Class 04 OPTIONAL Process Costing

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ProcessCosting

myaccountingteacher.com

Job-Order Costing

Step 1. Identify a specific product or project

Step 2. Specifically trace the costs of direct materials and direct labor to the product or project.

Step 3. Allocate an appropriate amount of overhead costs to the product or project.

One Mahogany Table

Job Cost Sheet

Job-Order CostingWhen the Units Are

Identical?

What about a production facility in which is made• Identical automobiles?• Identical refrigerators?• Identical batches of paint?• Identical batches of soft drinks?

In these cases, the focus is on two things• Total manufacturing cost during a period• Total units produced during the period

Process Costing

Cost per (identical) Unit

Total Manufacturing Cost for the period

-----------------------------------------------Equivalent Units of Production for the period

Process Costing

Summary

• All units produced are identical.• Costs are accumulated by work

location or by process.• Costs are averaged over the

identical units produced.

Steps in

Process Costing

Step 1. Determine “work done” (equivalent units).Step 2. Determine production costs; compute the

costs per unit.Step 3. Compute the total cost associated with the

units completed and transferred out (cost of goods manufactured).

Step 4. Compute the total cost of the units remaining (ending work-in-process inventory).

Step 5. Prepare the production cost report.

Equivalent Units

• You have three research papers due (each of equal length and difficulty).• As of this morning, you had made the following progress:• Paper 1 – 40% complete• Paper 2 – 25% complete• Paper 3 – not yet started

• As of the end of the day today, you had made the following progress:• Paper 1 – 100% complete• Paper 2 – 75% complete• Paper 3 – 20% complete

How much work did you get done today?myaccountingteacher.c

Equivalent Units

How much work did you get done today?

CompletedBeginning End Today

Paper 1 40% 100% 0.60Paper 2 25% 75% 0.50Paper 3 0% 20% 0.20

Equivalent “papers” completed today 1.30

Allied Cement Company

Flow of Products and Coststhrough Process Centers

Equivalent Units

Beginning EndDirect Materials 4,000 pounds 100% done 2,000 pounds 100% done

Conversion Costs 4,000 pounds 20% done 2,000 pounds 60% done

Units STARTED AND COMPLETED 44,000 pounds 44,000 pounds

Assume FIFO cost flow (first in, first out):Complete beginning inventory before starting on any other units.

Conversion Costs = Direct Labor + Manufacturing OverheadThe costs to convert the direct materials into finished goods

Equivalent Units

Production Costs

Costs Transferred Out

Allied Cement CompanyEnding Work-in-Process Inventory

Allied Cement CompanyProduction Cost Report (Costs “In”)

Allied Cement CompanyProduction Cost Report (Costs

“Out”)

Steps in

Process Costing

Step 1. Determine “work done” (equivalent units).Step 2. Determine production costs; compute the

costs per unit.Step 3. Compute the total cost associated with the

units completed and transferred out (cost of goods manufactured).

Step 4. Compute the total cost of the units remaining (ending work-in-process inventory).

Step 5. Prepare the production cost report.

Yosef CompanyAnother Process Costing Example

From Homework (Problem 73)Another Process Costing Example

Class 04 OPTIONAL Process Costing

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