process costing
TRANSCRIPT
Process Process CostingCosting
Learning Objective 1Learning Objective 1
Identify the situations in which
process-costing systems
are appropriate.
Illustrating Process CostingIllustrating Process Costing
Direct Materials, Direct LaborIndirect Manufacturing Costs
DepartmentA
DepartmentB
Finished Goods Cost of Goods Sold
Learning Objective 2Learning Objective 2
Describe the five steps
in process costing.
Five Steps in Process CostingFive Steps in Process Costing
Step 1: Summarize the flow of physical units of output.
Step 2: Compute output in terms of equivalent units.
Step 3: Compute equivalent unit costs.
Step 4: Summarize total costs to account for.
Step 5: Assign total costs to units completed and to units in ending work in process inventory.
Learning Objective 3Learning Objective 3
Calculate equivalent units and
understand how to use them.
Journal Entries ExampleJournal Entries Example
Assume that Omaha, Inc. has two processingdepartments – Assembly and Finishing.
Omaha, Inc., purchases direct materials as needed.
What is the journal entry for materials?
Work in Process, Assembly 84,050Accounts Payable Control 84,050
To record direct materials purchased and used
Journal Entries ExampleJournal Entries Example
What is the journal entry for conversion costs?
Work in Process, Assembly 62,000Various accounts 62,000
To record Assembly Department conversion costs
What is the journal entry to transfer completedgoods from Assembly to Finishing?
Journal Entries ExampleJournal Entries Example
Work in Process, Finishing 132,043Work in Process, Assembly 132,043
To record cost of goods completed and transferredfrom Assembly to Finishing during the period
Flow of Costs ExampleFlow of Costs Example
Accounts Payable 84,050
Various Accounts 62,000
WIP Assembly84,050 132,04362,00014,007
WIP Finishing 132,043
Learning Objective 5Learning Objective 5
Use the weighted-average
method of process costing.
Physical Units (Step 1)Physical Units (Step 1)
Work in process, beginning:100% material60% conversion costs 1,000Units started in process 35,000 36,000Units transferred out: 31,000Units in ending inventory:100% material20% conversion costs 5,000 36,000
Compute Equivalent Units (Step Compute Equivalent Units (Step 2)2)
Materials ConversionCompleted and transferred 31,000 31,000Ending inventory 5,000 1,000Equivalent units 36,000 32,000
100% 20%
Compute EquivalentCompute EquivalentUnit Costs (Step 3)Unit Costs (Step 3)
Materials ConversionBeginning inventory $ 2,350 $ 5,200Current costs 84,050 62,000Total $86,400 $67,200Equivalent units 36,000 32,000Cost per unit $2.40 $2.10
Summarize and Assign TotalSummarize and Assign TotalCosts (Steps 4 and 5)Costs (Steps 4 and 5)
Work in process beginning inventory:Materials $ 2,350Conversion 5,200Total beginning inventory $ 7,550
Current costs in Assembly Department:Materials $ 84,050Conversion 62,000
Costs to account for $153,600
Summarize and Assign Total Summarize and Assign Total Costs (Steps 4 and 5)Costs (Steps 4 and 5)
This step distributes the department’s costs to unitstransferred out: 31,000 units × $4.50 = $139,500
And to units in ending work in process inventory:$12,000 + $2,100 = $14,100
Summarize and Assign Total Summarize and Assign Total Costs (Steps 4 and 5)Costs (Steps 4 and 5)
Costs transferred out:31,000 × ($2.40 + $2.10) $139,500
Costs in ending inventory:Materials 5,000 × $2.40 12,000Conversion 1,000 × $2.10 2,100
Total costs accounted for: $153,600
Journalizing: Weighted-AverageJournalizing: Weighted-Average
What are the journal entries in theAssembly Department?
Work in Process, Assembly 84,050Accounts Payable Control 84,050
To record direct materials purchased and used
Work in Process, Assembly 62,000Various accounts 62,000
To record Assembly Department conversion costs
Journalizing: Weighted-AverageJournalizing: Weighted-Average
Work in Process, Finishing 139,500Work in Process, Assembly 139,500
To record cost of goods completed and transferredfrom Assembly to Finishing during the period
Key T-Account:Key T-Account:Weighted-AverageWeighted-Average
Work in Process Inventory, AssemblyBeg. Inv. 7,550 TransferredMaterials 84,050 to FinishingConversion 62,000 139,500Balance 14,100
Learning Objective 6Learning Objective 6
Use the first-in, first-out (FIFO)
method of process costing.
Compute EquivalentCompute EquivalentUnits (Steps 1 and 2)Units (Steps 1 and 2)
Materials ConversionCompleted and transferred:From beginning inventory 0 400Started and completed 30,000 30,000Ending inventory 5,000 1,000
35,000 31,400
Quantity schedule (Step 1) is the same asthe weighted-average method.
Compute EquivalentCompute EquivalentUnits (Step 2)Units (Step 2)
Materials ConversionCompletedand transferred: 31,000 31,000Ending inventory 5,000 (100%) 1,000 (20%)
36,000 32,000Beginning inventory 1,000 (100%) 600 (60%)Equivalent units 35,000 31,400
Compute EquivalentCompute EquivalentUnit Costs (Step 3)Unit Costs (Step 3)
Materials ConversionCurrent costs $84,050 $62,000Equivalent units 35,000 31,400Cost per unit $2.40 $1.975
Summarize and Assign TotalSummarize and Assign TotalCosts (Steps 4 and 5)Costs (Steps 4 and 5)
Work in process beginning inventory: $ 7,550
Current costs:Material 84,050Conversion 62,000Total $153,600
Same as using weighted-average
Summarize and Assign TotalSummarize and Assign TotalCosts (Steps 4 and 5)Costs (Steps 4 and 5)
Costs transferred out:
From beginning inventory: $7,550Conversion costs added:1,000 × 40% × $1.975 790 $ 8,340
From current production:30,000 × $4.375 131,250
Total $139,590
Summarize and Assign TotalSummarize and Assign TotalCosts (Steps 4 and 5)Costs (Steps 4 and 5)
Work in process ending inventory:
Materials: 5,000 × $2.40 $12,000
Conversion:5,000 × 20% × $1.975 1,975Total $13,975
Summarize and Assign TotalSummarize and Assign TotalCosts (Steps 4 and 5)Costs (Steps 4 and 5)
Costs transferred out $139,590
Cost in ending inventory $ 13,975
$153,565 ($35 rounding error)
An alternative approach:
Costs to account for $153,600
Cost in ending inventory $ 13,975
Costs transferred out $139,625
+=
–=
Key T-Account: FIFOKey T-Account: FIFO
Work in Process Inventory, AssemblyBeg. Inv. 7,550 TransferredMaterials 84,050 to FinishingConversion 62,000 139,625Balance 13,975
Comparison of Weighted-Comparison of Weighted-Average and FIFO MethodsAverage and FIFO Methods
Weighted Average FIFO Difference
Costs of units completed and transferred out $139,500 $139,625 +$125Work in process, ending 14,100 13,975 –$125Total costs accounted for $153,600 $153,600 0
Learning Objective 7Learning Objective 7
Incorporate standard costs
into a process-costing system.
Standard-Costing MethodStandard-Costing Methodof Process-Costing Exampleof Process-Costing Example
Process-costing systems using standard costsusually accumulate actual costs incurredseparately from the inventory accounts.
Assume that actual materials cost is $84,050and standard materials cost is $84,250
What are the journal entries in theAssembly Department?
Standard-Costing MethodStandard-Costing Methodof Process-Costing Exampleof Process-Costing Example
Direct Materials Control 84,050Accounts Payable Control 84,050
Work in Process 84,250Direct Material Variances 200Direct Materials Control 84,050
To record direct materials purchased and used inproduction during the period and variances
Learning Objective 8Learning Objective 8
Apply process-costing methods
to cases with transferred-in costs.
Transferred-In CostsTransferred-In CostsWeighted-Average ExampleWeighted-Average Example
Finishing Department beginning WIP inventory:4,000 units (60% materials) (25% conversion)
Ending work in process inventory:2,000 units (100% materials) (40%) conversion)
31,000 units transferred-in from Assembly.
Physical Units (Step 1)Physical Units (Step 1)
Beginning inventory 4,000Units started in process 31,000
35,000
Units completed and transferred to finished goods 33,000Ending inventory 2,000
35,000
Compute EquivalentCompute EquivalentUnits (Step 2)Units (Step 2)
Equivalent units for transferred-in costs:
Transferred to finished goods 33,000Ending inventory 2,000
35,000
Inventory is 100% complete for the workperformed in the Assembly Department.
Compute EquivalentCompute EquivalentUnits (Step 2)Units (Step 2)
Equivalent units for direct materials costs:Transferred to finished goods 33,000Ending inventory (100%) 2,000
35,000
Compute EquivalentCompute EquivalentUnits (Step 2)Units (Step 2)
Equivalent units for conversion costs(ending inventory 2,000):
Transferred to finished goods 33,000Ending inventory (40%) 800
33,800
Compute EquivalentCompute EquivalentUnit Costs (Step 3)Unit Costs (Step 3)
Assume the following costs in theFinishing Department:
Work in process beginning inventory from:Assembly Department $30,200Direct materials 9,400Conversion costs 8,000Total cost in beginning inventory $47,600
Compute EquivalentCompute EquivalentUnit Costs (Step 3)Unit Costs (Step 3)
Current costs in Finishing Departmentare as follows:
Costs received from the Assembly Department $139,500 Direct materials 9,780 Conversion 42,640 Total $191,920
Compute EquivalentCompute EquivalentUnit Costs (Step 3)Unit Costs (Step 3)
(Transferred-in costs $30,200 + Costs transferredin from the Assembly Department $139,500)÷ 35,000 units $4.85
(Direct materials $9,400 + $9,780)÷ 35,000 units $0.55
(Conversion costs $8,000 + $42,640)÷ 33,800 units $1.50
Total unit cost $6.90
Summarize and Assign TotalSummarize and Assign TotalCosts (Steps 4 and 5)Costs (Steps 4 and 5)
Total costs in beginning inventory $ 47,600Current costs in Finishing Department 191,920
$239,520
Costs to account for: $47,600 + $ 191,920 = $239,520
Summarize and Assign TotalSummarize and Assign TotalCosts (Steps 4 and 5)Costs (Steps 4 and 5)
Costs in work in process ending inventory:
Transferred-in costs: 2,000 × $4.85 $ 9,700
Direct materials: 2,000 × $0.55 1,100
Conversion: 2,000 × 40% × $1.50 1,200
Total cost in ending inventory $12,000
Summarize and Assign TotalSummarize and Assign TotalCosts (Steps 4 and 5)Costs (Steps 4 and 5)
Costs to account for: $239,520
Costs transferred to finished goods inventory:33,000 × $6.90 $227,700
Costs in ending work in process inventory:$12,000 – $180 rounding error 11,820
Total $239,520
T-Account Finishing DepartmentT-Account Finishing Department
Work in Process Inventory, FinishingBeg. Inv. 47,600 Transferred toTransferred-in 139,500 Finished GoodsMaterials 9,780 227,700Conversion 42,640Balance 11,820
Transferred-In CostsTransferred-In CostsFIFO MethodFIFO Method
The physical units (Step 1) is the sameas in weighted-average.
Beginning inventory 4,000Units started in process 31,000
35,000
Units transferred to finished goods 33,000Ending inventory 2,000
35,000
Compute Equivalent UnitsCompute Equivalent UnitsFIFO (Step 2)FIFO (Step 2)
Equivalent units for transferred-in costs:From beginning work in process 0Started and completed 29,000Work in process, ending (100%) 2,000Total equivalent units 31,000
Compute Equivalent UnitsCompute Equivalent UnitsFIFO (Step 2)FIFO (Step 2)
Equivalent units for transferred-in costs:
Transferred to finished goods 33,000Ending work in process inventory 2,000Total 35,000
Beg. work in process inventory – 4,000
Equivalent units 31,000
Inventories are 100% complete for the workperformed in the Assembly Department.
Compute Equivalent UnitsCompute Equivalent UnitsFIFO (Step 2)FIFO (Step 2)
Equivalent units for materials costs:From beginning work in process 1,600Started and completed 29,000Work in process, ending (100%) 2,000Total equivalent units 32,600
Compute Equivalent UnitsCompute Equivalent UnitsFIFO (Step 2)FIFO (Step 2)
Equivalent units for material costs(beginning inventory 4,000):
Transferred to finished goods 33,000
Ending inventory (100%) 2,000Total 35,000
Beginning inventory (60%) –2,400
Equivalent units 32,600
Compute Equivalent UnitsCompute Equivalent UnitsFIFO (Step 2)FIFO (Step 2)
Equivalent units for conversion costs:From beginning work in process 3,000Started and completed 29,000Work in process, ending (40%) 800Total equivalent units 32,800
Compute Equivalent UnitsCompute Equivalent UnitsFIFO (Step 2)FIFO (Step 2)
Equivalent units for conversion costs (beginninginventory 4,000, ending inventory 2,000):
Transferred to finished goods 33,000
Ending inventory (40%) 800Total 33,800
Beginning inventory (25%) –1,000
Equivalent units 32,800
Compute Equivalent Unit CostsCompute Equivalent Unit CostsFIFO (Step 3)FIFO (Step 3)
Cost per equivalent unit:
Transferred-in: $139,590 ÷ 31,000 $4.50
Direct materials: $9,780 ÷ 32,600 0.30
Conversion: $42,640 ÷ 32,800 1.30
Total unit cost $6.10
Summarize and Assign TotalSummarize and Assign TotalCosts FIFO (Steps 4 and 5)Costs FIFO (Steps 4 and 5)
Current costs in Finishing Department: $192,010
Work in process beginning inventory: 47,600
Costs to account for:(same as weighted-average) $239,610
Summarize and Assign TotalSummarize and Assign TotalCosts FIFO (Steps 4 and 5)Costs FIFO (Steps 4 and 5)
Work in process ending inventory:
Transferred-in: 2,000 × $4.50 $ 9,000
Direct materials: 2,000 × $0.30 600
Conversion: 800 × $1.30 1,040
Total $10,640
Summarize and Assign TotalSummarize and Assign TotalCosts FIFO (Steps 4 and 5)Costs FIFO (Steps 4 and 5)
Costs transferred out:
From beginning inventory: $47,600
Direct materials added:4,000 × 40% × $0.30 480
Conversion costs added:4,000 × 75% × $1.30 3,900
Total $51,980
Summarize and Assign TotalSummarize and Assign TotalCosts FIFO (Steps 4 and 5)Costs FIFO (Steps 4 and 5)
Total costs transferred out:From beginning inventory $ 51,980From current production: 29,000 × $6.10 176,900Total $228,880
Summarize and Assign TotalSummarize and Assign TotalCosts FIFO (Steps 4 and 5)Costs FIFO (Steps 4 and 5)
Total costs accounted for:
Transferred to finished goods:$176,900 + $51,980 $228,880
Work in process ending inventory 10,640
Rounding error 90
Total $239,610
Summarize and Assign TotalSummarize and Assign TotalCosts FIFO (Steps 4 and 5)Costs FIFO (Steps 4 and 5)
Costs to account for $239,610
Work in process ending inventory – 10,640
Transferred to finished goods $228,970