products flow through departments and how costs flow through accounts Test Your Knowledge Which of the following characteristics are associated with a process costing system? a b Heterogeneous products Homogeneous products Answer: b .Heterogeneous products are unique .Homogeneous products are identical  Process costing is associated with identical products Slide 3-5 Learning objective 1: Describe how products flow through departments and how costs flow through accounts Test Your Knowledge Which of the following characteristics are associated with a process costing system? a b Continuous production Discontinuous production Answer: a .Job order costing is associated with discontinuous production .Process costing is associated with continuous production Slide 3-6 Learning objective 1: Describe how products flow through departments and how costs flow through accounts Test Your Knowledge Which of the following characteristics are associated with a process costing system? a b Costs are traced to jobs Costs are traced to processing departments Answer: b .Job order costing requires tracing costs to jobs .Process costing is associated with tracing costs to departments Slide 3-7 Learning objective 1: Describe how products flow through departments and how costs flow through accounts Test Your Knowledge An example of a business requiring a process costing system would be a(n): a b c d Custom cabinet shop Antique furniture restorer Soap manufacturer Automobile repair shop Answer: c A soap manufacturer produces many identical units Slide 3-8 Learning objective 1: Describe how products flow through departments and how costs flow through accounts Job-Order Job-Order Costing Costing System System Slide 3-9 Learning objective 1: Describe how products flow through departments and how costs flow through accounts Process Process Costing Costing System System Slide 3-10 Learning objective 1: Describe how products flow through departments and how costs flow through accounts Basic Basic Steps Steps in in Process Process Costing Costing Step 1: Account for the physical number of units The number of units at the start of the period plus the number of units started during the period should equal the number of units completed plus the number of units in ending Work in Process Slide 3-39 Learning objective 3: Describe a production cost report Basic Basic Steps Steps in in Process Process Costing Costing Step 2: Calculate the cost per equivalent unit for material, labor, and overhead Remember that cost (numerator in the calculation) includes both beginning cost and cost incurred during the period The number of equivalent units (denominator) includes the number of units completed and the number of equivalent units in ending Work in Process Cost per equivalent unit = (cost in beginning WIP + costs added) (units completed + EU of ending WIP) Slide 3-40 Learning objective 3: Describe a production cost report Basic Basic Steps Steps in in Process Process Costing Costing Step 3: Assign cost to items completed and items in ending Work in Process The cost of items completed is simply the product of the total cost per equivalent unit and the number of units completed The cost of items in Work in Process is the sum of the products of equivalent units in process and cost per equivalent unit for material, labor, and overhead Slide 3-41 Learning objective 3: Describe a production cost report Basic Basic Steps Steps in in Process Process Costing Costing Step 4: Account for the amount of product cost The cost of beginning inventory plus the cost incurred during the period should equal the amount of cost assigned to completed items plus the amount of cost assigned to items in ending Work in Process Slide 3-42 Learning objective 3: Describe a production cost report Dealing Dealing with with Transferred-In Transferred-In Cost Cost  Packaging Department summary  Beginning Work in Process 15,000 gallons 50% through packaging operation  Costs in WIP: materials $10,500, labor $4,500, $9,000 overhead, $92,250 transferred in  Units transferred in 60,000 gallons with $360,000 transferred in cost  Costs added:  Slide 3-43 Materials $49,500, labor $27,900, $55,800 overhead Ending Work in Process 5,000 gallons 40% through packaging operation Learning objective 3: Describe a production cost report Production Production Cost Cost Report Report –– Packaging Packaging Department Department Slide 3-44 Learning objective 3: Describe a production cost report Production Production Cost Cost Report Report –– Packaging Packaging Department Department Slide 3-45 Learning objective 3: Describe a production cost report Production Production Cost Cost Report Report –– Packaging Packaging Department Department Slide 3-46 Learning objective 3: Describe a production cost report Test Your Knowledge 10 The packaging department at Rainier Chemical had no beginning Work in Process at the start of April During April, the department received $300,000 of transferred-in cost During April, the department completed 600 units and 200 were in Work in Process With respect to transferred-in cost, the 200 units in Work in Process are: a b c d Equivalent to 200 completed units Equivalent to completed units Equivalent to 100 completed units Identical to the equivalent units for conversion costs Answer: a Since processing was completed in another department, units transferred in are 100% complete for all categories Slide 3-47 Learning objective 3: Describe a production cost report Process Process Costing Costing and and Incremental Incremental Analysis Analysis  Whenever we make a decision, we need to perform incremental analysis  We need to determine the change in revenue and the change is cost, assuming a particular alternative is selected  If the net change is positive, the decision alternative is “good” since it will have a positive impact on firm profit  If the net change is negative, the decision alternative is “bad” in that it will have a negative impact on firm profit Slide 3-48 Learning objective 3: Describe a production cost report Process Process Costing Costing and and Incremental Incremental Analysis Analysis  When using process costing information to make a decision, we have to be careful to recognize that the cost per unit is the average of fixed and variable costs  It does not measure the change in cost associated from producing an additional unit  Slide 3-49 Generally, total fixed costs not change when one additional unit is produced Learning objective 3: Describe a production cost report Process Process Costing Costing and and Incremental Incremental Analysis Analysis     Slide 3-50 A company has no beginning or ending Work in Process Variable costs are materials and labor Fixed cost is manufacturing overhead Cost summary: Learning objective 3: Describe a production cost report Process Process Costing Costing and and Incremental Incremental Analysis Analysis    Decreasing price to $2.90 will increase demand to 275,000 units $2.90 is less than equivalent cost per unit Incremental analysis: profit will increase Slide 3-51 Learning objective 3: Describe a production cost report You You Get Get What What You You Measure Measure Slide 3-52 Copyright Copyright © 2016 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 Slide 3-53 .. .CHAPTER CHAPTER 33 Process Costing Difference Difference Between Between Job-Order Job-Order and and