Copyright © 2007 Prentice-Hall. All rights reserved 1 Process Costing Chapter 4
Copyright © 2007 Prentice-Hall. All rights reserved 2 Objective 1 Distinguish between the flow of costs in process costing and job order costing
Copyright © 2007 Prentice-Hall. All rights reserved 3 Cost of Goods Sold Manufacturing Wages Materials Inventory Finished Goods Manufacturing Overhead Job Order Costing Work in Process Job 90 Job 91 Job 92
Copyright © 2007 Prentice-Hall. All rights reserved 4 Cost of Goods Sold Manufacturing Wages Materials Inventory Finished Goods Process Costing Work in Process, Mixing Dept Work in Process, Molding Dept Work in Process, Packaging Dept Manufacturing Overhead
Copyright © 2007 Prentice-Hall. All rights reserved 5 Tracking Costs Account for the goods completed and transferred out Account for the cost of incomplete units that remain as a department’s ending work in process inventory
Copyright © 2007 Prentice-Hall. All rights reserved 6 Key Concepts Conversion costs –Costs incurred to convert raw materials into a finished product –Direct labor plus manufacturing overhead Equivalent unit of production –Amount of work done during a period in terms of fully complete units of output Inventory flow assumptions –Weighted average –First-in, first-out
Copyright © 2007 Prentice-Hall. All rights reserved 7 Objective 2 Compute equivalent units
Copyright © 2007 Prentice-Hall. All rights reserved 8 E4-15 Step 1: Summarize the flow of physical units Units to account for Units accounted for Blending Department Beginning WIP Units placed in production + Units completed Units in Ending WIP 08,0006,0002,
Copyright © 2007 Prentice-Hall. All rights reserved 9 E4-15 Start Dyes added 100% complete 30% complete 2,000 units started but not finished 6,000 units completed and transferred out Step 2: Compute output in terms of equivalent units
Copyright © 2007 Prentice-Hall. All rights reserved 10 E4-15 Equivalent units for direct materials: 8,000 units x 100% complete8,000 Equivalent units for conversion costs: 6,000 units x 100% complete6,000 2,000 units x 30% complete600 6,600
Copyright © 2007 Prentice-Hall. All rights reserved 11 Objective 3 Use process costing to assign manufacturing costs to units completed and to units in ending work in process inventory in a first department
Copyright © 2007 Prentice-Hall. All rights reserved 12 E4-15 Step 3: Summarize total costs to account for. Beginning work in process inventory $ 0 Costs added during May: Direct materials (dyes) 4,800 Direct labor 800 Manufacturing overhead 1,840 Total costs to account for$7,440
Copyright © 2007 Prentice-Hall. All rights reserved 13 E4-15 Blending Department Direct Materials Conversion Costs Beginning work in process$ 0 Costs added during period Divide by equivalent units Cost per equivalent unit Step 3: Compute the cost per equivalent unit $4,800 ÷ 8,000 $0.40$0.6 0 $2,640 ÷ 6,600
Copyright © 2007 Prentice-Hall. All rights reserved 14 E4-15 Direct Materials Conversi on Costs Total Completed and transferred out (6,000) Ending WIP (2,000) Direct materials Conversion costs Total cost of ending WIP Total costs accounted for Step 4: Assign costs to units completed and to units in ending work in process inventory 6,000 x ($ ) $6,000 2,000 x $ x 0.40 $7,440 1, $1,200
Copyright © 2007 Prentice-Hall. All rights reserved 15 E4-16 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Work in process inventory blending department7,440 Materials inventory4,800 Manufacturing wages800 Manufacturing overhead1,840
Copyright © 2007 Prentice-Hall. All rights reserved 16 E4-16 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Work in process inventory packaging department6,000 Work in process inventory blending department6,000
Copyright © 2007 Prentice-Hall. All rights reserved 17 E4-16 Work in process inventory - blending 7,4406,000 Bal. 1,440
Copyright © 2007 Prentice-Hall. All rights reserved 18 E4-16 Average cost per gallon transferred out of blending is: $6,000 ÷ 6,000 gallons = $1.00 per gallon
Copyright © 2007 Prentice-Hall. All rights reserved 19 Objective 4 Use process costing to assign manufacturing costs to units completed and to units in ending work in process inventory in a second department
Copyright © 2007 Prentice-Hall. All rights reserved 20 E4-22 Step 1: Summarize the flow of physical units Units to account for Units accounted for Bottling Department Beginning WIP Units placed in production + Units completed Units in Ending WIP 8,00027,00026,0009,
Copyright © 2007 Prentice-Hall. All rights reserved 21 E4-22 Step 1: Summarize the flow of physical units Beg. Bal. 8,000 Transferred in 27,000 End Bal. 9,000 Work in process, bottling department (units) 26,000
Copyright © 2007 Prentice-Hall. All rights reserved 22 E4-22 Materials added Start 100% complete 80% complete Step 2: Compute output in terms of equivalent units 18,000 units started and completed 8,000 units in process & completed 70% complete 9,000 units started but not finished
Copyright © 2007 Prentice-Hall. All rights reserved 23 E4-22 Equivalent units transferred in: Completed and transferred out26,000 Ending work in process9,000 Total units to account for35,000
Copyright © 2007 Prentice-Hall. All rights reserved 24 E4-22 Equivalent units: Direct materials Completed and transferred out26,000 Ending work in process 9,000 Total35,000
Copyright © 2007 Prentice-Hall. All rights reserved 25 E4-22 Equivalent units for conversion costs: Completed and transferred out26,000 Ending WIP -9,000 x 70%6,300 Total32,300
Copyright © 2007 Prentice-Hall. All rights reserved 26 Step 3: Compute the cost per equivalent unit E4-22 Costs to be Accounted For: Trans inDir. Mat. Conv. Costs Total Beginning WIP $ 20,050$20,250$19,816$60,116 Costs added 97,20074,25090,650262,100 Total costs $117,250$94,500$110,466 ÷ equivalent unit 35,000 32,300 Cost/equiv unit $3.35$2.70$3.42 Total costs to account for $322,216
Copyright © 2007 Prentice-Hall. All rights reserved 27 Step 3: Compute the cost per equivalent unit E4-22 Trans inDir. Mat.Conv CostsTotal Completed & transferred out 26,000 x ($3.35+$2.70+$3.42)$246,220 Ending WIP Transferred in 9,000x$3.35 $30,150 Direct materials 9,000 $ ,300 Conversion 6,300x$3.4221,546 Total WIP $75,996 Total costs accounted for $322,216
Copyright © 2007 Prentice-Hall. All rights reserved 28 E4-14 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT a.Raw materials inventory9,000 Accounts payable9,000 b.Work in process inventory Assembly 4,000 Work in process inventory Finishing2,000 Raw materials inventory6,000
Copyright © 2007 Prentice-Hall. All rights reserved 29 E4-14 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT c.Manufacturing wages10,800 Wages payable10,800 d.Manufacturing overhead10,900 Property tax payable1,900 Utilities payable4,500 Prepaid insurance1,100 Accumulated depreciation3,400
Copyright © 2007 Prentice-Hall. All rights reserved 30 E4-14 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT e.Work in process inventory- Assembly7,600 Manufacturing wages4,700 Manufacturing overhead2,900 f.Work in process inventory – Finishing10,600 Manufacturing wages4,400 Manufacturing overhead6,200
Copyright © 2007 Prentice-Hall. All rights reserved 31 E4-14 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT g.Work in process inventory Finishing10,250 Work in process inventory Assembly10,250 h.Finished goods inventory15,600 Work in process inventory Finishing15,600
Copyright © 2007 Prentice-Hall. All rights reserved 32 End of Chapter 4