Chapter 10 Process Costing.

Slides:



Advertisements
Similar presentations
CHAPTER 16 Process Costing.
Advertisements

Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fourth Edition Wild, Shaw, and Chiappetta Fourth Edition McGraw-Hill/Irwin Copyright © 2011.
Managerial Accounting Wild and Shaw Third Edition Wild and Shaw Third Edition McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All.
Financial and Managerial Accounting John J. Wild Third Edition John J. Wild Third Edition McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies,
Copyright © 2012 McGraw-Hill Ryerson Limited 4-1 PowerPoint Author: Robert G. Ducharme, MAcc, CA University of Waterloo, School of Accounting and Finance.
Systems Design: Process Costing 2/23/04
Systems Design: Process Costing Chapter 4. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Job-order Costing Process Costing F Many units of.
Copyright © 2006, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin 11 th Edition Chapter 4.
Systems Design: Process Costing
Chapter 6: Process Costing
Cost Management Chapter 6 Process Costing
Systems Design: Process Costing Chapter 4. © The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill Types of Costing Systems Used to Determine Product.
Kinney ● Raiborn Cost Accounting: Foundations and Evolutions, 8e © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,
Chapter 4 Process Costing. Similarities Between Job-Order and Process Costing Both systems assign material, labor and overhead costs to products and they.
Copyright © 2006, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin Process Costing.
Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fifth Edition Wild, Shaw, and Chiappetta Fifth Edition Copyright © 2013 by The McGraw-Hill.
Process-Costing Systems
Process Costing Management Accounting: The Cornerstone for Business Decisions Copyright ©2006 by South-Western, a division of Thomson Learning. All rights.
Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008 Process Costing Chapter Eleven.
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Process Cost Accounting
PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright.
Traditions and Innovations
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8 Process-Costing Systems.
19-1 P ROCESS C OST S YSTEMS CHAPTER F Used for production of small, identical, low-cost items. F Mass produced in automated continuous production.
Chapter 4 Systems Design: Process Costing. © The McGraw-Hill Companies, Inc., 2005 McGraw-Hill /Irwin Types of Costing Systems Used to Determine Product.
Lecture 6 COSTING SYSTEMS 1 Job Costing Reference : Course Text Chapter 2.
Module 6: Process Cost Systems ACG 2071 Created by M. Mari Fall
Copyright © 2008, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin Chapter Four Systems Design: Process Costing.
Prepared by Diane Tanner University of North Florida Chapter 17 1 Process Costing.
Copyright © 2008, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin Chapter Four Systems Design: Process Costing.
Chapter 6 Process Costing Cost Accounting Foundations and Evolutions Kinney and Raiborn Seventh Edition COPYRIGHT © 2009 South-Western, a part of Cengage.
IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT 1 Process Costing Chapter 11 Objectives: Explain the basic ideas underlying process.
 assign material, labor, and manufacturing overhead costs to products and to provide a mechanism for computing unit product costs.  Same accounts and.
4-1 Chapter Four Systems Design: Process Costing.
Chapter 18 Process Costing
Managerial Accounting
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. Process Costing Chapter5 1.
Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fifth Edition Wild, Shaw, and Chiappetta Fifth Edition McGraw-Hill/Irwin Copyright © 2013.
PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright.
© John Wiley & Sons, 2011 Chapter 6: Process Costing Eldenburg & Wolcott’s Cost Management, 2eSlide # 1 Cost Management Measuring, Monitoring, and Motivating.
PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright.
© 2011 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.
© The McGraw-Hill Companies, Inc., 2007 McGraw-Hill /Irwin Systems Design: Process Costing Chapter 4.
CHAPTER 6: PROCESS COSTING Cost Management, Canadian Edition © John Wiley & Sons, 2005 Chapter 6: Process Costing Cost Management, Cdn Ed, by Eldenburg.
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8 Process-Costing Systems.
Chapter 18 Process Costing. Describe the flow of costs through a process costing system 18-2.
Chapter 11 Process Costing. Chapter 11 Process Costing.
Process Costing and Hybrid Product-Costing Systems
Process Costing Systems
Process Costing and Hybrid Product- Costing Systems
Process Costing CHAPTER 4.
Process Costing Lecture 4. Process Costing Lecture 4.
Process Costing Chapter 04 Introduction to Managerial Accounting
Process Costing ACCTG 404 ACCTG 404 Huddart.
MANAGEMENT ACCOUNTING
Chapter 6: Process Costing
Prepared by Debby Bloom-Hill CMA, CFM
Systems Design: Process Costing
Chapter 18 Process Costing
November 13-16, 2015 Process Costing
Foundations and Evolutions
Power Notes Chapter 18 Process Cost Systems Learning Objectives C18
Process Costing Chapter 04 Chapter 4: Process Costing
Process Costing Chapter 04 Introduction to Managerial Accounting
Process Costing Chapter 04 Introduction to Managerial Accounting
Process Costing Chapter 04 Introduction to Managerial Accounting
CHAPTER 17 Process Costing Spoilage, Rework, and Scrap.
Process Costing Chapter 04 Introduction to Managerial Accounting
Presentation transcript:

Chapter 10 Process Costing

Learning Objectives 1. How does process costing differ from job order product costing? 2. Why are equivalent units of production used in process costing? C1

Continuing . . . Learning Objectives 3. How are equivalent units of production computed using the weighted average and FIFO methods of process costing? 4. How are unit costs and inventory values calculated using the weighted average and FIFO methods of process costing? C1

Continuing . . . Learning Objectives 5. How is a cost of production report prepared? 6. What use do standard costs have in a process costing system? C1

Continuing . . . Learning Objectives 7. What is the effect of multi-department processing on the computation of equivalent units of production? 8. How can quality control minimize spoilage? 9. How are journal entries prepared for a process costing system? (Appendix) C1

Costing Systems Process Hybrid Job order

Differences Between Job Order and Process Costing Quantity of production for which costs are being accumulated at any one time Cost object to which the costs are assigned Page 219

Flow of Product Through System Process 1 Materials Conversion Costs Process 2 Finished Product Process 3 Note: Raw materials can be added in all departments.

Assigning Costs to Production Production costs = Material + Labor + Overhead Costs assigned to each process during period Unit costs determined for each cost component and each process Cost of completed unit = Sum of costs per unit for all processes through which product passes

Production Costs Direct material cost measured from material requisition slips and invoiced prices Direct labor cost determined from employee time sheets and wage rates Overhead costs assigned through use of predetermined rates or actual costs Actual overhead costs can be used if relatively constant each period and production volume is relatively steady Page 223

Quantity of Production Process costing assigns costs to both fully and partially completed units by converting partially completed units to equivalent whole units or to equivalent units of production.

Equivalent Units of Production + OR and

Two Process Costing Methods Weighted average (WA) method Computes average cost per unit of production Focuses on units completed during period and units that remain in ending WIP FIFO method Keeps beginning inventory and current period production and costs separated Page 226

Steps in Processing Costing 1. Calculate the total physical units for which the department is responsible 2. Determine what happened to the units Where are they at the end of the period? Completed and transferred Partially completed and remaining in ending WIP 3. Use either weighted average or FIFO method to determine EUP for each cost component Page 228

Continuing . . . Steps in Processing Costing 4. Find the total cost to account for Beginning WIP costs All current costs 5. Compute cost per EUP for each cost component using either WA or FIFO EUP 6. Assign costs Units completed and transferred Units remaining in ending WIP Page 229

Material added at start of production Labor and overhead added evenly Exhibit 10-5 Example Material added at start of production Labor and overhead added evenly Complete as to Conversion Costs Units Beginning inventory 30% 12,000 Cards started during the month 115,500 Cards completed during the month 120,700 Ending inventory 80% 6,800

Exhibit 10-5 Example Cost of beginning inventory: Direct material $ 45,000.00 Direct labor and OH 4,678.60 $ 49,678.60 Current period costs: Direct material $334,950.00 Direct labor and OH 202,191.00 537,141.00

Weighted Average: Steps 1 and 2 Beginning inventory 12,000 Units started 115,500 Units to account for 127,500 ====== Units completed and transferred out 120,700 Units in ending WIP inventory 6,800 Total units accounted for 127,500 Page 231

WA: Determining EUP for Material Completed: DM CC From Beginning WIP 12,000 12,000 Started & Completed 108,700 108,700 Total Completed 120,700 Ending Inventory 6,800 6,800 Accounted for 127,500 127,500 ====== ====== Page 232

WA: Determining EUP for Conversion Costs Completed: DM CC From Beginning WIP 12,000 12,000 12,000 Started & Completed 108,700 108,700 108,700 Total Completed 120,700 Ending Inventory 6,800 6,800 5,440 Accounted for 127,500 127,500 126,140 ====== ====== ======

WA: Determining Total Costs to Account for DM CC Total Beginning WIP $ 45,000.00 $ 4,678.60 $ 49,678.60 Current Period 334,950.00 202,191.00 537,141.00 Total Cost to Account For $379,950.00 $206,869.60 $586,819.60 ========= ========= =========

WA: Calculate Cost per EUP DM CC Total Beginning WIP $ 45,000.00 $ 4,678.60 $ 49,678.60 Current Period 334,950.00 202,191.00 537,141.00 Total Cost to Account For $379,950.00 $206,869.60 $586,819.60 EUP  127,500  126,140 Cost per EUP $2.98 $1.64 $4.62 ==== ==== ====

WA: Assign Costs Cost of goods transferred (120,700 x $4.62) $557,634.00 Ending Inventory: (6,800 units) Material (6,800 x $2.98) $20,264.00 Conversion Costs (5,440 x $1.64) 8,921.60 29,185.60 Total Costs Accounted for $586,819.60 =========

FIFO: Determining EUP for Material Completed: DM CC From Beginning WIP 12,000 0 Started & Completed 108,700 108,700 Total Completed 120,700 Ending Inventory 6,800 6,800 Accounted for 127,500 115,500 ====== ======

FIFO: Determining EUP for Conversion Costs Completed: DM CC From Beginning WIP 12,000 0 8,400 Started & Completed 108,700 108,700 108,700 Total Completed 120,700 Ending Inventory 6,800 6,800 5,440 Accounted for 127,500 115,500 122,540 ====== ====== ======

FIFO: Calculate Cost per EUP DM CC Total Beginning WIP $ 49,678.60 Current Period $334,950.00 $202,191.00 537,141.00 Total Cost to Account For $586,819.60 ========= EUP  115,500  122,540 Cost per EUP $2.90 $1.65 $4.55 ==== ==== ====

FIFO: Assign Costs Cost of goods transferred: Beginning inventory costs $ 49,678.60 Costs to complete: Conversion costs (8,400 x $1.65) 13,860.00 Total cost of BI transferred $ 63,538.60 Started and completed (108,700 x $4.55) 494,585.00 $558,123.60 Ending Inventory: (6,800 units) Material (6,800 x $2.90) $19,720.00 Conversion Costs (5,440 x $1.65) 8,976.00 28,696.00 Total Costs Accounted for $586,819.60 =========

Process Costing with Standard Costs Actual costing requires that a new production cost be computed each production period. Standard costing eliminates such recomputations, although standards do need to be reviewed at least once a year to keep the amounts current.

Comparison of WA and FIFO Methods Cost assignment is easier for WA method FIFO method reflects actual physical flow of goods through production When period costs fluctuate, FIFO method gives managers better information with which to control costs and on which to base decisions because it does not combine costs of different periods FIFO method focuses on current period costs – managerial performance is evaluated on basis of costs incurred only in the current period

Multiple Departments: Succeeding Departments EUP_____ TI DM CC Beginning Inventory ### 100% Transferred In ### 100% To account for ### Completed ### Ending Inventory ### 100% Accounted for ###

Method of Neglect Under the method of neglect: Spoiled units are simply excluded from the equivalent unit production schedule. The total cost of producing both good and spoiled units is assigned solely to the good units, raising the cost of those units.

Implementing Quality Processes Managers who are aware of spoilage costs can make better decisions as to whether to ignore the causes of spoilage or try to correct them. Impediments to such awareness include using the method of neglect and “burying” the cost of spoilage in predetermined overhead rates rather than accounting for the spoilage separately.

Continuing . . . Implementing Quality Processes Many companies now build quality into their processes, which reduces the need for quality control inspections. Often, these companies use statistical process control (SPC) to reduce spoilage. SPC relies on the idea that natural variations occur in a process over time due to random factors and are to be expected.