PROCESS COSTING CHAPTER © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use CHAPTER OBJECTIVES Describe the basic characteristics of process costing, including cost flows, journal entries, and the cost of production report Describe process costing for settings without work-in-process inventories Describe process costing for settings with ending work-in-process inventories Prepare a departmental production report using the FIFO method © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use CHAPTER OBJECTIVES Prepare a departmental production report using the weighted average method Prepare a departmental production report with transferred-in goods and changes in output measures Describe the basic features of operation costing Explain how spoilage is treated in a process-costing system © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use BASIC OPERATIONAL AND COST CONCEPTS • A process system is characterized by a large number of homogeneous products passing through a series of processes • Each process is responsible for one or more operations that bring a product one step closer to completion • A process is a series of activities that are linked to perform a specific objective LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use BASIC OPERATIONAL AND COST CONCEPTS • Each process may require materials labor and overhead inputs • Upon completion of a particular process, the partially completed goods are transferred to another process LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.1—AN OPERATIONAL PROCESS SYSTEM: ANTIHISTAMINE MANUFACTURING LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use BASIC OPERATIONAL AND COST CONCEPTS Cost Flows •Cost flows for a process-costing system are basically similar to those of a job-order costing system •There are two key differences • First, a job-order costing system accumulates production costs by job, and a process-costing system accumulates production costs by process • Second, for manufacturing firms, the job-order costing system uses a single work-in-process (WIP) account, while the process-costing system has a WIP account for every process LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.2—COMPARISON OF COST ACCUMULATION METHODS LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.2—COMPARISON OF COST ACCUMULATION METHODS (CONTINUED) LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.3—PROCESS COST FLOWS ILLUSTRATED USING T-ACCOUNTS: NO ENDING WIP LO-1 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.6—PRODUCTION REPORT: BLENDING DEPARTMENT LO-5 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.6—PRODUCTION REPORT: BLENDING DEPARTMENT (CONTINUED) LO-5 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use WEIGHTED AVERAGE COSTING METHOD FIFO Compared with Weighted Average •Differ on two key dimensions How output is computed What costs are used for calculating the period’s unit cost •The two methods use different total costs and different measures of output LO-5 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use TREATMENT OF TRANSFERRED-IN GOODS • The cost of this material is the cost of the goods transferred out computed in the prior department • The units started in the subsequent department correspond to the units transferred out from the prior department • The units of the transferring department may be measured differently than the units of the receiving department LO-6 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.7—PRODUCTION AND COST DATA: ENCAPSULATING DEPARTMENT LO-6 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use TREATMENT OF TRANSFERRED-IN GOODS Step Step 1: 1: Physical Physical Flow Flow Schedule Schedule LO-6 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.8—EQUIVALENT UNITS OF PRODUCTION: WEIGHTED AVERAGE METHOD Step Step 2: 2: Calculation Calculation of of Equivalent Equivalent Units Units LO-6 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use TREATMENT OF TRANSFERRED-IN GOODS Step Step 3: 3: Computation Computation of of Unit Unit Costs Costs LO-6 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use TREATMENT OF TRANSFERRED-IN GOODS Step Step 4: 4: Valuation Valuation of of Inventories Inventories LO-6 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.9—PRODUCTION REPORT: ENCAPSULATING DEPARTMENT LO-7 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.9—PRODUCTION REPORT: ENCAPSULATING DEPARTMENT (CONTINUED) LO-7 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use OPERATION COSTING Basics of Operation Costing •A blend of job-order and process-costing procedures applied to batches of homogeneous products • Uses job-order procedures to assign direct materials costs to batches • Uses process procedures to assign conversion costs •Work orders are used to collect production costs for each batch • Work orders also are used to initiate production LO-7 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.10—BASIC FEATURES OF OPERATION COSTING LO-7 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use EXHIBIT 6.10—BASIC FEATURES OF OPERATION COSTING (CONTINUED) LO-7 © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use END OF CHAPTER © 2014 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use .. .CHAPTER OBJECTIVES Describe the basic characteristics of process costing, including cost flows, journal entries, and the cost of production report Describe process costing for settings... OPERATIONAL AND COST CONCEPTS Cost Flows Cost flows for a process-costing system are basically similar to those of a job-order costing system •There are two key differences • First, a job-order costing... password-protected website for classroom use TREATMENT OF TRANSFERRED-IN GOODS Step Step 3: 3: Computation Computation of of Unit Unit Costs Costs LO -6 © 2014 Cengage Learning All Rights Reserved May