Accounting Principles Process Costing.pptx

1、,Learning Objectives,Discuss the uses of a process cost system and how it compares to a job order system.,1,Explain the flow of costs in a process cost system and the journal entries to assign manufacturing costs.,2,Compute equivalent units.,3,Complete the four steps to prepare a production cost rep

2、ort.,4,Process Costing,21,Explain just-in-time (JIT) processing and activity-based costing (ABC).,5,Use to apply costs to similar products that are mass-produced in a continuous fashion. Examples include the production of cereal, paint, manufacturing steel, oil refining and soft drinks.,Uses of Proc

3、ess Cost Systems,LEARNING OBJECTIVE,Discuss the uses of a process cost system and how it compares to a job order system.,1,Illustration 21-1 Manufacturing processes,LO 1,Examples of companies that primarily use either a process cost system or a job order cost system.,Use of Process Cost Systems,Illu

4、stration 21-2 Process cost and job order cost companies and products,LO 1,Which of the following items is not a characteristic of a process cost system: Once production begins, it continues until the finished product emerges. The focus is on continually producing homogenous products. When the finish

5、ed product emerges, all units have precisely the same amount of materials, labor, and overhead. The products produced are heterogeneous in nature.,Question,Use of Process Cost Systems,LO 1,Service companies that provide individualized, non-routine services will probably benefit from using a job orde

6、r cost system. Those that perform routine, repetitive services will probably be better off with a process cost system.,Process Cost for Service Companies,LO 1,Job Order Cost Costs assigned to each job. Products have unique characteristics.,Process Cost Costs tracked through a series of connected man

7、ufacturing processes or departments. Products are uniform or relatively homogeneous and produced in a large volume.,Similarities and Differences Between Job Order Cost and Process Cost Systems,LO 1,Illustration 21-3 Job order cost and process cost flow,Job Order Cost and Process Cost Flow,LO 1,SIMIL

8、ARITIES,Manufacturing cost elements. Accumulation of the costs of materials, labor, and overhead. Flow of costs.,Number of work in process accounts used. Documents used to track costs. Point at which costs are totaled. Unit cost computations.,DIFFERENCES,Job Order Cost and Process Cost Flow,LO 1,Job

9、 Order Cost and Process Cost Flow,Illustration 21-4 Job order versus process cost systems,LO 1,Indicate which of the following statements is not correct: Both a job order and a process cost system track the same three manufacturing cost elements direct materials, direct labor, and manufacturing over

10、head. b. In a job order cost system, only one work in process account is used, whereas in a process cost system, multiple work in process accounts are used. c. Manufacturing costs are accumulated the same way in a job order and in a process cost system. d. Manufacturing costs are assigned the same w

11、ay in a job order and in a process cost system.,Question,Use of Process Cost Systems,LO 1,Indicate whether the following statements are true or false.,A law firm is likely to use process costing for major lawsuits. A manufacturer of paintballs is likely to use process costing. Both job order and pro

12、cess costing determine product costs at the end of a period of time, rather than when a product is completed. Process costing does not keep track of manufacturing overhead.,False,True,False,False,LO 1,DO IT!,Compare Job Order and Process Cost Systems.,1,Process Cost Flow,Tyler Company manufactures r

13、oller blade and skateboard wheels that it sells to manufactures and retail outlets. Manufacturing consists of two processes: machining and assembly. The Machining Department shapes, hones, and drills the raw materials. The Assembly Department assembles and packages the parts.,LEARNING OBJECTIVE,Expl

14、ain the flow of costs in a process cost system and the journal entries to assign manufacturing costs.,2,Illustration 21-5 Flow of costs in process cost system,LO 2,Accumulation of the cost of materials, labor, and overhead is the same as in job order costing. Debit Raw Materials Inventory for purcha

15、ses of raw materials. Debit Factory Labor for factory labor incurred. Debit Manufacturing Overhead for overhead cost incurred. Assignment of the three manufacturing cost elements to Work in Process in a process cost system is different from a job order cost system.,Assigning Manufacturing Costs,LO 2

16、,A process cost system requires fewer material requisition slips than a job order cost system. Materials are used for processes and not specific jobs. Requisitions are for larger quantities of materials. Journal entry to record materials used:,MATERIAL COSTS,Assigning Manufacturing Costs,LO 2,Work i

17、n ProcessMachining XXXXX Work in ProcessAssembly XXXXX Raw Materials InventoryXXXXX,Time tickets may be used in both systems. All labor costs incurred within a production department are a cost of processing. The journal entry to record factory labor costs:,FACTORY LABOR COSTS,Assigning Manufacturing

18、 Costs,LO 2,Work in ProcessMachining XXXXX Work in ProcessAssembly XXXXX Factory LaborXXXXX,Objective of assigning overhead is to allocate overhead to production departments on objective and equitable basis. Use the activity that “drives” or causes the costs. Machine time used is a primary driver. J

19、ournal entry to allocate overhead:,MANUFACTURING OVERHEAD COSTS,Assigning Manufacturing Costs,LO 2,Work in ProcessMachining XXXXX Work in ProcessAssembly XXXXX Manufacturing OverheadXXXXX,Caterpillar,Choosing a Cost Driver In one of its automated cost centers, Caterpillar feeds work into the cost ce

20、nter, where robotic machines process it and transfer the finished job to the next cost center without human intervention. One person tends all of the machines and spends more time maintaining machines than operating them. In such cases, overhead rates based on direct labor hours may be misleading. S

21、urprisingly, some companies continue to assign manufacturing overhead on the basis of direct labor despite the fact that there is no cause-and-effect relationship between labor and overhead.,Management Insight,LO 2,Monthly Entry to transfer goods to next department:,Entry to transfer completed goods

22、 to Finished Goods:,Entry to record Cost of Goods sold at the time of sale:,TRANSFERS,Assigning Manufacturing Costs,Work in ProcessAssembly XXXXX Work in ProcessMachining XXXXX,Finished Goods Inventory XXXXX Work in ProcessAssemblyXXXXX,Cost of Goods Sold XXXXX Finished Goods Inventory XXXXX,LO 2,In

23、 making the journal entry to assign raw materials costs: a.The debit is to Finished goods Inventory. b. The debit is often to two or more work in process accounts. c. The credit is generally to two or more work in process accounts. d. The credit is to Finished Goods Inventory.,Assigning Manufacturin

24、g Costs,Question,LO 2,Blue Diamond Company manufactures ZEBO through two processes: blending and bottling. In June, raw materials used were Blending $18,000 and Bottling $4,000. Factory labor costs were Blending $12,000 and Bottling $5,000. Manufacturing overhead costs were Blending $6,000 and Bottl

25、ing $2,500. The company transfers units completed at a cost of $19,000 in the Blending Department to the Bottling Department. The Bottling Department transfers units completed at a cost of $11,000 to Finished Goods. Journalize the assignment of these costs to the two processes and the transfer of un

26、its as appropriate.,LO 2,DO IT!,Manufacturing Costs in Process Costing,2,Journalize the assignment of these costs to the two processes.,To Record Materials Used:,Work in ProcessBlending 18,000 Work in ProcessBottling 4,000 Raw Materials Inventory 22,000,To Assign Factory Labor to Production:,Work in

27、 ProcessBlending 12,000 Work in ProcessBottling 5,000 Factory Labor17,000,LO 2,DO IT!,Manufacturing Costs in Process Costing,2,To Assign Overhead to Production:,Work in ProcessBlending 6,000 Work in ProcessBottling 2,500 Manufacturing Overhead 8,500,Journalize the assignment of these costs to the tw

28、o processes.,LO 2,DO IT!,Manufacturing Costs in Process Costing,2,Journalize the transfer of units as appropriate.,To Record Transfer of Units to the Bottling Department:,Work in ProcessBottling 19,000 Work in ProcessBlending 19,000,To Record Transfer of Units to Finished Goods:,Finished Goods Inven

29、tory 11,000 Work in ProcessBottling 11,000,LO 2,DO IT!,Manufacturing Costs in Process Costing,2,Illustration: Suppose you have a work-study job in the office of your colleges president, and she asks you to compute the cost of instruction per full-time equivalent student at your college. The colleges

30、 vice president for finance provides the following information.,Costs: Total cost of instruction $9,000,000 Student population: Full-time students 900 Part-time students 1,000,LEARNING OBJECTIVE,Compute equivalent units.,3,Illustration 21-6 Information for full-time student example,LO 3,Total cost o

31、f instruction $9,000,000 Number of full-time equivalent students 1,500 $ 6,000,Illustration: Part-time students take 60% of the classes of a full-time student during the year. To compute the number of full-time equivalent students per year, you would make the following computation.,Cost of instructi

32、on per full-time equivalent student =,Compute Equivalent Units,Illustration 21-7 Full-time equivalent unit computation,LO 3,Considers the degree of completion (weighting) of units completed and transferred out and units in ending work in process. Most widely used method. Beginning work in process no

33、t part of computation of equivalent units.,Weighted-Average Method,Illustration 21-8 Equivalent units of production formula,LO 3,Illustration: The output of Kori Companys Packaging Department during the period consists of 10,000 units completed and transferred out, and 5,000 units in ending work in

34、process which are 70% completed. Calculate the equivalent units of production.,Completed units 10,000 Work in process equivalent units (5,000 x 70%) 3,500 13,500,Weighted-Average Method,LO 3,Illustration: Kellogg Company has produced Eggo Waffles since 1970. Three departments produce these waffles:

35、Mixing, Baking, and Freezing/Packaging. The Mixing Department combines dry ingredients, including flour, salt, and baking powder, with liquid ingredients, including eggs and vegetable oil, to make waffle batter. Illustration 21-9 provides information related to the Mixing Department at the end of Ju

36、ne.,Refinements on the Weighted-Average Method,LO 3,Illustration: Information related to the Mixing Department at the end of June.,Refinements on Weighted-Average,Illustration 21-9 Information for Mixing Department,LO 3,Conversion costs are labor costs plus overhead costs. Beginning work in process

37、is not part of the equivalent-units-of-production formula.,Illustration 21-10 Computation of equivalent unitsMixing Department,LO 3,Refinements on Weighted-Average,Illustration 21-11 Refined equivalent units of production formula,LO 3,Refinements on Weighted-Average,The Mixing Departments output dur

38、ing the period consists of 20,000 units completed and transferred out, and 5,000 units in ending work in process 60% complete as to materials and conversions costs. Beginning inventory is 1,000 units, 40% complete as to materials and conversion costs. The equivalent units of production are:,a.22,600

39、b. 23,000 c. 24,000d. 25,000,Question,Compute Equivalent Units,LO 3,Havent I Seen That Before? For a variety of reasons, many companies, including General Electric, are making a big push to remanufacture goods that have been thrown away. Items getting a second chance include cell phones, computers,

40、home appliances, car parts, vacuum cleaners, and medical equipment. Businesses have figured out that profit margins on remanufactured goods are significantly higher than on new goods. As commodity prices such as copper and steel increase, reusing parts makes more sense. Also, as more local governmen

41、ts initiate laws requiring that electronic sand appliances be recycled rather than thrown away, the cost of remanufacturing declines because the gathering of used goods becomes far more efficient. Besides benefitting the manufacturer, remanufacturing provides goods at a much lower price to consumers

42、, reduces waste going to landfills, saves energy, reuses scarce resources, and reduces emissions. For example, it was estimated that a remanufactured car starter results in about 50% less carbon dioxide emissions than making a new one. Source: James R. Hagerty and Paul Glader, “From Trash Heap to St

43、ore Shelf,” Wall Street Journal Online (January 24, 2011).,People, Planet, and Profit Insight,LO 3,The fabricating department Outdoor Essentials has the following production and cost data for the current month.,Beginning Units Ending Work in Process Transferred Out Work in Process 0 15,000 10,000,Ma

44、terials are entered at the beginning of the process. The ending work in process units are 30% complete as to conversion costs. Compute the equivalent units of production for (a) materials and (b) conversion costs.,LO 3,DO IT!,Equivalent Units,3,Compute the equivalent units of production for (a) mate

45、rials and (b) conversion costs.,Units transferred out 15,000 Ending work in process units 10,000 25,000,The fabricating department has the following production and cost data for the current month.,Beginning Units Ending Work in Process Transferred Out Work in Process 0 15,000 10,000,LO 3,DO IT!,Equi

46、valent Units,3,Compute the equivalent units of production for (a) materials and (b) conversion costs.,Units transferred out 15,000 Equivalent unit in ending WIP (10,000 x 30%) 3,000 18,000,The fabricating department has the following production and cost data for the current month.,Beginning Units En

47、ding Work in Process Transferred Out Work in Process 0 15,000 10,000,LO 3,DO IT!,Equivalent Units,3,A production cost report is the Key document used to understand activities. Prepared for each department and shows Production Quantity and Cost data. Four steps in preparation: Step 1: Compute physica

48、l unit flow Step 2: Compute equivalent units of production Step 3: Compute unit production costs Step 4: Prepare a cost reconciliation schedule,LEARNING OBJECTIVE,Complete the four steps to prepare a production cost report.,4,LO 4,Illustration 21-12 Flow of costs in making Eggo Waffles,Production Co

49、st Report,Flow of costs to make an Eggo Waffle and the related production cost reports for each department.,LO 4,LO 4,Illustration 21-13 Unit and cost dataMixing Department,Physical units - actual units to be accounted for during a period, regardless of work performed. Total units to be accounted fo

50、r - units started (or transferred) into production during the period + units in production at beginning of period. Total units accounted for - units transferred out during period + units in process at end of period.,Compute the Physical Unit Flow (Step 1),Production Cost Report,LO 4,Production Cost

51、Report,Compute the Physical Unit Flow (Step 1),Illustration 21-14 Physical unit flowMixing Department,LO 4,Mixing Department Department adds materials at beginning of process and Incurs conversion costs uniformly during the process.,Compute Equivalent Units of Production (Step 2),Production Cost Rep

52、ort,Illustration 21-15 Computation of equivalent unitsMixing Department,LO 4,Costs expressed in terms of equivalent units of production. When equivalent units of production are different for materials and for conversion costs, three unit costs are computed: Materials Conversion Total Manufacturing,C

53、ompute Unit Production Costs (Step 3),Production Cost Report,LO 4,Compute total materials cost related to Eggo Waffles:,Work in process, June 1 Direct materials costs $ 50,000 Cost added to production during June Direct material cost 400,000 Total material costs$450,000,Illustration 21-17,Illustrati

54、on 21-16,Production Cost Report,Compute Unit Production Costs (Step 3),LO 4,Work in process, June 1 Conversion costs $ 35,000 Costs added to production during June Conversion costs 170,000 Total conversion costs$205,000,Illustration 21-18,Production Cost Report,Compute total materials cost related t

55、o Eggo Waffles:,Compute Unit Production Costs (Step 3),Illustration 21-19,LO 4,Compute total manufacturing costs per unit:,Illustration 21-20,Production Cost Report,Compute Unit Production Costs (Step 3),Illustration 21-19,LO 4,Kellogg charged total costs of $655,000 to the Mixing Department in June

56、, calculated as follows.,Costs to be accounted for Work in process, June 1 $ 85,000 Started into production570,000 Total costs$655,000,Illustration 21-21,Prepare a Cost Reconciliation Schedule (Step 4),Production Cost Report,LO 4,Production Cost Report,Prepare a Cost Reconciliation Schedule (Step 4)

57、,Illustration 21-22 Cost reconciliation schedule Mixing Department,LO 4,Prepare the Production Cost Report,Illustration 21-23 Production cost report,Largo Company has unit costs of $10 for materials and $30 for conversion costs. If there are 2,500 units in ending work in process, 40% complete as to

58、conversion costs and fully complete as to materials cost, the total cost assignable to the ending work in process inventory is:,a.$45,000. b. $55,000. c. $75,000. d. $100,000.,Production Cost Report,Question,LO 4,Companies often use a combination of a process cost and a job order cost system. Called

59、 operations costing, this hybrid system is similar to process costing in its assumption that standardized methods are used to manufacture the product. At the same time, the product may have some customized, individual features that require the use of a job order cost system.,Costing SystemsFinal Comments,Production Cost Report,LO 4,In March, Rodayo Manufacturing had the following unit production costs: materials $6 and conversion costs $9. On March 1, it had zero work in process. During Ma