1. Process-Costing Systems Chapter 17

2. 1. Recognize when process-costing systems are used 2. Describe four key steps in process-costing 3. Explain equivalent units 4. Prepare journal entries for process-costing systems 5. Demonstrate the weighted-average method of process costing Learning Objectives

3. 6. Demonstrate the first-in, first-out (FIFO) method of process costing 7. Explain weighted-average process-costing with transferred-in costs 8. Explain FIFO process-costing with transferred- in costs Learning Objectives

4. Process-Costing Systems A process-costing system is a costing system in which the cost of a product or service is obtained by assigning costs to masses of like or similar units and then computing unit costs on an average basis. A process-costing system is a costing system in which the cost of a product or service is obtained by assigning costs to masses of like or similar units and then computing unit costs on an average basis.

5. Identify the products/services that use a process-costing system?

7. Process Costing in Different Industries

8. Global Defense, Inc., DG-19 Direct materials added at beginning Direct materials added at end Transfer Finished Goods AssemblyDepartment TestingDepartment Conversion costs added evenly during process Conversion costs added evenly during process

9. Procedure for Process Costing (1) Summarize the flow of physical units of output. (1) Summarize the flow of physical units of output. (2) Compute output in terms of equivalent units. (2) Compute output in terms of equivalent units. (3) Compute equivalent unit costs. (3) Compute equivalent unit costs. (4) Summarize total costs to account for and assign these costs to units completed and to units in ending work-in-process. (4) Summarize total costs to account for and assign these costs to units completed and to units in ending work-in-process.

10. Units Beginning WIP(March 2008): 225 units 100% completed for materials, 60% completed for conversion costs 60% completed for conversion costs Started during March: 275 units Completed and transferred out Completed and transferred out during March: 400 units during March: 400 units Ending WIP: 100 units 100% completed for materials, 100% completed for materials, 50% completed for conversion costs 50% completed for conversion costs Global Defense, Inc., DG-19, Assembly department

11. Units Beginning WIP(March 19_7): 225 units 100% completed for materials, 60% completed for conversion costs 60% completed for conversion costs Started during March: 275 units Completed and transferred out Completed and transferred out during March: 400 units during March: 400 units Ending WIP: 100 units 100% completed for materials, 100% completed for materials, 50% completed for conversion costs 50% completed for conversion costs Global Defense, Inc., DG-19, Assembly department STEPS 1 AND 2 ARE PERFORMED USING THIS INFORMATION

12. Costs Beginning work-in-process: Direct materials$18,000 Direct materials$18,000 Conversion 8,100 $ 26,100 Conversion 8,100 $ 26,100 Direct materials added during March 19,800 Conversion costs added during March 16,380 Total costs to account for $62,280 Global Defense, Inc., DG-19, Assembly department

13. Costs Beginning work-in-process: Direct materials$18,000 Direct materials$18,000 Conversion 8,100 $ 26,100 Conversion 8,100 $ 26,100 Direct materials added during March 19,800 Conversion costs added during March 16,380 Total costs to account for $62,280 Global Defense, Inc., DG-19, Assembly department THIS INFORMATION IS USED FOR STEPS 3-4.

14. (Step 1) Physical Flow of Production Units Beginning work-in-process 225 Started during March 275 Total(input) 500 Completed and transferred out 400 Ending work-in-process 100 Total(output) 500 (1) Summarize the flow of physical units of output.

15. EquivalentUnits

16. (Step 1) (Step 2) (Step 1) (Step 2) Physical Equivalent Units Physical Equivalent Units Flow of Production Units Material Conversion Beginning work-in-process 225 225 135 Work done in current period only 275 275 315 Total(input) 500 500 450 Completed and transferred out 400 400 400 Ending work-in-process 100 100 50 Total(output) 500 500 450 (2) Compute output in terms of equivalent units.

17. Weighted-Average Method The weighted-average process-costing assigns the average equivalent unit cost of all work done to date(regardless of when it was done) to equivalent units completed and transferred out, and to equivalent units in ending inventory. The weighted-average process-costing assigns the average equivalent unit cost of all work done to date(regardless of when it was done) to equivalent units completed and transferred out, and to equivalent units in ending inventory. The weighted-average cost is simply the average of various equivalent unit costs entering Work in Process account. The weighted-average cost is simply the average of various equivalent unit costs entering Work in Process account.

18. First-In, First-Out (FIFO) Method The FIFO process-costing assigns the cost of the earliest equivalent units available to units completed and transferred out, and the cost of the most recent equivalent units worked on during the period to ending work-in-process inventory. The FIFO process-costing assigns the cost of the earliest equivalent units available to units completed and transferred out, and the cost of the most recent equivalent units worked on during the period to ending work-in-process inventory. This method assumes that the earliest units in Work in Process account are completed first. This method assumes that the earliest units in Work in Process account are completed first.

19. 가중평균법 기초재공품원가 당기투입원가 A B D C A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량

20. 가중평균법 기초재공품원가 +당기투입원가 A B D C A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량 +

21. 가중평균법 기초재공품원가 +당기투입원가 D C 완성품원가 기말재공품 원가 A B + A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량

22. 선입선출법 기초재공품원가 당기투입원가 A B D C A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량

23. 선입선출법 기초재공품원가 당기투입원가 A B D C A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량

24. 선입선출법 기초재공품원가 당기투입원가 A B D C A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량 D C-A 완성품 원가 기말재공 품원가

25. 재료비 $19,800 A B D C C A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량 $18,000 225 275 400 100 ä 기초재공품 환산량 단위당 원가 $18,000/225 = $80 ä 당기투입 환산량 단위당 원가 $19,800/275 = $72 $80 $72

26. 재료비 ( 가중평균법 ) A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량 ä ( 기초재공품 + 당기투입 ) 환산량 단위당 원가 ( $18,000+$19,800)/500 = $75.60 ( $18,000+$19,800)/500 = $75.60 $75.60 A D C C 500 400 100 C 완성품원가 기말재공품 원가 A B + $18,000+$19,800 = $37,800 $75.60*400=$30,240 $75.60*100=$7,560

27. 재료비 ( 선입선출법 ) $19,800 A B D C C A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량 $18,000 225 275 400 100 ä 기초재공품 환산량 단위당 원가 $18,000/225 = $80 ä 당기투입 환산량 단위당 원가 $19,800/275 = $72 $80 $72 $80 완성품원가 기말재공품 원가 $72 $18,000 ($80*225) $72*175 =$12,600 $72*100 =$7,200 175 $18,000 +$12,600 =$30,600

28. 가공비 $16,380 A B D C C A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량 $8,100 135 315 400 50 ä 기초재공품 환산량 단위당 원가 $8,100/135 = $60 ä 당기투입 환산량 단위당 원가 $16,380/315 = $52 $60 $52

29. 가공비 ( 가중평균법 ) A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량 ä ( 기초재공품 + 당기투입 ) 환산량 단위당 원가 ( $8,100+$16,380)/450 = $54.40 ( $8,100+$16,380)/450 = $54.40 $54.40 A D C C 500 400 50 C 완성품원가 기말재공품 원가 A B + $8,100+$16,380 = $24,480 $54.40*400=$21,760 $54.40*50=$2,720

30. 가공비 ( 선입선출법 ) $16,380 A B D C C A 기초재공품환산량 B 당기투입 ( 환산량 ) C 완성품수량 D 기말재공품환산량 $8,100 135 315 400 50 ä 기초재공품 환산량 단위당 원가 $8,100/135 = $60 ä 당기투입 환산량 단위당 원가 $16,380/315 = $52 $60 $52 완성품원가 기말재공품 원가 $8,100 ($60*135) $52*90 =$4,680 $52*50=$2,600 175 $8,100 +$4,680 +$9,100=$21,880 $52*175 =$9,100 90 $60 $52

31. (3) Compute equivalent unit costs. (Weighted Average Method) Beginning work-in-process $26,100 $ 18,000 $ 8,100 Costs added currently 36,180 19,800 16,380 Total costs to account for $62,280 $37,800 $24,480 Equivalent units 500 450 Equivalent unit costs $ 75.60 $ 54.40 (Step 1) (Step 2) (Step 1) (Step 2) Physical Equivalent Units Physical Equivalent Units Flow of Production Units Material Conversion Beginning work-in-process 225 225 135 Work done in current period only 275 275 315 Total(input) 500 500 450

32. (4) Summarize total costs to account for and assign these costs to units completed and to units in ending work- in-process. (4) Summarize total costs to account for and assign these costs to units completed and to units in ending work- in-process. (Weighted Average Method) Transferred out, $52,000 $130*400 Ending work-in-process Direct materials $ 7,560 $75.60*100 Conversion 2,720 $54.40*50 $10,280 $10,280 Total costs accounted for $62,280

33. Journal Entries Work in Process-Assembly 19,800 Accounts Payable 19,800 Accounts Payable 19,800 Work in Process-Assembly 16,380 Various Accounts 16,380 Various Accounts 16,380 Work in Process-Testing 52,000 Work in Process-Assembly 52,000 Work in Process-Assembly 52,000 T-account Work in Process-Assembly Beginning inventory 26,100 Direct materials 19,800 Conversion costs 16,380 Transferred out to 52,000 WIP-Testing WIP-Testing Ending inventory 10,280 (Weighted Average Method)

34. (1)Compute equivalent unit costs.(FIFO) Beginning work-in-process $26,100 $ 18,000 $ 8,100 Equivalent units 225 135 Equivalent unit costs $ 80 $ 60 Costs added currently $36,180 $19,800 $16,380 Equivalent units 275 315 Equivalent unit costs $ 72 $ 52 (Step 1) (Step 2) (Step 1) (Step 2) Physical Equivalent Units Physical Equivalent Units Flow of Production Units Material Conversion Beginning work-in-process 225 225 135 Work done in current period only 275 275 315 Total(input) 500 500 450

35. (2) Summarize total costs to account for and assign these costs to units completed and to units in ending work- in-process. (FIFO) Direct Material Conversion Cost Direct Material Conversion Cost EU C/EU TC EU C/EU TC EU C/EU TC EU C/EU TC Transferred out, WIP, beginning 225 $80 $18,000 135 $60 $ 8,100 WIP, beginning 225 $80 $18,000 135 $60 $ 8,100 Work done in current Work done in current period to complete period to complete beginning WIP 0 $72 0 90 $52 4,680 beginning WIP 0 $72 0 90 $52 4,680 Started and completed 175 $72 12,600 175 $52 9,100 Started and completed 175 $72 12,600 175 $52 9,100 400 $30,600 400 $21,880 400 $30,600 400 $21,880 Ending WIP 100 $72 $ 7,200 50 $52 $2,600 Total costs accounted for $37,800 $24,480

36. Journal Entries Work in Process-Assembly 19,800 Accounts Payable 19,800 Accounts Payable 19,800 Work in Process-Assembly 16,380 Various Accounts 16,380 Various Accounts 16,380 Work in Process-Testing 52,480 Work in Process-Assembly 52,480 Work in Process-Assembly 52,480 T-account Work in Process-Assembly Beginning inventory 26,100 Direct materials 19,800 Conversion costs 16,380 Transferred out to 52,480 WIP-Testing WIP-Testing Ending inventory 9,800 (FIFO)

37. Comparison of Weighted- Average and FIFO Method WAFIFODifference Cost of units completed and transferred out and transferred out WIP, ending Total costs $52,00010,280$62,280$52,4809,800$62,280+$480-$480 Unit costs differ materially between the weighted-average and FIFO method when (1) The direct materials or conversion costs per unit vary from period to period vary from period to period (2) The physical inventory levels of work in process are large in relation to the total number of units transferred out large in relation to the total number of units transferred out

38. Transferred-in Costs (Previous Department Costs) Transferred-in costs are costs incurred in a previous department that are carried forward as part of the product’s costs as it moves to a subsequent department for processing Units are fully completed as to transferred- in costs because these costs are just carried forward from the previous process

39. Units Beginning WIP(March 2008): 240 units 100% transferred-in costs 100% transferred-in costs 0% completed for materials, 0% completed for materials, 62.5% completed for conversion costs 62.5% completed for conversion costs Transferred-in during March : 400units Completed during March: 440 units Ending WIP: 200 units 100% transferred-in costs 100% transferred-in costs 0% completed for materials, 0% completed for materials, 80% completed for conversion costs 80% completed for conversion costs Global Defense, Inc., DG-19, Testing department

40. Costs Beginning work-in-process: Transferred-in costs $33,600 Transferred-in costs $33,600 Direct materials 0 Direct materials 0 Conversion 18,000 $ 51,600 Conversion 18,000 $ 51,600 Transferred-in during March Weighted average 52,000 Weighted average 52,000 FIFO 52,480 FIFO 52,480 Direct materials added during March 13,200 Conversion costs added during March 48,600 Global Defense, Inc., DG-19, Testing department

41. (Step 1) Physical Flow of Production Units Beginning work-in-process 240 Transferred-in during March 400 Total(input) 640 Completed during March 440 Ending work-in-process 200 Total(output) 640 (1) Summarize the flow of physical units of output.

42. (Step 1) (Step 2) (Step 1) (Step 2) Physical Equivalent Units Physical Equivalent Units Flow of Production Units Transferred Material Conversion Flow of Production Units Transferred Material Conversion Beginning work-in-process 240 240 0 150 Transferred-in or work done during March 400 400 440 450 work done during March 400 400 440 450 Total(input) 640 640 440 600 Completed during March 440 440 440 440 Ending work-in-process 200 200 0 160 Total(output) 640 640 440 600 (2) Compute output in terms of equivalent units.

43. (3) Compute equivalent unit costs. (Weighted Average Method) Transferred Material Conversion Transferred Material Conversion Beginning WIP $33,600 $ 0 $18,000 Costs added currently 52,000 13,200 48,600 Total costs to account for $85,600 $13,200 $66,600 Equivalent units 640 440 600 Equivalent unit costs$133.75 $ 30 $ 111 (Step 1) (Step 2) (Step 1) (Step 2) Physical Equivalent Units Physical Equivalent Units Flow of Production Units Transferred Material Conversion Flow of Production Units Transferred Material Conversion Beginning work-in-process 240 240 0 150 Transferred-in or work done during March 400 400 440 450 work done during March 400 400 440 450 Total(input) 640 640 440 600

44. (4) Summarize total costs to account for and assign these costs to units completed and to units in ending work- in-process. (Weighted Average Method) Completed $120,890 $278.75*440 Ending work-in-process Transferred-in $ 26,750 $133.75*200 Transferred-in $ 26,750 $133.75*200 Direct materials 0 $30*0 Conversion 17,760 $111*160 $44,510 $44,510 Total costs accounted for $165,400

45. (5)Compute equivalent unit costs.(FIFO) Transferred Material Conversion Transferred Material Conversion Beginning WIP $33,600 $ 0 $ 18,000 Equivalent units 240 0 150 Equivalent unit costs$140.00$ 0 $120 Costs added currently $52,480 $13,200 $ 48,600 Equivalent units 400 440 450 Equivalent unit costs$131.20 $ 30 $108 (Step 1) (Step 2) (Step 1) (Step 2) Physical Equivalent Units Physical Equivalent Units Flow of Production Units Transferred Material Conversion Flow of Production Units Transferred Material Conversion Beginning work-in-process 240 240 0 150 Transferred-in or work done during March 400 400 440 450 work done during March 400 400 440 450 Total(input) 640 640 440 600

46. (6) Summarize total costs to account for and assign these costs to units completed and to units in ending work- in-process. (FIFO) Transferred Direct Material Conversion Cost Transferred Direct Material Conversion Cost EU C/EU TC EU C/EU TC EU C/EU TC Completed, EU C/EU TC EU C/EU TC EU C/EU TC Completed, WIP, beginning 240 $140 $33,600 0 $ 0 150 $120 $ 51,600 WIP, beginning 240 $140 $33,600 0 $ 0 150 $120 $ 51,600 Work done in current Work done in current period to complete period to complete beginning WIP 0 0 240 $30 7,200 90 $108 9,720 beginning WIP 0 0 240 $30 7,200 90 $108 9,720 Started and completed 200 $131.2 26,240 200 $30 6,000 200 $108 21,600 Started and completed 200 $131.2 26,240 200 $30 6,000 200 $108 21,600 440 $59,840 440 $13,280 440 $49,320 440 $59,840 440 $13,280 440 $49,320 Ending WIP 200 $131.2 $26,240 0 0 160 $108 $17,280 Total costs accounted for $85,080 $13,200 $66,600

47. Common Mistakes with Transferred-in Costs (1) Remember to include transferred-in costs from previous (1) Remember to include transferred-in costs from previous departments in your calculations departments in your calculations (2) In calculating costs to be transferred on a FIFO basis, (2) In calculating costs to be transferred on a FIFO basis, do not overlook the costs assigned at the beginning do not overlook the costs assigned at the beginning of the period to units that were in process but are now of the period to units that were in process but are now included in the units transferred included in the units transferred (3) Transferred units may contain batches accumulated (3) Transferred units may contain batches accumulated at different unit costs at different unit costs (4) Units may be measured in different terms in different (4) Units may be measured in different terms in different departments departments

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