Post on 22-Dec-2015
Chapter 16
Process Costing and Analysis
16-2
Conceptual Learning Objectives
C1: Explain process operations and the way they differ from job order operations.
C2: Define equivalent units and explain their use in process cost accounting.
C3: Explain the four steps in accounting for production activity in a period.
C4: Define a process cost summary and describe its purposes.
C5: Appendix 16A: Explain and illustrate the four steps in accounting for production activity using FIFO. NOT COVERED
16-3
A1: Compare process cost accounting and job order cost accounting.
A2: Explain and illustrate a hybrid costing system.
Analytical Learning Objectives
16-4
P1: Record the flow of direct materials costs in process cost accounting.
P2: Record the flow of direct labor costs in process cost accounting.
P3: Record the flow of factory overhead costs in process cost accounting.
P4: Compute equivalent units produced in a period.
P5: Prepare a process cost summary.P6: Record the transfer of completed goods to
Finished Goods Inventory and Cost of Goods Sold.
Procedural Learning Objectives
Used for production of small, identical, low-cost items. Mass produced in automated continuous production process.
Costs cannot be directly traced to each unit of product.Examples: Crude Oil; Chemicals
Profen: Pain Reliever by GenX Co
Used for production of small, identical, low-cost items. Mass produced in automated continuous production process.
Costs cannot be directly traced to each unit of product.Examples: Crude Oil; Chemicals
Profen: Pain Reliever by GenX Co
Process Manufacturing OperationsC1
16-6
Labor
Materials
Ind
irec
tIn
dir
ect
FactoryOverhead
Direct
Direct
Deliveredto
Customers
Goods in Process
FinishedGoodsAllocated
Overhead
Process Manufacturing Operations GenX
C3
PROCESS OPERATIONS: CHEMICALS
EXHIBIT 16.1: PAGE 675
-PREPARING the chemicals;
-MIXING the chemicals;
-BOTTLING the chemical mix;
-Packaging the bottles.
PROCESS OPERATIONS: CHEMICALS
EXHIBIT 16.1: PAGE 675
-PREPARING the chemicals;
-MIXING the chemicals;
-BOTTLING the chemical mix;
-Packaging the bottles.
Process Manufacturing OperationsC1
PRODUCTION FLOOR : PROFEN
EXHIBIT 16.3: PAGE 676
Profen is produced by:
-Mixing its active ingredient, Profelene, with flavorings and preservatives,
-Molding it into tablets, and
-Packaging the tablets.
PRODUCTION FLOOR : PROFEN
EXHIBIT 16.3: PAGE 676
Profen is produced by:
-Mixing its active ingredient, Profelene, with flavorings and preservatives,
-Molding it into tablets, and
-Packaging the tablets.
Process Manufacturing OperationsC1
Process Operations & Costs: GenX
EXHIBIT 16.4: PAGE 676: FLOWCHART
How GenX uses Process Cost Accounting to compute product costs: COST FLOWS 1 thru 10
EXHIBIT 16.21: PAGE 688: Cost Flow thru GenXSummary of Cost Flows: COST FLOWS 1 thru 10
Process Operations & Costs: GenX
EXHIBIT 16.4: PAGE 676: FLOWCHART
How GenX uses Process Cost Accounting to compute product costs: COST FLOWS 1 thru 10
EXHIBIT 16.21: PAGE 688: Cost Flow thru GenXSummary of Cost Flows: COST FLOWS 1 thru 10
Process Manufacturing OperationsC1
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Labor
Materials
Ind
irec
tIn
dir
ect
FactoryOverhead
Direct
Direct
Deliveredto
Customers
Goods in Process
FinishedGoodsAllocated
Overhead
Process Manufacturing Operations GenX
C3
16-11
Job Order Systems
Custom orders
Heterogeneous products
Low production volume
High product flexibility
Low to medium standardization
Example: Aircraft
Job Order Systems
Custom orders
Heterogeneous products
Low production volume
High product flexibility
Low to medium standardization
Example: Aircraft
Process Systems
Repetitive operations
Homogeneous products
High production volume
Low product flexibility
High standardization
Exhibit 16.1 (Page 675): Chemicals Processing
Process Systems
Repetitive operations
Homogeneous products
High production volume
Low product flexibility
High standardization
Exhibit 16.1 (Page 675): Chemicals Processing
Comparing Job Order and Process Production
A1
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Same objective: to determine the cost of products
Same inventory accounts: raw materials, work in process, and finished goods
Same overhead assignment method:predetermined rate times actual activity
Job and Process Costing Similarities
A1
16-13
Job and Process Costing Similarities and Differences
A1
Journal entries for both job order and process costing are identical
The difference between job order and process costing lies in how the cost of goods transferred to finished goods is determined.
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A1 Job Order and Process Costing Differences
Job order costing
The cost of goods transferred to
finished goods is equal to the sum of all of the completed jobs for that period
Process costing
The cost of goods transferred to finished
goods equals the number of
completed units times the cost per
equivalent unit
16-15
Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units.
Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units.
Two one-half full pitchers are equivalent to one full pitcher.
+ =
Equivalent Units of ProductionC2
16-16
Cost perequivalent
unit
= Product costs for the periodEquivalent units for the period
Cost Per Equivalent UnitC2
16-17
Stage 3
50% ofLabor andOverhead
The process is now complete. The process is now complete.
Stage 2
25% ofLabor andOverhead
60% ofMaterial
Stage 1
40% ofMaterial
25% ofLabor andOverhead
Equivalent UnitsC2
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Labor
Materials
Ind
irec
tIn
dir
ect
FactoryOverhead
Direct
Direct
Deliveredto
Customers
Goods in Process
FinishedGoodsAllocated
Overhead
Process Manufacturing Operations GenX
C3
16-19
GenX Production Data for April
Beginning Inventory:
Units of product 30,000
Percentage of completion - direct materials 100%
Percentage of completion - direct labor 40%
Units started in April 90,000
Units completed and transferred out 100,000
Ending Inventory:
Units of product 20,000
Percentage of completion - direct materials 100%
Percentage of completion - direct labor 25%
GenX Production Data for April
Beginning Inventory:
Units of product 30,000
Percentage of completion - direct materials 100%
Percentage of completion - direct labor 40%
Units started in April 90,000
Units completed and transferred out 100,000
Ending Inventory:
Units of product 20,000
Percentage of completion - direct materials 100%
Percentage of completion - direct labor 25%
Accounting for GenXC3
16-20
C4
Accounting for GenX
16-21
GenX uses a weighted average cost flow system with the following four steps:
Determine physical flow of units. Compute equivalent units of production. Compute cost per equivalent unit. Assign and reconcile costs.
GenX uses a weighted average cost flow system with the following four steps:
Determine physical flow of units. Compute equivalent units of production. Compute cost per equivalent unit. Assign and reconcile costs.
Accounting for GenXC5
16-22
GenX Physical Flow for April
Units to account for:Beginning inventory 30,000 Units started during April 90,000 Total number of units 120,000
Units accounted for as:Units completed and transferred out 100,000 Ending inventory 20,000 Total number of units 120,000
GenX Physical Flow for April
Units to account for:Beginning inventory 30,000 Units started during April 90,000 Total number of units 120,000
Units accounted for as:Units completed and transferred out 100,000 Ending inventory 20,000 Total number of units 120,000
Determine Physical Flow of Units
C5
16-23
GenX Direct Materials Equivalent Units of Production for April
Units of Percentage EquivalentProduct of Completion Units
Equivalent units completed andtransferred out 100,000 100% 100,000
Ending goods in process 20,000 100% 20,000
Total units 120,000 120,000
Compute Equivalent Units of Production - Materials
C5
16-24
GenX Direct Labor and FactoryOverhead Equivalent Units of Production for April
Units of Percentage EquivalentProduct of Completion Units
Equivalent units completed andtransferred out 100,000 100% 100,000
Ending goods in process 20,000 25% 5,000
Total units 120,000 105,000
Compute Equivalent Units of Production – Direct Labor and Factory Overhead
C5
16-25
Equivalent Units of Production for April
Direct Direct FactoryMaterials Labor Overhead
Equivalent units completed andtramsferred out 100,000 100,000 100,000
Equivalent units for endingending good in process 20,000 5,000 5,000
Equivalent units of productionfor period 120,000 105,000 105,000
Compute Equivalent Units of Production
C5
16-26
GenX Cost Per Equivalent Unit for April
Direct Direct FactoryMaterials Labor Overhead
Costs of beginning goodsin process inventory 3,300$ 600$ 720$
Costs incurred this period 9,900 5,700 6,840
Total costs 13,200$ 6,300$ 7,560$ ÷ Equivalent units of
production ÷ 120,000 ÷ 105,000 ÷ 105,000 Cost per equivalent unit
of production = 0.11$ = 0.06$ = 0.072$
Compute Cost Per Equivalent Unit
C5
16-27
In the cost reconciliation, we willaccount for all costs incurredby assigning unit costs to the:
A. 100,000 units transferred out.
B. 20,000 units remaining in ending inventory.
In the cost reconciliation, we willaccount for all costs incurredby assigning unit costs to the:
A. 100,000 units transferred out.
B. 20,000 units remaining in ending inventory.
Cost ReconciliationC5
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C5
16-29
ProcessCost
Summary
Process Cost Summary
Helps managerscontrol theirdepartments.
Provides costinformation for
financial statements.
Shows the flowof units and coststhrough work in
process.
Helps factorymanagers evaluate
department managerperformance.
C4
16-30
Process Cost SummaryC4
16-31
C4
16-32
C4
16-33
C4
16-34
Hybrid costing systems contain featuresof both job order and process operations.
Hybrid costing systems contain featuresof both job order and process operations.
Job OrderCosting
ProcessCosting
Hybrid Costing
Material costs areaccounted for usinga job order system.
Material costs areaccounted for usinga job order system.
Conversion costs areaccounted for usinga process system.
Conversion costs areaccounted for usinga process system.
Hybrid Costing SystemsA2
16-35
GENERAL JOURNAL Page 21
Date DescriptionPost. Ref. Debit Credit
Raw Materials Inventory XXXXX
Accounts Payable XXXXX
Acquired materials on credit for
use in the factory.
P1 Process CostingTypical Accounting Entries
16-36
GENERAL JOURNAL Page 21
Date DescriptionPost. Ref. Debit Credit
Goods in Process Inventory XXXXX
Raw Materials Inventory XXXXX
To assign costs of direct material
used in production
P1 Process CostingTypical Accounting Entries
16-37
GENERAL JOURNAL Page 21
Date DescriptionPost. Ref. Debit Credit
Factory Overhead XXXXX
Raw Materials Inventory XXXXX
To record indirect materials used
in April.
P3 Process CostingTypical Accounting Entries
16-38
GENERAL JOURNAL Page 21
Date DescriptionPost. Ref. Debit Credit
Factory Payroll XXXXX
Cash XXXXX
To record factory wages for April.
P2 Process CostingTypical Accounting Entries
16-39
GENERAL JOURNAL Page 21
Date DescriptionPost. Ref. Debit Credit
Goods in Process Inventory XXXXX
Factory Payroll XXXXX
To assign costs of direct labor
used in production
P1 Process CostingTypical Accounting Entries
16-40
GENERAL JOURNAL Page 21
Date DescriptionPost. Ref. Debit Credit
Factory Overhead XXXXX
Factory Payroll XXXXX
To record indirect labor as
overhead.
P3 Process CostingTypical Accounting Entries
16-41
GENERAL JOURNAL Page 21
Date DescriptionPost. Ref. Debit Credit
Factory Overhead XXXXX
Prepaid Insurance XXXXX
Accrued Utilities Payable XXXXX
Cash XXXXX
Accumulated Depreciation XXXXX
To record factory overhead items
incurred during April.
P3 Process CostingTypical Accounting Entries
16-42
GENERAL JOURNAL Page 21
Date DescriptionPost. Ref. Debit Credit
Goods in Process Inventory XXXXX
Factory Overhead XXXXX
Allocated factory overhead costs to
production on the basis of direct
labor cost
P6 Process CostingTypical Accounting Entries
16-43
GENERAL JOURNAL Page 21
Date DescriptionPost. Ref. Debit Credit
Finished Goods Inventory XXXXX
Goods in Process Inventory XXXXX
To record the transfer of completed
goods out of production.
P6 Process CostingTypical Accounting Entries
16-44
GENERAL JOURNAL Page 21
Date DescriptionPost. Ref. Debit Credit
Cost of Goods Sold XXXXX
Finished Goods Inventory XXXXX
To record cost of goods sold
during April.
P6 Process CostingTypical Accounting Entries
16-45
End of Chapter 16
16-46
Labor
Materials
Ind
irec
tIn
dir
ect
FactoryOverhead
Direct
Direct
Deliveredto
Customers
Goods in Process
FinishedGoodsAllocated
Overhead
Process Manufacturing Operations GenX
C3
16-47
Labor
Materials
Ind
irec
tIn
dir
ect
FactoryOverhead
Direct
Direct
Deliveredto
Customers
Goods in Process
FinishedGoodsAllocated
Overhead
Process Manufacturing Operations GenX
C3