06 Prosess Costing

8/4/2019 06 Prosess Costing

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AGUS SISWANDI

01153056

MANAGEMENT ACCOUNTING


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Chapter Six

Process Costing


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Learning Objectives

q Describe the basic characteristics and

cost flows associated with process

manufacturing.q Defineequivalent units and explain their

role in process costing. Explain the

differences between the weightedaverage method and the FIFO method of

accounting for process costs.


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Learning Objectives (continued)

q Prepare a departmental production report

using the weighted average method.

q Explain how process costing is affected by

nonuniform application of manufacturing

inputs and the existence of multiple

processing departments.

q Prepare a departmental production report

using the FIFO method. (Appendix)


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Comparison of Job-Order and

Process Costing

Job-Order Costing Process Costing

1. Wide variety of distinct 1. Homogeneous products

products

2. Cost accumulated by job 2. Costs accumulated by

process or department

3. Unit cost computed by 3. Unit cost computed by

dividing total job costs dividing process costs of

by units produced on that the period by the unitsjob produced in the period


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q Homogeneous units passthrough a series of similar

processes.

q Each unit in each processreceives a similar dose of

manufacturing costs.

q Manufacturing costs are

accumulated for a process

for a given period of time.

Characteristics of Process Costing


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Characteristics of Process Costing

(continued)

q Manufacturing cost flows and the

associated journal entries are

generally similar to job-order costing.

q The departmental production report

is the key document for tracking

manufacturing activity and costs.q Unit costs are computed by dividing

the departmental costs of the period

by the output for the period.


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Units

Started

Work in

Process

Units

in

EWIP

Units

Completed

Units in

BWIP

1,000 units - 20% of materials added;

60% of conversion costs added

10,000 units;

1,500 units - 33% of materials added;

50% of conversion costs added

9,500 units

Units to account for = Units accounted for

Units in BWIP + Units Started = Units in EWIP + Units Completed

1,000 + 10,000 = 1,500 + 9,500

The Concept of Equivalent Units


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The Concept of Equivalent Units(continued)

Equivalent Units Calculation:

Direct Materials Conversion Costs

Units Completed 9,500 9,500

Ending WIP Inventory 500 750

Total Units Processed *10,000 *10,250

Less beginning WIP Inventory 200 600Units Processed

This Period **9,800 **9,650

==== ====

*Equivalent units for weighted average (total units worked on)

** Equivalent units for FIFO (units worked on this period)


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A Cost Analysis

Cost of

Units Started

Work in

Process

Costs added

to EWIP

Cost of Units

Completed

Cost added

to BWIP

1,000 units - $5,000 materials added;

$10,000 conversion costs added

10,000 units; $23,000

matl added; $120,175conversion cost added

1,500 units - $8,000 materials added;

$13,000 conversion costs added

9,500 units

Costs to account for = Costs accounted for

$158,175 = $158,175


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Steps for Preparing a

Production Report

1. Analysis of the flow of physical

units

2. Calculation of equivalent units

3. Computation of unit cost

4. Valuation of inventories (goodstransferred out and ending work

in process)

5. Cost reconciliation


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Weighted Average Costing

Step 1- Physical Flow Analysis

Units to account for: Units accounted for:

Units, BWIP 1,000 Units, Completed 9,500Units, Started 10,000 Units, EWIP 1,500

Total 11,000 Total 11,000

===== =====


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Weighted Average Costing (continued)

Step 2 - Calculation of Equivalent Units

Materials Conversion CostsCompleted 500 750

EWIP 9,500 9,500

Total Equivalent Units 10,000 10,250

===== =====


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Step 3 - Computation of Unit Cost

Materials CC Total

Beginning WIP $ 5,000 $ 10,000 $ 15,000Added this period 23,000 120,175 143,000

Total $ 28,000 $130,175 $158,175

Equivalent units 10,000 10,250Unit cost $ 2.80 $ 12.70 $ 15.50

======= ======= =======


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Step 4 - Valuation of Inventories

Goods Transferred out (9,500 x 15.50) $147,250

EWIP

Materials (500 x $2.80) $1,400

Conversion Cost (750 x $12.70) 9,525 $ 10,925

$158,175========


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Step 5 - Cost Reconciliation:

Costs to account for:

BWIP $ 15,000

Cost added 143,000$158,175

======

Costs accounted for:Goods Transferred out $147,250

EWIP 10,925

$158,175

=======


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Nonuniform Inputs: Example

Materials are added at the beginning of the process.

Units in process, May 1, 60% complete 2,000

Units completed and transferred out 10,000

Units in process, May 31, 40% complete 1,000

Costs: BWIP Cost Current Cost

Materials $300 $3,000Conversion Costs 600 4,600

if


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(continued)

Step 1 - Physical Flow Analysis:

Units to account for:

Units, BWIP 2,000

Units started 9,000

Total 11,000

=====

Units accounted for:Units completed 10,000

Units, EWIP 1,000

Total 11,000

====

N if I E l


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(continued)

Step 2 - Calculation of Equivalent units (Weighted Average):

Materials Conversion

Units completed 10,000 10,000

EWIP 1,000 400


==== ====

N if I E l


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(continued)

Step 3 - Unit Cost:

Unit Cost = $3,300/11,000 + $5,200/10,400

= $0.30 + $0.50

= $0.80

====

N if I t E l


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(continued)

Step 4 - Valuation of Inventories:

Goods Transferred Out:

$0.80 x 10,000 = $8,000

=====

Ending Work in Process:

($0.30 x 1,000) + ($0.50 x 4000) = $500

N if I t E l


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(continued)


Costs to account for:

BWIP $ 900

Cost added 7,600$8,500

====

Costs accounted for:Goods transferred out $8,000

EWIP 500

$8,500

=====


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FIFO Costing

Step 1- Physical Flow Analysis

Units to account for: Units accounted for:

Units, BWIP 1,000 Units, Completed 9,500Units, Started 10,000 Units, EWIP 1,500

Total 11,000 Total 11,000

===== =====


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FIFO Costing (continued)

Step 2 - Calculation of Equivalent Units

Materials Conversion Costs

Units started and completed 8,500 8,500

Units in Beginning WIP x fraction 800 400

Units in Ending WIP x fraction 500 750


==== ====


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Step 3 - Computation of Unit Cost

Materials CC Total

Beginning WIP $ 5,000 $ 10,000 $ 15,000Added this period 23,000 120,175 143,000

Total $ 28,000 $130,175 $158,175

Added this period $ 23,000 $ 120,175 $ 143,000

Equivalent units 9,800 9,650Unit cost $ 2.3469 $ 12.4534 $ 14.8003

======= ======= =======


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Step 4 - Valuation of Inventories

Trans. Out EWIP Total

Units in BWIP:

From Prior Period $15,000 --- $15,000

From Current Period:

Materials (800 x $2.3469) 1,877 --- 1,877

Labor (400 x $12.4534) 4,981 --- 4,981

Units Started and Completed

(8,500 x $14.8003) 125,803 --- 125,803

Units in EWIP

Materials (500 x $2.3469) --- $1,173 1,173

Conversion Costs (750 x $12.4534) --- 9,340 9,340

Total Costs accounted for $147,661 $10,513 $158,174

======= ====== =======


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Cost to account for:

BWIP $ 15,000

Cost added 143,000$158,175

======

Cost accounted for:Goods transferred out $147,661

EWIP 10,513

*$158,174

=======


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End of Chapter 6

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06 Prosess Costing