Kế toán, kiểm toán - Chapter 3: Process costing

Prepared by Debby Bloom-Hill CMA, CFMCHAPTER 3Process CostingDifference Between Job-Order and Process Costing SystemsJob-Order CostingEach unique product or batch is considered a job for which cost information is neededNecessary to trace manufacturing costs to specific jobsWhen completed, cost of job is removed from Work in Process and included in Finished Goods Slide 3-3Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Difference Between Job-Order and Process Costing SystemsProcess CostingLarge quantities produced of homogeneous productsAverage cost = total costs divided by total number of items producedWhen completed, number of units completed times average cost determines cost to be moved from WIP to Finished GoodsSlide 3-4Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Which of the following characteristics are associated with a process costing system?Heterogeneous productsHomogeneous productsAnswer: bHeterogeneous products are uniqueHomogeneous products are identicalProcess costing is associated with identical productsSlide 3-5Test Your Knowledge 1Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Which of the following characteristics are associated with a process costing system?Continuous productionDiscontinuous productionAnswer: aJob order costing is associated with discontinuous productionProcess costing is associated with continuous productionSlide 3-6Test Your Knowledge 2Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Which of the following characteristics are associated with a process costing system?Costs are traced to jobsCosts are traced to processing departmentsAnswer: bJob order costing requires tracing costs to jobsProcess costing is associated with tracing costs to departmentsSlide 3-7Test Your Knowledge 3Learning objective 1: Describe how products flow through departments and how costs flow through accounts.An example of a business requiring a process costing system would be a(n):Custom cabinet shopAntique furniture restorerSoap manufacturerAutomobile repair shopAnswer: c A soap manufacturer produces many identical unitsSlide 3-8Test Your Knowledge 4Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Job-Order Costing SystemSlide 3-9Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Process Costing SystemSlide 3-10Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Product Flows through DepartmentsManufacturing operations typically pass through two or more departmentsCosts are accumulated in each departmentEasy to identify when materials are addedHarder to identify when labor and overhead are addedOften grouped together as conversion costsAssumed to be added evenly throughout the processSlide 3-11Learning objective 1: Describe how products flow through departments and how costs flow through accounts.The costs in a process costing system are traced to:Specific jobsSpecific customersSpecific company administratorsSpecific production departmentsAnswer: dSpecific production departmentsSlide 3-12Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Test Your Knowledge 5Cost Flows through AccountsThe product costs accumulated in process costing are the same as in job-order costingDirect materialsDirect laborManufacturing overheadA processing department might have transferred in costs from another departmentEach processing department accumulates product cost in a separate Work in Process accountSlide 3-13Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Cost Flows through AccountsDirect MaterialSuppose that $142,000 of direct materials are usedJournal entry:Slide 3-14Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Cost Flows through AccountsDirect LaborSuppose that $62,200 of direct labor costs are incurredJournal entry:Slide 3-15Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Cost Flows through AccountsManufacturing OverheadA company may use either actual overhead costs or a predetermined overhead rate to assign overhead to productsUnless production and overhead costs are constant from month to month, use of actual overhead may result in substantial fluctuations in the unit costFor that reason most companies use a predetermined overhead rateSlide 3-16Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Cost Flows through AccountsManufacturing OverheadSuppose manufacturing overhead is applied at a rate of $3 per direct labor dollarJournal entry: Slide 3-17Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Cost Flows through AccountsTransferred-in CostWhen a department completes its work, the items are transferred to the next departmentRelated costs are transferred as wellSuppose the Mixing Department completed units with a cost of $360,000Slide 3-18Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Flow of Costs Between Processing DepartmentsSlide 3-19Learning objective 1: Describe how products flow through departments and how costs flow through accounts.Calculating Unit CostEquivalent UnitsPartially completed units are converted to a comparable number of completed units, called equivalent unitsMultiply the number of units by the percent complete to calculate the equivalent units100 units that are 50% complete are equivalent to 50 complete units (100 x 50%)Equivalent units may be different for material and conversion costs if materials and conversion costs enter production at different times.Slide 3-20Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Equivalent Units – Material and Conversion CostsSlide 3-21Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Calculating Equivalent UnitsEquivalent units are normally calculated for materials and conversion costsThe equivalent units produced is the sum of the units finished and the units in ending work in processUnits finished are always 100% complete in terms of materials and conversion costsMultiply the number of units in ending work in process by the corresponding percent complete to calculate the equivalent unitsSlide 3-22Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.At Rainier Chemical, conversion costs (labor and overhead) enter evenly throughout the production process. At the end of the year, 200 units in work in process are 80 percent complete. With respect to conversion costs, how many equivalent units are in work in process?200160360280Answer: b200 units * 80% complete = 160 equivalent unitsSlide 3-23Test Your Knowledge 6Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Beginning Work in Process 500 units% complete = 65% materials, 45% conversionUnits started: 2,300Units finished: 2,500Ending Work in Process 300 units% complete = 85% materials, 50% conversionCalculate equivalent units for materialsSlide 3-24Test Your Knowledge 7Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Beginning Work in Process 500 units% complete: 65% materials, 45% conversionUnits started: 2,300Units finished: 2,500Ending Work in Process 300 units% complete: 85% materials, 50% conversionCalculate equivalent units for conversionSlide 3-25Test Your Knowledge 8Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Calculating Unit CostCost Per Equivalent UnitThe average unit cost in a process costing system is referred to as cost per equivalent unitThe numerator represents the total cost for which a processing department must account in each periodDivide by the units completed plus the equivalent units in ending Work in ProcessSlide 3-26Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Calculating Cost per Equivalent UnitConsider cost per equivalent unit calculations for the mixing departmentBeginning Work in Process inventory: 10,000 gallons that are 80% completeDirect material costs = $18,000Direct labor =$7,800Overhead = $23,400 70,000 gallons started, 60,000 gallons completedDirect material costs = $142,000 Direct labor cost = $62,200 Overhead cost = $186,600 Slide 3-27Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Cost per EU – Mixing DepartmentSlide 3-28Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.At Rainier Chemical, labor cost in Work in Process at the start of April was $50,000 and $450,000 of labor was incurred during the month. 200 units are in WIP at the end of April and they are 80% complete with respect to labor. 840 units were completed during the month. What is the cost per equivalent unit for labor?$225$481$536$500Answer: dTotal labor cost = $50,000 + $450,000 = $500,000Equivalent units = 840 units + 200 units * 80% = 1,000 unitsCost per equivalent unit = $500,000 / 1,000 = $500Slide 3-29Test Your Knowledge 9Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Costs Transferred Out60,000 gallons completed by the Mixing DepartmentUnit cost is $6 per gallon$360,000 (60,000 X $6) of cost transferred to the Packaging DepartmentSlide 3-30Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Ending Work in ProcessSlide 3-31Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Summary of Cost Activity –Mixing DepartmentSlide 3-32Learning objective 2: Discuss the concept of an equivalent unit and calculate the cost of goods completed and the ending Work in Process balance in a processing department.Production Cost ReportSlide 3-33Learning objective 3: Describe a production cost report.An end of the month report for a process costing systemProvides a reconciliation of unitsProvides a reconciliation of costsProvides the details of the cost per equivalent unit calculationsThe reconciliations help ensure that mistakes are not made in calculationsProduction Cost ReportSlide 3-34Learning objective 3: Describe a production cost report.Production Cost ReportSlide 3-35Learning objective 3: Describe a production cost report.Production Cost ReportSlide 3-36Learning objective 3: Describe a production cost report.Production Cost ReportSlide 3-37Reconciliation of UnitsLearning objective 3: Describe a production cost report.Production Cost ReportSlide 3-38Reconciliation of CostsLearning objective 3: Describe a production cost report.Basic Steps in Process CostingStep 1: Account for the physical number of units. The number of units at the start of the period plus the number of units started during the period should equal the number of units completed plus the number of units in ending Work in Process.Slide 3-39Learning objective 3: Describe a production cost report.Basic Steps in Process CostingStep 2: Calculate the cost per equivalent unit for material, labor, and overhead. Remember that cost (numerator in the calculation) includes both beginning cost and cost incurred during the period. The number of equivalent units (denominator) includes the number of units completed and the number of equivalent units in ending Work in Process. Cost per equivalent unit = (cost in beginning WIP + costs added) (units completed + EU of ending WIP)Slide 3-40Learning objective 3: Describe a production cost report.Basic Steps in Process CostingStep 3: Assign cost to items completed and items in ending Work in Process. The cost of items completed is simply the product of the total cost per equivalent unit and the number of units completed. The cost of items in Work in Process is the sum of the products of equivalent units in process and cost per equivalent unit for material, labor, and overhead.Slide 3-41Learning objective 3: Describe a production cost report.Basic Steps in Process CostingStep 4: Account for the amount of product cost. The cost of beginning inventory plus the cost incurred during the period should equal the amount of cost assigned to completed items plus the amount of cost assigned to items in ending Work in Process.Slide 3-42Learning objective 3: Describe a production cost report.Dealing with Transferred-In CostPackaging Department summaryBeginning Work in Process 15,000 gallons 50% through packaging operationCosts in WIP: materials $10,500, labor $4,500, $9,000 overhead, $92,250 transferred inUnits transferred in 60,000 gallons with $360,000 transferred in costCosts added: Materials $49,500, labor $27,900, $55,800 overheadEnding Work in Process 5,000 gallons 40% through packaging operationSlide 3-43Learning objective 3: Describe a production cost report.Production Cost Report –Packaging DepartmentSlide 3-44Learning objective 3: Describe a production cost report.Production Cost Report –Packaging DepartmentSlide 3-45Learning objective 3: Describe a production cost report.Production Cost Report –Packaging DepartmentSlide 3-46Learning objective 3: Describe a production cost report.The packaging department at Rainier Chemical had no beginning Work in Process at the start of April. During April, the department received $300,000 of transferred-in cost. During April, the department completed 600 units and 200 were in Work in Process. With respect to transferred-in cost, the 200 units in Work in Process are:Equivalent to 200 completed unitsEquivalent to 0 completed unitsEquivalent to 100 completed unitsIdentical to the equivalent units for conversion costsAnswer: aSince processing was completed in another department, units transferred in are 100% complete for all categoriesSlide 3-47Test Your Knowledge 10Learning objective 3: Describe a production cost report.Process Costing and Incremental AnalysisSlide 3-48Whenever we make a decision, we need to perform incremental analysisWe need to determine the change in revenue and the change is cost, assuming a particular alternative is selectedIf the net change is positive, the decision alternative is “good” since it will have a positive impact on firm profitIf the net change is negative, the decision alternative is “bad” in that it will have a negative impact on firm profitLearning objective 3: Describe a production cost report.Process Costing and Incremental AnalysisSlide 3-49When using process costing information to make a decision, we have to be careful to recognize that the cost per unit is the average of fixed and variable costsIt does not measure the change in cost associated from producing an additional unitGenerally, total fixed costs do not change when one additional unit is producedLearning objective 3: Describe a production cost reportProcess Costing and Incremental AnalysisSlide 3-50A company has no beginning or ending Work in ProcessVariable costs are materials and laborFixed cost is manufacturing overheadCost summary:Learning objective 3: Describe a production cost report.Process Costing and Incremental AnalysisSlide 3-51Decreasing price to $2.90 will increase demand to 275,000 units$2.90 is less than equivalent cost per unitIncremental analysis: profit will increaseLearning objective 3: Describe a production cost report.You Get What You MeasureSlide 3-52Copyright© 2016 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.Slide 3-53