44377018 Product Costing

8/7/2019 44377018 Product Costing

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PRODUCTPRODUCTCOSTINGCOSTING


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JOIN KHALID AZIZ

ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP

MODULE B, B.COM, BBA, MBA & PIPFA.

COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE

D, BBA, MBA & PIPFA.

CONTACT:

0322-3385752

0312-2302870 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA,

KARACHI, PAKISTAN.


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JOIN KHALID AZIZ

o FRESH CLASSESo ICMAP STAGE 3

o FINANCIAL ACCOUNTING & COST

ACCOUNTING PERFORMANCEAPPRAISAL

o INDIVIDUAL & GROUPS


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JOIN KHALID AZIZ

FRESH CLASSES

ICMAP STAGE 1 & 2

FUNDAMENTALS OF FINANCIALACCOUNTING & COSTACCOUNTING

INDIVIDUAL & GROUPS


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JOIN KHALID AZIZ

FRESH CLASSES CA MODULE B & D

FINANCIAL ACCOUNTING & COSTACCOUNTING

INDIVIDUAL & GROUPS


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Comparison of JobComparison of Job--Order CostingOrder Costing

and Process Costingand Process CostingProcessCosting

ProcessCosting

Job-orderCosting

Used for production of small,identical, low cost items.

Mass produced in automatedcontinuous production process.

Costs cannot be directly traced toeach unit of product.


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ProcessCosting

ProcessCosting

Job-orderCosting

Typical process cost applications:

Petrochemical refinery

Paint manufacturer

Paper mill


and Process Costingand Process Costing


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Job-order costing

Costs accumulated by

thejob. Work in process has a

job-cost sheet for eachjob.

Many unique, high costjobs.

Jobs built to customerorder.

Process costing

Costs accumulated by

department orprocess. Work in process has a

production report foreach batch ofproducts.

A few identical, low costproducts.

Units continuouslyproduced for inventoryin automated process.




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Direct Material

FinishedGoods

Cost ofGoodsSold

Direct Labor

ManufacturingOverhead

Jobs

The work-in-processaccount consists ofindividualjobs in a

job-ordercost system.

Differences Between JobDifferences Between Job--OrderOrder



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Direct Material

FinishedGoods

Cost ofGoodsSold

Products

The work-in-processaccount consists of

individual products in a

process cost system.

Differences Between JobDifferences Between Job--OrderOrderand Process Costingand Process Costing

Direct Labor& Overhead

(Conversion)

When direct labor is a relatively small amountcompared to material and overhead, it is often

combined with overhead.


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Process Cost FlowsProcess Cost Flows

Direct material

Direct labor

Applied manufacturing transferred to and transferred to

overhead department B finished goods

Direct material

Direct labor

Applied manufacturing

overhead

during current period

Cost of goods sold

Cost of goods completed

in department A and Cost of goods completed

Finished Goods Inventory Cost of Goods Sold

Two Sequential Production DepartmentsWork-in-Process Inventory Work-in-Process Inventory

Production Department A Production Department B


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Equivalent Units: A Key ConceptEquivalent Units: A Key Concept

Costs are accumulated for a period of time forproducts in work-in-process inventory.

Products in work-in-process inventory at thebeginning and end of the period are onlypartially complete.

Equivalent units is a concept expressing

these partially completed products as asmaller number of fully completed products.

Costs are accumulated for a period of time forproducts in work-in-process inventory.

Products in work-in-process inventory at thebeginning and end of the period are onlypartially complete.

Equivalent units is a concept expressing

these partially completed products as asmaller number of fully completed products.


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Equivalent Units of ProductionEquivalent Units of Production

Equivalent units are partially completeand are part of work in process

inventory. Partially completedproducts are expressed in terms of a

smaller number of fully completedunits.


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Finished Goods

Cost of Goods Sold

Process Cost FlowsProcess Cost Flows

Work in ProcessDepartment B

Cost of

GoodsManufactured

Direct

MaterialsDirectLabor

AppliedOverhead

Transferred

from Dept. A

Cost ofGoodsSold

Cost of

GoodsSold

Cost of

GoodsManufactured


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Equivalent Units of ProductionEquivalent Units of Production

Two half completed products areequivalent to one completed product.

So, 10,000 units 70 percent completeare equivalent to 7,000 complete units.

+ = 1


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For the current period, Jones started 15,000units and completed 10,000 units, leaving5,000 units in process 30 percent complete.

How many equivalent units of production didJones have for the period?

a. 10,000

b. 11,500c. 13,500

d. 15,000

Quick CheckQuick Check


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For the current period, Jones started 15,000units and completed 10,000 units, leaving5,000 units in process 30 percent complete.

How many equivalent units of production didJones have for the period?

a. 10,000

b. 11,500c. 13,500

d. 15,000

10,000 units + (5,000 units 0.30)= 11,500 equivalent units



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Calculating and Using EquivalentCalculating and Using EquivalentUnits of ProductionUnits of Production

To calculate the cost perequivalent unit for the period:

Cost perequivalent

unit

=Costs for the period

Equivalent units of productionfor the period


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Now assume that Jones incurred$27,600 in production costs for the11,500 equivalent units of production.

What was Jones cost per equivalent unitfor the period?

a. $1.84

b. $2.40

c. $2.76

d. $2.90



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Now assume that Jones incurred$27,600 in production costs for the11,500 equivalent units of production.

What was Jones cost per equivalent unitfor the period?

a. $1.84

b. $2.40

c. $2.76

d. $2.90

$27,600 11,500 equivalent units

= $2.40 per equivalent unit



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Equivalent Units of ProductionEquivalent Units of Production Weighted Average MethodWeighted Average Method

The weighted average method . . .

Makes no distinction between work done in prior

and current period. Blends together units and costs from priorperiod and current period.

Lets see how this works!


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MVP Sports Equipment Company makes baseball glovesin two departments, Cutting and Stitching.

MVP uses the weighted-average cost procedure.

Material is added at the beginning of the CuttingDepartment, and conversion is incurred uniformlythroughout the process.

Using the following information for the month of March,lets prepare a production report for the CuttingDepartment.

EXP 1: Production Report ExampleEXP 1: Production Report Example


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Work in process, March 1: 20,000 units CostMaterials: 100% complete. $ 50,000

Conversion: 10% complete. 7,200

Units started into production in March: 30,000 units

Units completed and transferred out in March: 40,000 units

Work in process, March 31: 10,000 units

Materials 100% complete.

Conversion 50% complete.

Costs incurred during March

Materials cost 90,000Conversion costs:

Direct labor $ 86,000

Applied manufacturing overhead 107,500

Total conversion costs 193,500

Total costs to account for $ 340,700

Production Report ExampleProduction Report Example


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Conversion uivalent Units

Physical Percentage irect

Units Complete Material Conversion

Work in process, March 1 2 ,

Units started during March ,

otal units to account for ,

Units completed and transferred , 1 % , ,Work in process, March 1 1 , % 1 , ,

otal units accounted for ,

otal e uivalent units , ,


Calculation ofEquivalent Units

50 of10,000 units

inning inventory % is not used in weighted-average method.


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1 2 1

11 1 1


Calculation ofEquivalent Units

100% of10,000 units, allmaterial added at beginning


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r

r v r T

r Pr r 1 2 2

rr r r 90 000 193 500 283 500

T r 1 0 000$ 200 700$ 340 700$

Eq v 50 000 45 000

r q v 2.80$ 4.46$ 7.26$

Computation of unit costs




$2.80 + $4.46


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Analysis of total costs

Cost of goods completed and transferred during March

40,000 units x $7.26 per equivalent unit 290,400$

Costs remaining in work-in-process on March 31

Direct Material:

10,000 equivalent units x $2.80 per equivalent unit 28,000$

Convserion:

5,000 equivalent units x $4.46 per equivalent unit 22,300

Total cost of March 31 work-in-process 50,300

Total costs accounted for 340,700$


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Direct Material:


Convserion:





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Direct Material:


Convserion:




All costsaccounted for


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Percentage of

Completion Equivalent Units

Physical with Respect to Direc t

Units Conversion Material Conversion

Work in process, March 1 20,000 10%

Units started during March 30,000

Total units to account for 50,000

Units completed and transferred 40,000 100% 40,000 40,000

Work in process, March 31 10,000 50% 10,000 5,000

Total units accounted for 50,000

Total equivalent units 50,000 45,000

Direct

Material Conversion Total

Work in Process, March 1 50,000$ 7,200$ 57,200$

Costs incurred during March 90,000 193,500 283,500

Total costs to account for 140,000$ 200,700$ 340,700$

Equivalent units 50,000 45,000

Cost per equivalent unit 2.80$ 4.46$ 7.26$




Direct Material:


Conversion:




MVP SPORTS EQUIPMENT COMPANY

Production Report: Cutting Department


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Double Diamond Skis uses process costing todetermine unit costs in its Shaping and MillingDepartment.

Double Diamond uses the weighted averagecost procedure.

Using the following information for the month ofMay, lets prepare a production report forShaping and Milling.

Double Diamond Skis uses process costing todetermine unit costs in its Shaping and MillingDepartment.

Double Diamond uses the weighted averagecost procedure.

Using the following information for the month ofMay, lets prepare a production report forShaping and Milling.

EXP 2: Production Report ExampleEXP 2: Production Report Example


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Work in process, May 1: 200 units

Materials: 55% complete. $ 9,600


Production started during May: 5,000 unitsProduction completed during May: 4,800 units

Costs added to production in May

Materials cost $ 368,600

Conversion cost 350,900





Materials: 55% complete. $ 9,600


Production started during May: 5,000 unitsProduction completed during May: 4,800 units

Costs added to production in May

Materials cost $ 368,600

Conversion cost 350,900






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Section 1: Quantity Schedule with Equivalent Units


b :

1

S 5

5

w :

31


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b :

1

S

w :

31

16

6



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b :

1

S

w :

31

1

1



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Section 2: Compute cost per equivalent unit


r r

b rW r r y 1 1 1

r 1 3 8 3

3 3 8 3

r


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r r

b rW r r y 1 1 1 9

r 19 3 3 9

3 3 3

9 9

r



3 9 = 2


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r r

b rW r r y 1 1 1 00

r 1 00 00 0 00

4 200 4

4 0 4 00

r 2 2

r = 2 2 = 14 00


4 4 00 = 2



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Manufacturingoverhead is

appliedto Work-in-

Process Inventoryusing a

predetermined

overhead rate

Actual costs of

manufacturing overheadare entered in Work-in-

Process Inventory

Actual Costing vs. Normal Costing


45/45

JOIN KHALID AZIZ

ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP

MODULE B, B.COM, BBA, MBA & PIPFA.

COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE

D, BBA, MBA & PIPFA.

CONTACT:

0322-3385752

0312-2302870 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA,

KARACHI, PAKISTAN.

Documents

44377018 Product Costing