Chapter 4 - Process costing and hybrid product-costing systems. After completing this chapter, you should be able to: List and explain the similarities and important differences between job-order and process costing, prepare journal entries to record the flow of costs in a process-costing system with sequential production departments, prepare a table of equivalent units under weighted-average process costing,...
Chapter Process Costing and Hybrid Product-Costing Systems Copyright © 2014 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Comparison of Job-Order Costing and Process Costing Job-order costing Process costing Costs accumulated by the Costs accumulated by Work in process has a job- Work in process has a job cost sheet for each job Many unique, high cost jobs Jobs built to customer order department or process production report for each batch of products A few identical, low cost products Units continuously produced for inventory in automated process 42 Process Cost Flows Work-in-Process Inventory Directmaterial Directlabor Applied manufacturing overhead One Production Department Finished Goods Inventory Cost of goods completed and transferred to finished goods Cost of Goods Sold Cost of goods sold during current period 43 Process Cost Flows Two Sequential Production Departments Work-in-Process Inventory Work-in-Process Inventory Production Department A Production Department B Cost of goods completed Direct material Direct labor in department A and Cost of goods completed Applied manufacturing transferred to and transferred to overhead department B finished goods Direct material Direct labor Applied manufacturing overhead Finished Goods Inventory Cost of Goods Sold Cost of goods sold during current period 44 Equivalent Units: A Key Concept Costs Costsare areaccumulated accumulatedfor foraaperiod periodof oftime timefor for products productsin inwork-in-process work-in-processinventory inventory Products Productsin inwork-in-process work-in-processinventory inventoryat atthe the beginning beginningand andend endof ofthe theperiod periodare areonly onlypartially partially complete complete Equivalent Equivalentunits unitsis isaaconcept conceptexpressing expressingthese these partially partiallycompleted completedproducts productsas asaasmaller smallernumber numberof of fully fullycompleted completedproducts products 45 Equivalent Units Example Two half completed products are equivalent to one completed product + = l So, 10,000 units that are 70% complete are equivalent to 7,000 complete units 46 Calculating and Using Equivalent Units of Production To calculate the direct materials and conversion costs per equivalent unit for the period: Materials cost per equivalent unit Conversion cost per equivalent unit = = Materials cost for the period Materials equivalent units for the period Conversion cost for the period Conversion equivalent units for the period 47 Departmental Production Report Analysis of physical flow of units Calculation of equivalent units Production Report Computation of unit costs Analysis of total costs 48 Equivalent Units of Production – Weighted-Average Method The weighted-average method Makes no distinction between work done in the prior period and work done in the current period Blends together units and costs from the prior period and the current period The FIFO method is a more complex method and is rarely used in practice 49 Production Report Example Computation of unit costs Direct Material Work in Process, March Costs incurred during March Total costs to account for $ 50,000 90,000 $ 140,000 Equivalent units Cost per equivalent unit 50,000 $ 2.80 Conversion $ 7,200 193,500 $ 200,700 $ $140,000 ÷ 50,000 equivalent units 45,000 4.46 Total $ 57,200 283,500 $ 340,700 $ 7.26 $2.80 + $4.46 $200,700 ÷ 45,000 equivalent units 410 Production Report Example Analysis of total costs Cost of goods completed and transferred during March 40,000 units x $7.26 per equivalent unit Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units x $2.80 per equivalent unit Convserion: 5,000 equivalent units x $4.46 per equivalent unit Total cost of March 31 work-in-process Total costs accounted for $ 290,400 $ 28,000 22,300 50,300 $ 340,700 411 Production Report Example Analysis of total costs Cost of goods completed and transferred during March 40,000 units x $7.26 per equivalent unit Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units x $2.80 per equivalent unit Convserion: 5,000 equivalent units x $4.46 per equivalent unit Total cost of March 31 work-in-process Total costs accounted for $ 290,400 $ 28,000 22,300 50,300 $ 340,700 412 Production Report Example Analysis of total costs Cost of goods completed and transferred during March 40,000 units x $7.26 per equivalent unit Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units x $2.80 per equivalent unit Convserion: 5,000 equivalent units x $4.46 per equivalent unit Total cost of March 31 work-in-process Total costs accounted for $ 290,400 $ 28,000 22,300 All costs accounted for 50,300 $ 340,700 413 MVP SPORTS EQUIPMENT COMPANY Production Report: Cutting Department Percentage of Completion Equivalent Units Physical with Respect to Direct Units Conversion Material Conversion Work in process, March Units started during March Total units to account for 20,000 30,000 50,000 10% Units completed and transferred Work in process, March 31 Total units accounted for Total equivalent units 40,000 10,000 50,000 100% 50% Direct Material Work in Process, March Costs incurred during March Total costs to account for $ 50,000 90,000 $ 140,000 Equivalent units Cost per equivalent unit $ 50,000 2.80 40,000 10,000 40,000 5,000 50,000 45,000 Conversion $ 7,200 193,500 $ 200,700 $ 45,000 4.46 Cost of goods completed and transferred during March 40,000 units x $7.26 per equivalent unit Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units x $2.80 per equivalent unit Conversion: 5,000 equivalent units x $4.46 per equivalent unit Total cost of March 31 work-in-process Total costs accounted for Total $ 57,200 283,500 $ 340,700 $ 7.26 $ 290,400 $ 28,000 22,300 50,300 $ 340,700 414 Departmental Production Report Analysis of physical flow of units Calculation of equivalent units Computation of unit costs Analysis of total costs 415 Operation Costing Operation costing employs some aspects of both job-order and process costing Job-order Costing Operation Costing (Products produced in batches) Process Costing 416 Operation Costing Operation costing employs some aspects of both job-order and process costing Job-order Costing Operation Costing (Products produced in batches) Material costs are charged to batches as in job-order costing Process Costing Conversion costs are assigned to batches as in process costing 417 ... Productsin inwork -in- process work -in- processinventory inventoryat atthe the beginning beginningand andend endof ofthe theperiod periodare areonly onlypartially partially complete complete Equivalent... period 4? ?4 Equivalent Units: A Key Concept Costs Costsare areaccumulated accumulatedfor foraaperiod periodof oftime timefor for products productsin inwork -in- process work -in- processinventory inventory... produced for inventory in automated process 4? ?2 Process Cost Flows Work -in- Process Inventory Directmaterial Directlabor Applied manufacturing overhead One Production Department Finished Goods Inventory