178. Process Costing

179. Process Costing Systems
Process costing is a costing system in which the product or service cost is obtained by assigning costs to masses of like units
Conversion costs are costs that are applied uniformly in a department
Materials costs are assumed to be applied at discrete points in the production process
Transferred costs are costs transferred from one department to another department
Pages

180. Process Costing System Diagram
Conversion Costs
Material
Costs
Material
Costs
Conversion Costs
Transferred
Costs
Testing
Department
Finished
Goods
Inventory
Assembly
Department
Pages

181. Process Costing The cost accounting system used
by a company depends upon the
nature of its products or services.
Process costing is more efficient
for companies that produce large
quantities of homogenous product
in a continuous process.

182. Physical Flows for a Process Manufacturer
Scrap Metal Materials
Melting
Department
Casting
Department

183. Physical Flows for a Process Manufacturer
Molten metal transferred from Melting
Melting
Department
Casting
Department
To finished goods

184. Cost Flows for a Process Manufacturer
Materials
WIP – Melting
WIP – Casting
Purchases of direct and indirect materials DM DM
Factory OH – Melting
Factory OH – Casting
Finished Goods
Cost of Goods Sold DM
Direct materials used in production

185. Cost Flows for a Process Manufacturer
Materials
WIP – Melting
WIP – Casting
Purchases of direct and indirect materials DM DM DL
Factory OH – Melting
Factory OH – Casting
Finished Goods
Actual
costs
incurred
Cost of Goods Sold DL
Direct labor used in production

186. Cost Flows for a Process Manufacturer
Materials
WIP – Melting
WIP – Casting
Purchases of direct and indirect materials DM DM IM DL
Actual
costs
incurred
Actual
costs
incurred
Factory OH – Melting
Factory OH – Casting
Finished Goods
Cost of Goods Sold IM
Indirect materials used in production

187. Cost Flows for a Process Manufacturer
Materials
WIP – Melting
WIP – Casting
Purchases of direct and indirect materials DM DM IM DL
Actual
costs
incurred
FOA
Factory OH – Melting
Factory OH – Casting
Finished Goods
FOA
Actual
costs
incurred
Cost of Goods Sold
FOA
Factory overhead applied

188. Cost Flows for a Process Manufacturer
Materials
WIP – Melting
WIP – Casting
Purchases of direct and indirect materials DM DM TO TI IM DL
Actual
costs
incurred
FOA
Factory OH – Melting
Factory OH – Casting
Finished Goods
FOA
Actual
costs
incurred
Cost of Goods Sold
TO/TI
Cost transferred out/transferred in

189. Cost Flows for a Process Manufacturer
Materials
WIP – Melting
WIP – Casting
Purchases of direct and indirect materials DM DM TO TI IM DL DL
Actual
costs
incurred
FOA
FOA
Factory OH – Melting
Factory OH – Casting
Finished Goods
FOA
FOA
Actual
costs
incurred
Cost of Goods Sold DL
Direct labor used in production
FOA
Factory overhead applied

190. Cost Flows for a Process Manufacturer
Materials
WIP – Melting
WIP – Casting
Purchases of direct and indirect materials DM DM TO TI TO TI IM DL DL
Actual
costs
incurred
FOA
FOA
Factory OH – Melting
Factory OH – Casting
Finished Goods
FOA
FOA
Actual
costs
incurred
Cost of Goods Sold
TO/TI
Cost transferred out/transferred in

191. Cost Flows for a Process Manufacturer
Materials
WIP – Melting
WIP – Casting
Purchases of direct and indirect materials DM DM TO TI TO IM DL DL
Actual
costs
incurred
FOA
FOA
Factory OH – Melting
Factory OH – Casting
Finished Goods
FOA
FOA TI
COGS
Actual
costs
incurred
COGS
Cost of Goods Sold
COGS
Cost of goods sold

192. Cost Flows for a Process Manufacturer
Materials
WIP – Melting
WIP – Casting
Purchases of direct and indirect materials DM DM TO TI TO IM DL DL
Actual
costs
incurred
FOA
FOA
Factory OH – Melting
Factory OH – Casting
Finished Goods
FOA
FOA TI
COGS
Actual
costs
incurred
COGS
Cost of Goods Sold
COGS
Cost of goods sold

193. Five Steps in Process Costing
Process Costing Steps
Equivalent units is a measure of the output of a process costing system
60 units 25% complete = 15 equivalent whole units
Five Steps in Process Costing
1. Track the physical units of output
2. Determine the number of equivalent whole units
3. Compute the cost per equivalent unit
4. Measure total costs to account for
5. Assign costs to units completed and transferred out of the department and units in ending inventory
Pages

194. Weighted Average and FIFO Methods
Calculates the average equivalent unit cost of the work done to date regardless of when the work was done
Smoothes out unit costs from month to month
FIFO
Costs carried forward from the previous period are assigned directly to completed goods
Assumes that work required to finish incomplete units (from the previous month) is done at the beginning of the month
Pages