1. Principles of Cost Accounting, 16th Edition, Edward J
Principles of Cost Accounting, 16th Edition, Edward J. VanDerbeck, ©2013 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 distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2. Chapter 6
Process Cost Accounting-Additional Procedures; Accounting for Joint Products and By-Products

3. Learning Objectives
Compute unit costs when materials are not added uniformly throughout the process.
Account for units lost in the production process.
Account for units gained in the production process.

4. Learning Objectives (cont.)
Assign costs to inventories, using the first-in, first-out method.
Identify the methods used to apportion joint costs products and account for by-products.

5. Materials not Uniformly Applied
Materials may be put into production in varying quantities and at different points in the processing cycle.
When industries apply materials into production in different quantities and at varying points in the production cycle, equivalent units must be computed for each element of production cost.

6. Materials not Uniformly Applied
The valuation of the ending work in process requires the allocation of cost for each element:
Materials
Labor
Factory Overhead

7. All materials added at the beginning
The only difference between equivalent unit calculations for the material components and the labor and overhead components would concern the ending work in process inventory.
Example: Ending inventory of 400 units that were ¾ complete.
Materials – 400 equivalent units (received all materials when started)
Labor and overhead – 300 equivalent units (400 x ¾ completed as to processing costs)

8. All materials added at the beginning
Once the equivalent production figures are calculated, the unit cost for the period can be calculated.
Add the cost of each element in beginning WIP to the cost of production for that element incurred in the current month.
Total cost is then divided by the appropriate equivalent production figure.
Cost is then applied to inventory to arrive at cost of goods finished and the cost of the ending WIP.

9. All materials added at the close of processing
Only units finished will have materials cost applied.
Units in process at the end of the accounting period will have no equivalent production for the period.
Equivalent units for labor and factory overhead would be computed as the previous example.

10. Materials added at different stages
The state of completion must be carefully considered.
Finished units will include all materials costs.
Example:
60 % of the materials at beginning
40 % of the materials at one-half completed
2,400 units were finished Ma

11. Materials added at different stages
Example cont.
200 units are one-fourth completed as to labor and overhead; because they are not yet 50 % complete, only 60% of materials are added. (200 X 60%) = 120 units
400 are three-fourth completed as to labor and overhead; because they are more than 50% complete all the materials have been added. Ma

12. Materials added at different stages
Example cont.
Therefore, equivalent production for materials is figured as follows
2,400 X 100 % = 2,400
200 X 60 % =
400 X 100 % =
2,920 units Ma

13. Units Lost in Production
Some production processes are of the nature that some units will always be lost due to evaporation, shrinkage, spillage, or other factors.
Normal losses are expected in the manufacturing process and cannot be avoided and are treated as product losses.

14. Units Lost in Production
Abnormal losses are treated as a period costs and are charged to a separate account, such as Loss from Abnormal Spoilage.
These losses do not become a part of inventory costs.

15. Units Gained in Production
The increase in units has the opposite effect on unit cost than did lost units, and requires an adjustment to the unit cost.
Total cost for the original units are now spread over a greater number of units, thereby reducing the cost per unit.

16. Equivalent Production: FIFO

17. Equivalent Production: FIFO

18. Equivalent Production: FIFO

19. Joint Products and By-Products

20. Joint Products and By-Products
The cost of materials, labor, and overhead incurred during such a joint production process are called joint costs.
The point where these joint products become separately identifiable is known as the split-off point.

21. Joint Products and By-Products
Typical bases for apportionment of joint costs to joint products follow:
Relative(or adjusted) sales value of each product.
A physical unit measure such as volume, weight, size, or grade.
Chemical, engineering, or other types of analyses.

22. Joint Products and By-Products

23. Joint Products and By-Products