Kế toán, kiểm toán - Chapter 4: Systems design: process costing

Systems Design: Process CostingChapter 4Similarities Between Job-Order and Process CostingBoth systems assign material, labor and overhead costs to products and they provide a mechanism for computing unit product costs.Both systems use the same manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods.The flow of costs through the manufacturing accounts is basically the same in both systems.Differences Between Job-Order and Process CostingProcess costing is used when a single product is produced on a continuing basis or for a long period of time. Job-order costing is used when many different jobs having different production requirements are worked on each period.Process costing systems accumulate costs by department. Job-order costing systems accumulated costs by individual jobs.Process costing systems compute unit costs by department. Job-order costing systems compute unit costs by job on the job cost sheet.Process costing is used for products that are: a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors.Quick Check Process costing is used for products that are: a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors.Quick Check Processing DepartmentsAny unit in an organization where materials, labor or overhead are added to the product.The activities performed in a processingdepartment are performed uniformly on allunits of production. Furthermore, the output ofa processing department must be homogeneous. Products in a process costing environment typically flow in a sequence from one departmentto another.Learning Objective 1Record the flow of materials, labor, and overhead through a process costing system.Comparing Job-Order and Process CostingFinishedGoodsCost of GoodsSoldWork inProcessDirect MaterialsDirect LaborManufacturing Overhead Comparing Job-Order and Process CostingFinishedGoodsCost of GoodsSoldDirect LaborManufacturing Overhead JobsCosts are traced andapplied to individualjobs in a job-ordercost system.Direct MaterialsComparing Job-Order and Process CostingFinishedGoodsCost of GoodsSoldDirect LaborManufacturing Overhead ProcessingDepartmentCosts are traced and applied to departments in a process cost system.Direct MaterialsT-Account and Journal Entry Views of Process Cost FlowsFor purposes of this example, assume there are two processing departments – Departments A and B. We will use T-accounts and journal entries. Raw MaterialsProcess Cost Flows: The Flow of Raw Materials (in T-account form) Work in Process Department B Work in Process Department ADirectMaterialsDirect MaterialsDirect MaterialsProcess Cost Flows: The Flow of Raw Materials (in journal entry form)Process Cost Flows: The Flow of Labor Costs (in T-account form) Work in Process Department B Work in Process Department A Salaries and Wages PayableDirect MaterialsDirect MaterialsDirect LaborDirect LaborDirect LaborProcess Costing: The Flow of Labor Costs (in journal entry form)Process Cost Flows: The Flow of Manufacturing Overhead Costs (in T-account form) Work in Process Department B Work in Process Department AManufacturing OverheadOverheadApplied to Work inProcessAppliedOverheadAppliedOverheadDirect LaborDirect MaterialsDirect LaborDirect MaterialsActual OverheadProcess Cost Flows: The Flow of Manufacturing Overhead Costs (in journal entry form)Process Cost Flows: Transfers from WIP-Dept. A to WIP-Dept. B (in T-account form)Work in Process Department BWork in ProcessDepartment ADirect MaterialsDirect LaborAppliedOverheadDirect MaterialsDirect LaborAppliedOverheadTransferred to Dept. BTransferred from Dept. ADepartmentADepartmentBProcess Cost Flows: Transfers from WIP-Dept. A to WIP-Dept. B (in journal entry form)Finished GoodsProcess Cost Flows: Transfers from WIP-Dept. B to Finished Goods (in T-account form) Work in Process Department BCost of Goods ManufacturedDirect MaterialsDirect LaborAppliedOverheadTransferred from Dept. ACost of GoodsManufactured Process Cost Flows: Transfers from WIP-Dept. B to Finished Goods (in journal entry form)Finished Goods Cost of Goods SoldProcess Cost Flows: Transfers from Finished Goods to COGS (in T-account form) Work in Process Department BCost of Goods ManufacturedDirect MaterialsDirect LaborAppliedOverheadTransferred from Dept. ACost of GoodsSold Cost of GoodsSold Cost of GoodsManufactured Process Cost Flows: Transfers from Finished Goods to COGS (in journal entry form)Equivalent Units of ProductionEquivalent units are the product of the number of partially completed units and the percentage completion of those units.We need to calculate equivalent units because a department usually has some partially completed units in its beginning and ending inventory. These partially completed units complicate the determination of a department’s output for a given period and the unit cost that should be assigned to that output.Equivalent Units – The Basic IdeaTwo half completed products are equivalent to one complete product.So, 10,000 units 70% completeare equivalent to 7,000 complete units.+=1 For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000Quick Check  For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 10,000 units + (5,000 units × 0.30)  = 11,500 equivalent unitsQuick Check Calculating Equivalent UnitsEquivalent units can be calculatedtwo ways:The First-In, First-Out Method – FIFO is covered in the appendix to this chapter.The Weighted-Average Method – This method  will be covered in the main portion of the chapter.Learning Objective 2Compute the equivalent units of production using the weighted-average method.Equivalent Units of ProductionWeighted-Average MethodThe weighted-average method . . .Makes no distinction between work done in prior or current periods.Blends together units and costs from prior and current periods.Determines equivalent units of production for a department by adding together the number of units transferred out plus the equivalent units in ending Work in Process Inventory.Treatment of Direct LaborDirect labor costsmay be smallin comparison toother productcosts in processcost systems.DirectMaterialsType of Product CostDollar AmountDirectLaborManufacturingOverheadTreatment of Direct LaborType of Product CostDollar AmountConversionDirect labor and manufacturing overhead may be combined into one classification of product cost called conversion costs.DirectMaterialsDirectLaborDirectLaborManufacturingOverheadWeighted-Average – An Example Smith Company reported the following activity in the Assembly Department for the month of June:The first step in calculating the equivalent units is to identify the units completed and transferred out of Assembly Department in June (5,400 units)Weighted-Average – An ExampleThe second step is to identify the equivalent units of production in ending work in process with respect to materials for the month (540 units) and adding this to the 5,400 units from step one.Weighted-Average – An ExampleWeighted-Average – An ExampleThe third step is to identify the equivalent units of production in ending work in process with respect to conversion for the month (270 units) and adding this to the 5,400 units from step one.Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in processWeighted-Average – An ExampleBeginningWork in Process300 Units40% CompleteEndingWork in Process900 Units60% Complete6,000 Units Started5,400 Units Completed5,100 Units Startedand CompletedWeighted-Average – An ExampleMaterials5,400 Units Completed 540 Equivalent Units900 × 60%5,940 Equivalent units of production6,000 Units Started5,400 Units Completed5,100 Units Startedand Completed 270 Equivalent Units900 × 30%5,670 Equivalent units of productionBeginningWork in Process300 Units20% CompleteEndingWork in Process900 Units30% CompleteWeighted-Average – An ExampleConversionLearning Objective 3Compute the cost per equivalent unit using the weighted-average method.Beginning Work in Process Inventory: 400 units Materials: 40% complete $ 6,119 Conversion: 20% complete $ 3,920 Production started during June 6,000 unitsProduction completed during June 5,400 unitsCosts added to production in June Materials cost $ 118,621 Conversion cost $ 81,130 Ending Work in Process Inventory: 900 units Materials: 60% complete Conversion: 30% completeCompute and Apply CostsCompute and Apply CostsThe formula for computing the cost per equivalent unit is:Cost perequivalent unit=Cost of beginningWork in ProcessInventory Cost added during the periodEquivalent units of production+ Here is a schedule with the cost and equivalent unit information.Compute and Apply CostsCompute and Apply Costs Here is a schedule with the cost and equivalent unit information.$124,740 ÷ 5,940 units = $21.00$85,050 ÷ 5,670 units = $15.00Cost per equivalent unit = $21.00 + $15.00 = $36.00Learning Objective 4Assign costs to units using the weighted-average method.Applying CostsApplying CostsApplying CostsComputing the Cost of Units Transferred OutComputing the Cost of Units Transferred OutComputing the Cost of Units Transferred OutLearning Objective 5Prepare a cost reconciliation report.Reconciling CostsReconciling CostsOperation CostingOperation cost is a hybrid of job-order and process costing because it possesses attributes of both approachesOperation costing is commonly used when batches of many different products pass through the same processing department.FIFO MethodAppendix 4AFIFO vs. Weighted-Average MethodThe FIFO method (generally considered more accurate than the weighted-average method) differs from the weighted-average method in two ways:The computation of equivalent units.The way in which the costs of beginning inventory are treated.Learning Objective 6Compute the equivalent units of production using the FIFO method.Equivalent Units – FIFO MethodLet’s revisit the Smith Company example. Here is information concerning the Assembly Department for the month of June.Equivalent Units – FIFO MethodStep 1: Determine equivalent units needed to complete beginning Work in Process Inventory.Equivalent Units – FIFO MethodStep 2: Determine units started and completed during the period.Equivalent Units – FIFO MethodStep 3: Add the equivalent units in ending Work in Process Inventory.BeginningWork in Process300 Units40% CompleteEndingWork in Process900 Units60% Complete6,000 Units Started5,100 Units Startedand CompletedFIFO ExampleMaterials5,100 Units Completed 540 Equivalent Units900 × 60%5,820 Equivalent units of production 180 Equivalent Units300 × 60%BeginningWork in Process300 Units20% CompleteEndingWork in Process900 Units30% Complete6,000 Units Started5,100 Units Startedand CompletedFIFO ExampleConversion5,100 Units Completed 270 Equivalent Units900 × 30%5,610 Equivalent units of production 240 Equivalent Units300 × 80%Equivalent Units: Weighted-Average vs. FIFOAs shown below, the equivalent units in beginning inventory are subtracted from the equivalent units of production per the weighted-average method to obtain the equivalent units of production under the FIFO method.Learning Objective 7Compute the cost per equivalent unit using the FIFO method.Beginning work in process: 400 units Materials: 40% complete $ 6,119 Conversion: 20% complete $ 3,920 Production started during June 6,000 unitsProduction completed during June 5,400 unitsCosts added to production in June Materials cost $ 118,621 Conversion cost $ 81,130 Ending work in process 900 units Materials: 60% complete Conversion: 30% completeCost per Equivalent Unit - FIFOLet’s revisit the Smith Company Assembly Department for the month of June to prepare our production report.Cost per Equivalent Unit - FIFOThe formula for computing the cost per equivalent unit under FIFO method is:Cost per Equivalent Unit - FIFOTotal cost per equivalent unit = $20.3816 + $14.4617 = $34.8433$118,600 ÷ 5,820$81,130 ÷ 5,610Learning Objective 8Assign costs to units using the FIFO method.Applying Costs - FIFOStep 1: Record the equivalent units of production in ending Work in Process Inventory.900 units × 60%900 units × 30%Applying Costs - FIFOStep 2: Record the cost per equivalent unit.Applying Costs - FIFOStep 3: Compute the cost of ending Work in Process Inventory.540 × $20.3816270 × 14.4617Cost of Units Transferred OutStep 1: Record the cost in beginning Work in Process Inventory.Cost of Units Transferred OutStep 2: Compute the cost to complete the units in beginningWork in Process Inventory.Cost of Units Transferred OutStep 3: Compute the cost of units started and completed this period.Cost of Units Transferred OutStep 4: Compute the total cost of units transferred out.Learning Objective 9Prepare a cost reconciliation report using the FIFO method.Reconciling CostsReconciling CostsA Comparison of Costing MethodsIn a lean production environment, FIFO and weighted-average methods yield similar unit costs.When considering cost control, FIFO is superior to weighted-average because it does not mix costs of the current period with costs of the prior period.Service Department AllocationsAppendix 4BOperating DepartmentsAn operating department carries out the central purpose of the organization The Surgery Department at Mount Sinai Hospital.A Production Department at Mitsubishi. The Geography Department at the University of Washington.Service Departments Service departments do not directly engage in operating activities. The Accounting Department at Macy’s.The Human Resources Department at Walgreens.Interdepartmental ServicesServiceDepartmentOperatingDepartmentCosts of the service department become overhead costs to the operating departmentAllocation ApproachesReciprocal ServicesServiceDepartment 1ServiceDepartment 2When service departments provide services to each other we call them reciprocal services.Learning Objective 10Allocate service department costs to operating departments using the direct method.Direct MethodService Department(Cafeteria)Service Department(Custodial)Operating Department(Machining)Operating Department(Assembly)Direct Method – An ExampleDirect Method – An ExampleHow much of the Cafeteria and Custodial costs should be allocated to each operating department using the direct method of cost allocation?Direct Method – An ExampleAllocation base: Number of employees Direct Method – An ExampleAllocation base: Number of employees $360,000 ×3020 + 30= $216,000Direct Method – An ExampleAllocation base: Square feet occupied $90,000 ×25,00025,000 + 50,000 = $30,000Direct Method – An ExampleAllocation base: Square feet occupied Learning Objective 11To allocate service department costs to operating departments using the step-down method.Operating Department(Machining)Operating Department(Assembly)Step-Down MethodOnce a servicedepartment’s costsare allocated, other servicedepartment costsare not allocatedback to it. Service Department(Cafeteria)Service Department(Custodial) There are three key points to understand regarding the step-down method:  In both the direct and step-down methods, any amount of the allocation base attributable to the service department whose cost is being allocated is always ignored.  Any amount of the allocation base that is attributable to a service department whose cost has already been allocated is ignored.  Each service department assigns its own costs to operating departments plus the costs that have been allocated to it from other service departments.Step-Down MethodWe will use the same data used in the direct method example.Step-Down Method – An ExampleAllocate Cafeteria costs first sinceit provides more service than Custodial.Step-Down Method – An Example$360,000 ×1010 + 20 + 30= $60,000Allocation base: Number of employees Step-Down Method – An Example$360,000 ×2010 + 20 + 30= $120,000Allocation base: Number of employees Step-Down Method – An Example$360,000 ×3010 + 20 + 30= $180,000Allocation base: Number of employees Step-Down Method – An ExampleNew total = $90,000 original Custodial cost plus $60,000 allocated from the Cafeteria.Step-Down Method – An Example$150,000 ×25,00025,000 + 50,000 = $50,000Allocation base: Square feet occupied Step-Down Method – An Example$150,000 ×50,00025,000 + 50,000 = $100,000Allocation base: Square feet occupied Step-Down Method – An ExampleReciprocal MethodInterdepartmentalservices are givenfull recognitionrather than partialrecognition as withthe step method. Service Department(Cafeteria)Service Department(Custodial)Operating Department(Machining)Operating Department(Assembly)Because of its mathematical complexity, the reciprocal method is rarely used.Quick Check Datafor Direct and Step-Down MethodsAllocation bases:Business school administration costs (ADMIN): Number of employeesBusiness Administration computer services (BACS): Number of personal computersThe direct method of allocation is used.Quick Check  How much cost will be allocated from Administration to Accounting? a. $ 36,000b. $144,000c. $180,000d. $ 27,000 How much cost will be allocated from Administration to Accounting? a. $ 36,000b. $144,000c. $180,000d. $ 27,000Quick Check $180,000 ×2020 + 80= $36,000Quick Check  How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department?a. $ 52,500b. $135,000c. $270,000d. $ 49,500 How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department?a. $ 52,500b. $135,000c. $270,000d. $ 49,500Quick Check Quick Check DataAllocation bases:Business school administration costs (ADMIN): Number of employeesBusiness administration computer services (BACS): Number of personal computersThe step method of allocation is used.Quick Check  How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department?a. $35,250b. $49,072c. $18,000d. $26,333 How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department?a. $35,250b. $49,072c. $18,000d. $26,333Quick Check End of Chapter 4