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2. Process Cost Accounting Section 1: Process Cost Accounting System Chapter 28 Section Objectives 28-1 Compute equivalent units of production with no beginning work in process inventory. 28-2 Prepare a cost of production report with no beginning work in process inventory. 28-3 Compute the unit cost of manufacturing under the process cost accounting system. 28-4 Record costs incurred and the flow of costs as products move through the manufacturing process and are sold.

3. This system is used in operations when a single product is manufactured and production is continuous. Companies like oil refineries, cement producers, and paint manufacturers use this system. Costs are accumulated for each process or department and then transferred on to the next process or department. Process Cost Accounting System 28-3

4. Job order cost sheets are not maintained. Separate work in process accounts are maintained for each department. Costs are identified with specific departments as incurred. Under a process cost system: How is a process cost system different from a job order cost system? 28-4

5. All products begin in the Assembly Department. Assembly Department Finished Goods Inventory Finishing Department Nash Manufacturing Company (manufacturer of trays) Trays to be sold in an unpainted state are transferred to the finished goods storeroom. Trays to be painted are transferred to the Finishing Department. Flow of Goods in a Factory Operation 28-5

6. Separate equivalent unit computations are made for materials and for labor and overhead. In computing equivalent production, accountants frequently consider labor and overhead to be at the same stage of production. Calculating Equivalent Units 28-6

7. Summarizes all costs charged to each department. Shows costs assigned to: Goods transferred out of the department Goods still in process Has separate sections for: Quantities Costs Reconciles the total to be accounted for with the total accounted for. Cost of Production Report 28-7

8. Cost Schedule Quantity Schedule Cost of Production Report by Department Shows units to be accounted for and what happened to those units. Shows total and unit cost of each element and cumulative cost total. Shows cost of units transferred out. 28-8

9. Record costs incurred and the flow of costs as products move through the manufacturing process and are sold. Objective 28-4 28-9

10. Charging Direct Materials Costs to Work in Process 28-10

11. Charging Direct Labor to Work in Process 28-11

12. Manufacturing Overhead Costs in the Process Cost Accounting System 1.When incurred, overhead costs are debited to the Manufacturing Overhead account. 2.At month-end, overhead costs are allocated to the producing departments: Debit Work-in-Process—Assembly Department Debit Work-in-Process—Finishing Department Credit Manufacturing Overhead 28-12

13. Recording Transfers of Products out of Departments Assembly Department Finishing Department Finished Goods Inventory Assembly Department Finishing Department $51,950$69,678 $5,195 28-13

14. The final step is to record the sale of finished goods Recording Sale of Finished Goods 1.Record sales 2. Record cost of goods sold **In a perpetual inventory system, two journal entries are required to record a sale 28-14

15. Process Cost Accounting Section 2: Work in Process Inventory Chapter 28 Section Objectives 28-5 Compute equivalent production and prepare a cost of production report with a beginning work in process inventory. 28-15

16. The average method of process costing combines the cost of beginning inventory for each cost element with the costs of the current period. ANSWER: QUESTION: What is the average method of process costing? 28-16

17. Unit Costs Using the Average Method of Process Costing Unit Cost = (Beginning work in process inventory + Current period costs) ÷ Equivalent units The beginning work in process inventory is shown on the cost of production report under the appropriate department. Unit costs are calculated by adding the beginning inventory to the current period costs for each cost element, then dividing by equivalent units. 28-17

18. The ending work in process of one period becomes the beginning work in process of the following period. Journal entries are made as shown earlier in Section 1 to record the transfer of costs. Recording Cost Flows 28-18

19. Transfer of goods from one department to another and to finished goods inventory: Record the costs of goods from work in process to finished goods inventory: Recording Transfer of Costs 28-19

20. Thank You for using College Accounting, 14th Edition Price Haddock Farina 28-20