Cost Management ACCOUNTING AND CONTROL HANSEN & MOWEN

Product and Service Costing: A Process Systems Approach CHAPTER 6 Product and Service Costing: A Process Systems Approach

An Operational Process System OBJECTIVE 1 Process-Costing Systems: Basic Operational and Cost Concepts An Operational Process System Mixing Tableting Bottling Selecting Sifting Measuring Blending Loading Pressing Costing Loading Counting Capping Packaging

1 Process-Costing Systems: Basic Operational and Cost Concepts OBJECTIVE 1 Process-Costing Systems: Basic Operational and Cost Concepts Job-Order Costing Manufacturing Costs Direct Materials Direct Labor Applied Overhead Job 206 Job 205 Job 207 Finished Goods

1 Process-Costing Systems: Basic Operational and Cost Concepts OBJECTIVE 1 Process-Costing Systems: Basic Operational and Cost Concepts Process Costing Manufacturing Costs Direct Materials Direct Labor Applied Overhead Tableting Picking Bottling Finished Goods

Operational Model of an Accounting Information System OBJECTIVE 1 Process-Costing Systems: Basic Operational and Cost Concepts Operational Model of an Accounting Information System

Basic Features of a Process Costing System OBJECTIVE 1 Process-Costing Systems: Basic Operational and Cost Concepts Basic Features of a Process Costing System

2 Process Costing with No Work-in-Process Inventories OBJECTIVE 2 Process Costing with No Work-in-Process Inventories Services that are homogeneous and repetitively produced can use the process-costing approach. Examples: check processing in a bank, changing oil, dental cleaning, surgical procedures

2 Process Costing with No Work-in-Process Inventories OBJECTIVE 2 Process Costing with No Work-in-Process Inventories JIT manufacturing firms minimize inventories and strive to reduce work-in-process inventories to insignificant levels.

PSA Department Production Report for January OBJECTIVE 3 Process Costing with Ending Work-in-Process Inventories PSA Department Production Report for January

PSA Department Production Report for January OBJECTIVE 3 Process Costing with Ending Work-in-Process Inventories PSA Department Production Report for January

Cost of Production Report OBJECTIVE 3 Process Costing with Ending Work-in-Process Inventories Cost of Production Report Unit Information Units to be accounted for: Units in beginning work in process 0 Units started and completed 24,000 Units to be accounted for 24,000 Physical Flow Equivalent Units Units accounted for: Units 20,000 20,000 20,000 Units in ending work in process (25% complete) 4,000 1,000 Units accounted for 24,000 Work completed 21,000 Analysis of the flow of physical units Calculation of equivalent units Computation of unit cost Valuation of inventories (goods transferred out and ending work in process) Cost reconciliation

Nonuniform Application of Productive Inputs OBJECTIVE 3 Process Costing with Ending Work-in-Process Inventories Nonuniform Application of Productive Inputs

OBJECTIVE 4 FIFO Costing Method Under the FIFO costing method, the equivalent units and manufacturing costs in beginning work in process are excluded from the current-period unit cost calculation. Thus, FIFO recognizes that the work and costs carried over from the prior period legitimately belong to that period.

OBJECTIVE 4 FIFO Costing Method Estrella Company Mixing Department Product and Cost Data: October

4 FIFO Costing Method Step 1: Physical Flow Analysis OBJECTIVE 4 FIFO Costing Method Step 1: Physical Flow Analysis Physical Flow Schedule: Mixing Department

4 FIFO Costing Method Step 2: Calculation of Equivalent Units OBJECTIVE 4 FIFO Costing Method Step 2: Calculation of Equivalent Units Equivalent Units of Production: FIFO Method

OBJECTIVE 4 FIFO Costing Method Step 3: Computation of Unit Cost

OBJECTIVE 4 FIFO Costing Method Step 4: Valuation of Inventories

OBJECTIVE 4 FIFO Costing Method Step 5: Cost Reconciliation

Production Report: Mixing Department OBJECTIVE 4 FIFO Costing Method Production Report: Mixing Department

OBJECTIVE 4 FIFO Costing Method

5 Weighted Average Costing Method Step 1: Physical Flow Analysis OBJECTIVE 5 Weighted Average Costing Method Step 1: Physical Flow Analysis Physical Flow Schedule: Mixing Department

5 Weighted Average Costing Method OBJECTIVE 5 Weighted Average Costing Method Step 2: Calculation of Equivalent Units Equivalent Units of Production: Weighted Average Method

5 Weighted Average Costing Method Step 3: Computation of Unit Cost OBJECTIVE 5 Weighted Average Costing Method Step 3: Computation of Unit Cost

5 Weighted Average Costing Method Step 4: Valuation of Inventories OBJECTIVE 5 Weighted Average Costing Method Step 4: Valuation of Inventories

5 Weighted Average Costing Method Step 5: Cost Reconciliation OBJECTIVE 5 Weighted Average Costing Method Step 5: Cost Reconciliation

Production Report: Mixing Department OBJECTIVE 5 Weighted Average Costing Method Production Report: Mixing Department

OBJECTIVE 5 Weighted Average Costing Method

FIFO Compared with Weighted Average OBJECTIVE 5 Weighted Average Costing Method FIFO Compared with Weighted Average

6 Treatment of Transferred-In Goods OBJECTIVE 6 Treatment of Transferred-In Goods Estrella Company Tableting Department Production and Cost Data: October

6 Treatment of Transferred-In Goods Step 1: Physical Flow Analysis OBJECTIVE 6 Treatment of Transferred-In Goods Step 1: Physical Flow Analysis

6 Treatment of Transferred-In Goods OBJECTIVE 6 Treatment of Transferred-In Goods Step 2: Calculation of Equivalent Units Equivalent Units of Production: Weighted Average Method

6 Treatment of Transferred-In Goods Step 3: Computation of Unit Cost OBJECTIVE 6 Treatment of Transferred-In Goods Step 3: Computation of Unit Cost

6 Treatment of Transferred-In Goods Step 4: Valuation of Inventories OBJECTIVE 6 Treatment of Transferred-In Goods Step 4: Valuation of Inventories

Production Report: Tableting Department OBJECTIVE 6 Treatment of Transferred-In Goods Production Report: Tableting Department

OBJECTIVE 6 Treatment of Transferred-In Goods

7 Operation Costing Basic Features of Operating Costing Process 1 OBJECTIVE 7 Operation Costing Basic Features of Operating Costing Process 1 (a) (f) Batch B Batch A Batch B (b) Direct Materials Continued on the next slide (c) Process 2 Batch B (d) Panel A: Physical Flow

7 Operation Costing Process 1 Batch B Process 2 Batch A Process 3 OBJECTIVE 7 Operation Costing Process 1 (b) Batch B (c) Process 2 Batch A (g) Process 3 (h) (d) Batch A (i) Batch B Finished Goods (e) (j)

OBJECTIVE 7 Operation Costing

Operation Costing Example OBJECTIVE 7 Operation Costing Operation Costing Example

Operation Costing Example OBJECTIVE 7 Operation Costing Operation Costing Example The following costs are collected from work orders:

Operation Costing Example OBJECTIVE 7 Operation Costing Operation Costing Example 1. Work in Process—Picking 4,000 Materials 4,000 2. Work in Process—Picking 1,000 Conversion Costs Applied 1,000 3. Work in Process—Encapsulating 5,000 Work in Process—Picking 5,000 4. Work in Process—Encapsulating 3,000 Conversion Costs Applied 3,000 Continued

Operation Costing Example OBJECTIVE 7 Operation Costing Operation Costing Example 5. Work in Process—Bottling 8,000 Work in Process—Encapsulating 8,000 6. Work in Process—Bottling 1,500 Conversion Costs Applied 1,500 7. Finished Goods 9,500 Work in Process—Bottling 9,500 The journal entries for the other work order are not shown but would follow a similar pattern.

OBJECTIVE 8 Appendix: Spoiled Units

OBJECTIVE 8 Appendix: Spoiled Units

OBJECTIVE 8 Appendix: Spoiled Units

OBJECTIVE 8 Appendix: Spoiled Units

OBJECTIVE 8 Appendix: Spoiled Units

OBJECTIVE 8 Appendix: Spoiled Units

OBJECTIVE 8 Appendix: Spoiled Units Abnormal spoilage:

OBJECTIVE 8 Appendix: Spoiled Units Abnormal spoilage:

End of Chapter 6