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Transcript of Chapter 04 n
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Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
Chapter 4
Process Costingand Hybrid
Product-Costing Systems
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Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
LearningObjective
1
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Comparison of Job-OrderCosting and Process Costing
1-3
ProcessCosting
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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Comparison of Job-OrderCosting and Process Costing
1-4
ProcessCosting
ProcessCosting
Job-orderCosting
Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill
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Comparison of Job-OrderCosting and Process Costing
1-5
Job-order costing – Costs accumulated by
the job.
– Work in process has a job-cost sheet for each job.
– Many unique, high cost jobs.
– Jobs built to customerorder.
Process costing – Costs accumulated by
department or process .
– Work in process has aproduction report foreach batch of products .
– A few identical, low costproducts.
– Units continuouslyproduced for inventoryin automated process.
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Differences Between Job-Orderand Process Costing
1-6
Direct Material
FinishedGoods
Cost ofGoods
Sold
Direct Labor
ManufacturingOverhead
Jobs
The work-in-processaccount consists ofindividual jobs in a
job-order cost system.
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Differences Between Job-Orderand Process Costing
1-7
Direct Material
FinishedGoods
Cost ofGoods
Sold
Products
The work-in-processaccount consists of
individual products in aprocess cost system.
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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LearningObjective
2
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Process Cost Flows
1-9
Direct materialDirect labor
Applied manufacturing and transferred to during currentoverhead finished goods period
Cost of goods completed Cost of goods sold
Work-in-Process Finished GoodsCost of Goods Sold
One Production Department
Inventory Inventory
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Process Cost Flows
1-10
Direct materialDirect labor Applied manufacturing transferred to and transferred tooverhead department B finished goods
Direct materialDirect labor Applied manufacturing
overhead
during current period
Cost of goods sold
Cost of goods completedin department A and Cost of goods completed
Finished Goods Inventory Cost of Goods Sold
Two Sequential Production Departments
Work-in-Process Inventory Work-in-Process InventoryProduction Department A Production Department B
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LearningObjective
3
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Equivalent Units: A Key Concept
1-12
• 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 thesepartially completed products as a smallernumber of fully completed products.
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Equivalent Units Example
1-13
Two one-half completed products are equivalent to one completed product.
So, 10,000 units 70 percent completeare equivalent to 7,000 complete units.
+ = l
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Equivalent Units Question 1
1-14
For the current period, Jones started15,000 units and completed 10,000 units,leaving 5,000 units in process 30 percent
complete. How many equivalent units ofproduction did Jones have for the period?
a. 10,000
b. 11,500c. 13,500d. 15,000
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Equivalent Units Question 1
1-15
For the current period, Jones started15,000 units and completed 10,000 units,leaving 5,000 units in process 30 percent
complete. How many equivalent units ofproduction did Jones have for the period?
a. 10,000
b. 11,500c. 13,500d. 15,000
10,000 units + (5,000 units .30)= 11,500 equivalent units
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Equivalent Units Question 2
1-16
If Jones incurred $27,600 inproduction costs for the 11,500equivalent units. What was Jones’s
cost per equivalent unit for the period?a. $1.84b. $2.40
c. $2.76d. $2.90
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Equivalent Units Question 2
1-17
If Jones incurred $27,600 inproduction costs for the 11,500equivalent units. What was Jones’s
cost per equivalent unit for the period?a. $1.84 b. $2.40
c. $2.76d. $2.90
$27,600 11,500 equivalentunits
= $2.40 per equivalent unit
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Calculating and Using EquivalentUnits of Production
1-18
To calculate the direct materials and conversioncosts per equivalent unit for the period:
Materialscost per
equivalentunit
=Materials cost for the periodMaterials equivalent units for
the period
Conversioncost per
equivalentunit
=Conversion cost for the periodConversion equivalent units for
the period
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Equivalent Units of Production – Weighted-Average Method
1-20
The weighted-average method . . . – Makes no distinction between work done in the
prior period and work done in the current period. – Blends together units and costs from the prior
period and the current period.
The FIFO method is a morecomplex method and israrely used in practice.
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Production Report Example
1-21
• 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,let’s prepare a production report for the CuttingDepartment.
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Production Report Example
1-22
Work in process, March 1: 20,000 units Cost
Materials: 100% complete. $ 50,000Conversion: 10% complete. 7,200
Units started into production in March: 30,000 unitsUnits completed and transferred out in March: 40,000 units
Work in process, March 31: 10,000 unitsMaterials 100% complete.Conversion 50% complete.
Costs incurred during March
Materials cost 90,000Conversion costs:Direct labor $ 86,000
Applied manufacturing overhead 107,500Total conversion costs 193,500
Total costs to account for $ 340,700
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Production Report Example
1-23
Analysis of Physical Flow of Units
PhysicalUnits
Work in process, March 1 20,000 Units started during March 30,000 Total units to account for 50,000
Units completed and transferred out during March 40,000 Work in process, March 31 10,000 Total units accounted for 50,000
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Production Report Example
1-24
Conversion Equivalent UnitsPhysical Percentage Direct
Units Complete 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
Calculation of Equivalent Units
50% of 10,000 units
Beginning inventory % is not used in weighted-average method.
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Production Report Example
1-25
Conversion Equivalent UnitsPhysical Percentage Direct
Units Complete 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
Calculation of Equivalent Units
100% of 10,000 units, allmaterial added at beginning
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Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
LearningObjective
4
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Production Report Example
1-27
DirectMaterial 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$
Computation of unit costs
$140,000 ÷ 50,000 equivalent units
$200,700 ÷ 45,000 equivalent units
$2.80 + $4.46
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LearningObjective
5
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Production Report Example
1-29
Analysis of total costs
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Production Report Example
1-31
Analysis of total costsCost 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 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit 28,000 $
Convserion:5,000 equivalent units x $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$All costs
accounted for
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Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
LearningObjective
6
MVP SPORTS EQUIPMENT COMPANYP d i R C i D
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1-33
Percentage ofCompletion Equivalent Units
Phys ical with Respect to Direc tUnits Conversion Material Conversion
Work in process, March 1 20,000 10%Units started during March 30,000 Total units to account for 50,000
Uni ts 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
DirectMaterial 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$
Cost of goods completed and transferred during March40,000 units x $7.26 per equivalent unit 290,400$
Costs remaining in work-in-process on March 31Direct Material:10,000 equivalent units x $2.80 per equivalent unit 28,000$
Conversion:5,000 equivalent units x $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$
Production Report: Cutting Department
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1-34
Manufacturingoverhead is
appliedto Work-in-
Process Inventoryusing a
predetermined
overhead rate
Actual costs ofmanufacturing overheadare entered in Work-in-
Process Inventory
Actual Costing vs. Normal Costing
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Departmental Production Report
1-35
Analysis ofphysical flowof units.
Calculationof equivalent
units. Computation
of unit costs.
Analysis oftotal costs.
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Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
LearningObjective
7
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End of Chapter 4
I’m ready to process some leisure time.