1、Process CostingChapter 4Similarities Between Job-Order and Process CostingBoth systems assign material, labor, and overhead costs to products and they provide a mechanism for computing unit product costs.Both systems use the same manufacturing accounts, including Manufacturing Overhead, Raw Material

2、s, Work in Process, and Finished Goods.The flow of costs through the manufacturing accounts is basically the same in both systems.Differences Between Job-Order and Process CostingProcess costing: Is used when a single product is produced on a continuing basis or for a long period of time. Job-order

3、costing is used when many different jobs having different production requirements are worked on each period.Systems accumulate costs by department. Job-order costing systems accumulated costs by individual jobs.Systems compute unit costs by department. Job-order costing systems compute unit costs by

4、 job on the job cost sheet.Process costing is used for products that are: Different and produced continuously. Similar and produced continuously. Individual units produced to customer specifications. Purchased from vendors.Quick Check Process costing is used for products that are: a. Different and p

5、roduced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors.Quick Check Processing DepartmentsAny unit in an organization where materials, labor, or overhead are added to the product.The activities performed in a proc

6、essingdepartment are performed uniformly on allunits of production. Furthermore, the output ofa processing department must be homogeneous. Products in a process costing environment typically flow in a sequence from one departmentto another.Learning Objective 1Record the flow of materials, labor, and

7、 overhead through a process costing system.Comparing Job-Order and Process CostingFinishedGoodsCost of GoodsSoldWork inProcessDirect MaterialsDirect LaborManufacturing Overhead Comparing Job-Order and Process CostingFinishedGoodsCost of GoodsSoldDirect LaborManufacturing Overhead JobsCosts are trace

8、d andapplied to individualjobs in a job-ordercost system.Direct MaterialsComparing Job-Order and Process CostingFinishedGoodsCost of GoodsSoldDirect LaborManufacturing Overhead ProcessingDepartmentCosts are traced and applied to departments in a process cost system.Direct MaterialsT-Account and Jour

9、nal Entry Views of Process Cost FlowsFor purposes of this example, assume there are two processing departments Departments A and B. We will use T-accounts and journal entries. Raw MaterialsProcess Cost Flows: The Flow of Raw Materials (in T-account form) Work in Process Department B Work in Process

10、Department ADirectMaterialsDirect MaterialsDirect MaterialsProcess Cost Flows: The Flow of Raw Materials (in journal entry form)Process Cost Flows: The Flow of Labor Costs (in T-account form) Work in Process Department B Work in Process Department A Salaries and Wages PayableDirect MaterialsDirect M

11、aterialsDirect LaborDirect LaborDirect LaborProcess Costing: The Flow of Labor Costs (in journal entry form)Process Cost Flows: The Flow of Manufacturing Overhead Costs (in T-account form) Work in Process Department B Work in Process Department AManufacturing OverheadOverheadApplied to Work inProces

12、sAppliedOverheadAppliedOverheadDirect LaborDirect MaterialsDirect LaborDirect MaterialsActual OverheadProcess Cost Flows: The Flow of Manufacturing Overhead Costs (in journal entry form)Process Cost Flows: Transfers from WIP-Dept. A to WIP-Dept. B (in T-account form)Work in Process Department BWork

13、in ProcessDepartment ADirect MaterialsDirect LaborAppliedOverheadDirect MaterialsDirect LaborAppliedOverheadTransferred to Dept. BTransferred from Dept. ADepartmentADepartmentBProcess Cost Flows: Transfers from WIP-Dept. A to WIP-Dept. B (in journal entry form)Finished GoodsProcess Cost Flows: Trans

14、fers from WIP-Dept. B to Finished Goods (in T-account form) Work in Process Department BCost of Goods ManufacturedDirect MaterialsDirect LaborAppliedOverheadTransferred from Dept. ACost of GoodsManufactured Process Cost Flows: Transfers from WIP-Dept. B to Finished Goods (in journal entry form)Finis

15、hed Goods Cost of Goods SoldProcess Cost Flows: Transfers from Finished Goods to COGS (in T-account form) Work in Process Department BCost of Goods ManufacturedDirect MaterialsDirect LaborAppliedOverheadTransferred from Dept. ACost of GoodsSold Cost of GoodsSold Cost of GoodsManufactured Process Cos

16、t Flows: Transfers from Finished Goods to COGS (in journal entry form)Equivalent Units of ProductionEquivalent units are the product of the number of partially completed units and the percentage completion of those units.These partially completed units complicate the determination of a departments o

17、utput for a given period and the unit cost that should be assigned to that output.Equivalent Units The Basic IdeaTwo half completed products are equivalent to one complete product.So, 10,000 units 70% completeare equivalent to 7,000 complete units.+=1 For the current period, Jones started 15,000 uni

18、ts and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000Quick Check For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 un

19、its in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 10,000 units + (5,000 units 0.30) = 11,500 equivalent unitsQuick Check Calculating Equivalent UnitsEquivalent units can be calculatedtwo ways:The First-I

20、n, First-Out Method FIFO is covered in the appendix to this chapter.The Weighted-Average Method This method will be covered in the main portion of the chapter.Learning Objective 2Compute the equivalent units of production using the weighted-average method.Equivalent Units of ProductionWeighted-Avera

21、ge MethodThe weighted-average method . . .Makes no distinction between work done in prior or current periods.Blends together units and costs from prior and current periods.Determines equivalent units of production for a department by adding together the number of units transferred out plus the equiv

22、alent units in ending Work in Process Inventory.Treatment of Direct LaborDirect labor costsmay be smallin comparison toother productcosts in processcost systems.DirectMaterialsType of Product CostDollar AmountDirectLaborManufacturingOverheadTreatment of Direct LaborType of Product CostDollar AmountC

23、onversionDirect labor and manufacturing overhead may be combined into one classification of product cost called conversion costs.DirectMaterialsDirectLaborDirectLaborManufacturingOverheadWeighted-Average An Example Smith Company reported the following activity in the Assembly Department for the mont

24、h of June:Weighted-Average An ExampleThe first step in calculating the equivalent units is to identify the units completed and transferred out of Assembly Department in June (5,400 units)Weighted-Average An ExampleThe second step is to identify the equivalent units of production in ending work in pr

25、ocess with respect to materials for the month (540 units) and adding this to the 5,400 units from step one.Weighted-Average An ExampleThe third step is to identify the equivalent units of production in ending work in process with respect to conversion for the month (270 units) and adding this to the

26、 5,400 units from step one.Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in processWeighted-Average An ExampleBeginningWork in Process300 Units40% CompleteEndingWork in Process900 Units60% Complete6,000 Units Started5,400 Units Com

27、pleted5,100 Units Startedand CompletedWeighted-Average An ExampleMaterials5,400 Units Completed 540 Equivalent Units900 60%5,940 Equivalent units of production6,000 Units Started5,400 Units Completed5,100 Units Startedand Completed 270 Equivalent Units900 30%5,670 Equivalent units of productionBegin

28、ningWork in Process300 Units20% CompleteEndingWork in Process900 Units30% CompleteWeighted-Average An ExampleConversionLearning Objective 3Compute the cost per equivalent unit using the weighted-average method.Compute and Apply CostsBeginning Work in Process Inventory: 400 units Materials: 40% complete $6,119Conversion: 20% complete $3,920Production started during June 6,000 unitsProduction completed during June 5,400 unitsCosts added to production in JuneMaterials cost $