Chapter 18 Costing Systems Process Costing Belverd E
Chapter 18 Costing Systems: Process Costing Belverd E. Needles, Jr. Marian Powers Sherry K. Mills Henry R. Anderson -----Multimedia Slides by: Dr. Paul J. Robertson New Mexico State University Steve Leask New Mexico State University Copyright ã Houghton Mifflin Company. All rights reserved. 18 -1
Patterns of Product Flows OBJECTIVE 2 Relate the patterns of product flows in a process costing environment to the process cost flow approaches. 18 -2 Copyright ã Houghton Mifflin Company. All rights reserved.
Product Flows » During production in a process costing environment, products flow through several departments or processes. » A company may use a number of separate processes to manufacture many different components, which will become direct materials. 18 -3 Copyright ã Houghton Mifflin Company. All rights reserved.
Cost Flow Approaches » In process costing, costs are accumulated by department and are passed to each subsequent department as the product is made. » The accumulated costs may be assigned to products using either the FIFO costing approach or the average costing approach. 18 -4 Copyright ã Houghton Mifflin Company. All rights reserved.
Cost Flows Through the Work in Process Inventory Accounts OBJECTIVE 3 Explain the role of the Work in Process Inventory account(s) in a process costing system. 18 -5 Copyright ã Houghton Mifflin Company. All rights reserved.
Cost Flows » The main difference between job order costing and process costing is the way in which costs are assigned to products. 18 -6 Copyright ã Houghton Mifflin Company. All rights reserved.
Cost Flows » In a job order costing system, costs are traced to specific jobs and products. » In a process costing system, an averaging technique is used. 18 -7 Copyright ã Houghton Mifflin Company. All rights reserved.
Process Costing System » All products worked on during a specific time period are used for computing unit cost. · Total costs of direct materials, direct labor, and manufacturing overhead accumulated in the Work in Process Inventory account are divided by the equivalent units for products worked on during the period. 18 -8 Copyright ã Houghton Mifflin Company. All rights reserved.
Work in Process Inventory » There is one Work in Process Inventory account for each process or department in the production process. 18 -9 Copyright ã Houghton Mifflin Company. All rights reserved.
The Process Cost Report » A process cost report helps managers track and analyze costs in a process costing system. » The process cost report consists of three schedules: 1. The schedule of equivalent production. 2. The unit cost analysis schedule. 3. The cost summary schedule. 18 -10 Copyright ã Houghton Mifflin Company. All rights reserved.
Equivalent Production » Equivalent production is a measure of the number of equivalent whole units produced in a period of time. 18 -11 Copyright ã Houghton Mifflin Company. All rights reserved.
Equivalent Units » Equivalent units under the FIFO costing approach are the sum of several elements. · Units started and completed during the period. · Units in ending work in process times their percentage of completion. · Units in beginning work in process (one minus their percentage of completion). 18 -12 Copyright ã Houghton Mifflin Company. All rights reserved.
Computation of Equivalent Units Equivalent production for conversion costs for Week 2 = 4. 25 units Units started and completed during Week 2 = 3. 0 units . 5 A Week 1 . 5 1. 0 B C D Week 2 . 75 . 25 E Week 3 18 -13 Copyright ã Houghton Mifflin Company. All rights reserved.
The Schedule of Equivalent Production » The schedule of equivalent production includes unit figures for two elements. · Materials. · Conversion costs. 18 -14 Copyright ã Houghton Mifflin Company. All rights reserved.
Step 1: Schedule of Equivalent Production: With Beginning Inventory Kernan Computer Products Company Schedule of Equivalent Production - Cables For the Month Ended February 28, 20 xx Equivalent Units Stage of Completion Beginning inventory - units started last period but completed in this period Units to Be Accounted For Direct Materials Costs 6, 200 (Direct materials costs 100% complete) (Conversion costs 60% complete) Units started and completed in this period Ending inventory - units started but not completed in this period 2, 480 52, 500 5, 000 (Direct materials costs 100% complete) (Conversion costs 60% complete) Totals Conversion Costs 63, 700 57, 500 2, 250 57, 230 18 -15 Copyright ã Houghton Mifflin Company. All rights reserved.
Step 2: Unit Cost Determination Kernan Computer Products Company Unit Cost Analysis Schedule - Cables For the Month Ended February 28, 20 xx Current Total Cost Analysis Costs from Total Costs to Period Beginning Be Accounted Costs Inventory For Direct materials cost Conversion costs Totals $20, 150 21, 390 $41, 540 Computation of Equivalent Unit Costs from Current Period Direct materials costs Conversion costs $189, 750 320, 488 Totals $510, 238 $189, 750 320, 488 $510, 238 Equivalent + Units 57, 500 $209, 900 341, 878 $551, 778 Cost per Equivalent = Unit $ 3. 30 5. 60 $ 8. 90 18 -16 Copyright ã Houghton Mifflin Company. All rights reserved.
Step 3: Cost Summary Schedule Kernan Computer Products Company Cost Summary Schedule - Cables For the Month Ended February 28, 20 xx Cost of Goods Transferred to Finished Goods Inventory Cost of Ending Total Costs Work in to Be Process Accounted Inventory For Beginning inventory Costs from preceding period $ 41, 540 Costs to complete this period Direct materials costs: none ---Conversion costs: 2, 480 units x $5. 60 13, 888 Subtotal $ 55, 428 Units started and completed 52, 500 units x $8. 90 467, 250 Ending inventory Direct materials costs: 5, 000 units x $3. 30 Conversion costs: 2, 250 units x $5. 60 Totals $522, 678 $16, 500 12, 600 + $29, 100 = $551, 778 18 -17 Copyright ã Houghton Mifflin Company. All rights reserved.
Process Costing and Activity-Based Costing OBJECTIVE 5 Apply activity-based costing to a process costing system. 18 -18 Copyright ã Houghton Mifflin Company. All rights reserved.
Traditional Process Costing System » In a traditional process costing system, only costs that can be traced directly to the process and indirect production costs are assigned to the Work in Process Inventory account. 18 -19 Copyright ã Houghton Mifflin Company. All rights reserved.
Activity-Based Costing » In an activity-based costing system, all costs are first divided into two groups: · Those that are directly traceable to a product, process, or department. · Those that are not directly traceable to a cost object. 18 -20 Copyright ã Houghton Mifflin Company. All rights reserved.
Activity-Based Costing System » The first step is the calculation of the assignment rate for each cost driver for the overall company. » The second step is to assign the costs applicable to the department. » The third step is to prepare a process cost report. 18 -21 Copyright ã Houghton Mifflin Company. All rights reserved.
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