342 Wk0911 Process Costing Student (1)

8/4/2019 342 Wk0911 Process Costing Student (1)

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IES 342 Industrial Cost Analysis & Control | Dr. Karndee Prichanont, SIIT

Process Costing

Chapter 11

Objectives: Explain the basic ideas underlying processcosting and how they differ from job costing

Compute costs in process costing system

Demonstrate the weighted average and FIF

methods for process costing Analyze process costing with multipledepartments


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ComparingJob Costing vs Process Costing

Job costing

Costs accumulated by thejob.

Work in process has a jobcost record for each job.

Many unique jobs.

Jobs built to customer order.

Job costing

Costs accumulated by thejob.

Work in process has a jobcost record for each job.

Many uniquejobs.

Jobs built tocustomerorder.

Process costing

Costs accumulated bydepartment or process.

Work in process has a

production report for eachbatch of products.

Homogenous products.

Units continuously producedfor inventory in automated

process.

Process costing

Costs accumulated bydepartment or process.

Work in process has a

production report for eachbatch ofproducts.

Homogenous products.

Unitscontinuouslyproducedfor inventory in automated

process.

Same objective: _________________________

Same inventory account: _________________________

Same OH assignment method: _________________________

Same objective: _________________________

Same inventory account: _________________________

Same OH assignment method: _________________________


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Comparing

Job Costing vs Process

Costing

Direct Materials

FinishedGoods

Cost ofGoods

Sold

Direct Labor

FactoryOverhead

Job Costing


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FinishedGoods

Cost ofGoods

Sold

Process Costing

Comparing

Job Costing vs Process

Costing


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Characteristics of

Process Costing

________________________________________________

DirectMaterials

Type of Product Cost

D

ollarAmoun

t

DirectLabor

FactoryOverhead

So, direct labor and factory overhead are often

combined into one product cost called_______________.

DirectMaterials

Type of Product Cost

D

ollarAmou

nt Conversion


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Characteristics of ProcessCosting

Process costing accumulates costs by process ordepartment and then assigns them to a large number of

nearly identical products.

Process costing accumulates costs by process ordepartment and then assigns them to a large number of

nearly identical products.

Continuousmass production

Continuousmass production

Similarprocesses

Similarprocesses

Homogeneousproducts

Homogeneousproducts

costunit =


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Equivalent Units

Equivalent units is a concept expressing partially complete units as a smallernumber of fully complete units.

We want to find the unit cost of performing a certain process in a given period,but

A manufacturing firm typically has partially completed units at the end of anaccounting period

Equivalent units Physical Units

+ =Two one-half filled cups are equivalent to one full cup.

1

Cost perequivalent

unit =

Manufacturing costs for a period

Equivalent units for the period


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Equivalent Units

During its first month of business, Jones started 15,000 units and completed10,000 units, leaving 5,000 units in process 30 percent complete. How manyequivalent units of production did Jones have for the month?

a. 10,000

b. 11,500c. 13,500

d. 15,000

Now assume that Jones incurred $27,600 in production costs. What was Jonescost per equivalent unit for the period?

a. $1.84

b. $2.40

c. $2.76

d. $2.90


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Flow of Costs in ProcessCosting

Costs flow through different processes or departments

Use separate WIP Inventory account for each department

DM, DL, OH costs can be entered directly into either productiondepartments WIP Inventory account, not just the first department

Transfer of costs from a department subsequent departments FGInventory Cost of goods sold

Transfer-in-costs (TI): costs of goods completed in the prior departmentand transferred into the department during the period


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5 Steps in ProcessCosting

Analyze the physical flow of physical units.Analyze the physical flow of physical units.

Calculate equivalent units of production for allCalculate equivalent units of production for allmanufacturing cost elements.manufacturing cost elements.

Determine total cost for each manufacturing costDetermine total cost for each manufacturing costelement.element.

Compute cost per equivalent unit for eachCompute cost per equivalent unit for eachmanufacturing cost element.manufacturing cost element.

Assign the total manufacturing costs to units completedAssign the total manufacturing costs to units completedand units of work in process at the end of the period.and units of work in process at the end of the period.________________

________________

________________


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Process Costing Method

Weighted-Average Method

__________________

__________________

__________________

__________________

Blends together units and

costs in beginning inventorywith units and costs in thecurrent period.

FIFO Method

__________________

____________________________________

Assumes units inbeginning work in process

inventory are completedand transferred first.

S 3 2 d i l C l i & C l


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Weighted Average vs FIFOWhich one is better?

FIFO costing results in a current period cost that can beused for performance evaluation.

If there is no beginning inventory (JIT) or if beginning

inventory is small, FIFO and weighted-average producethe same results.

IES 342 I d t i l C t A l i & C t l | D K d P i h t SIIT


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Ex 1: Basic Process Costing(No Beginning Inventory)Adapted from Horngren et al. (2002) page 587

XYC Inc. produces portable CD players in large quantities. Assume that the

company has two departments, assembly and testing. The manufacturing

costs in Assembly Dept during February were:

Assume no beginning inventory of WIP. Suppose work on 19,000 CD playerswas begun in the assembly department during February, but only 17,000 CD

players were fully completed. All the parts had been made or placed inprocess, but only half the labor had been completed for each of the CDplayers still in process

Compute the costs of units completed and transferred to the Testing

Dept and the cost of ending WIP.

DM added

DL

OH

$60,800

$50,000

$40,000



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Ex 2: Process Costing(with beginning inventory; use weighted-Average)Adapted from Horngren et al. (2002) page 587

ABC Inc. manufactures electric drills. Material is introduced at the beginning

of the process in the Assembly Department. Conversion costs are applied

uniformly throughout the process. As the process in completed, goods are

immediately transferred to Finishing Dept.

Data for the Assembly Dept for the July 20X1:

WIP, June 30: $175,500 .. 10,000 units

($138,000 materials and $37,500 conversion costs); completed for DM but only 25%completed for conversion costs

Units started during July .. 80,000 units

Units completed during July ... 70,000 unitsWIP, July 31: 100% completed forDM, but only 50% completed for conversion costs.. 20,000 units

DM added during July.. $852,000

Conversion costs added during July $634,500



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Process Costing withMultiple Departments

Multiple departments in a process result in units and costs that aretransferred from a prior department to the current department.

These transferred-in costs are treated exactly like a direct materialthat is added at the beginning of a production process.

IES 342 Industrial Cost Analysis & Control | Dr Karndee Prichanont SIIT


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Ex 3: Process Costing with Transferred InCosts

Prior

Departme

nt's Costs

Direct

Materials

Conversion

Costs

Physical flow:

Beginning inventory 2000 100% 40% 80%

Ending inventory 4000 100% 25% 60%

Unit started (transferred in) 12000 100%

Started and completed 8000 100% 100% 100%

Costs incurred:

Beginning inventory 5,000$ 2,000$ 1,000$

Current Costs 52,000$ 20,000$ 7,000$

Deparment Costs

Units

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342 Wk0911 Process Costing Student (1)