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21a - 1Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Appendix 21A: Process Costing
Objectives
1. Distinguish between the flow of costs in process costing and job costs
2. Record process costing transactions
3. Calculate equivalent units
4. Assign costs to units completed and to units in ending work in process inventory.
21a - 2Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Distinguish between the
flow of costs in process
costing and job costing.
Objective 1
21a - 3Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Direct materials, Direct labour, Overhead
Job 100 Job 101 Job 102
FinishedGoods
Cost ofGoods Sold
Job Costing
21a - 4Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
WIP ChoppingDepartment
WIP Mixing & BottlingDepartment
FinishedGoods
Cost ofGoods Sold
Process Costing
Direct materials, Direct labour, Overhead
21a - 5Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Record processcosting
transactions.
Objective 2
21a - 6Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Recording Costs Example
Assume that Pace Foods transfers $4,000 of partially completed items from the Chopping Department to the Mixing & Bottling Department.
What is the journal entry?
21a - 7Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Recording Costs
Work in Process Inventory –Mixing & Bottling 4,000
Work in ProcessInventory – Chopping 4,000
To transfer costs from the Chopping Departmentto the Mixing & Bottling Department
21a - 8Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Work-in-Process Inventory –Mixing & Bottling 3,000
Materials Inventory 3,000
To requisition materials
Recording Costs
Assume that additional materials costing $3,000 were added in the Mixing & Bottling Department.
21a - 9Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Recording Costs
Manufacturing wages amounted to $6,000 and manufacturing overhead was $12,000 in the Mixing & Bottling Department.
What are the journal entries?
21a - 10Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Recording Costs
Work in Process Inventory –Mixing & Bottling 6,000
Manufacturing Wages 6,000
Work in Process Inventory –Mixing & Bottling 12,000
Manufacturing Overhead 12,000
To record the additional labour and overheadcost of the Mixing & Bottling Department
21a - 11Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Finished Goods Inventory 19,000Work in Process Inventory –Mixing and Bottling 19,000
To transfer the cost of goods completed
Recording Costs
$19,000 worth of finished items were transferred to Finished Goods Inventory.
21a - 12Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Recording Costs
Assume $1,000 beginning Work in Process Inventory in the Mixing & Bottling Department.
What is the ending Work in Process Inventory?
21a - 13Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Recording Costs
Work in Process
Beg. Balance 1,000
Transferred In 4,000 Transferred Out
Materials 3,000 19,000
Labour 6,000
Overhead 12,000
End. Balance 7,000
21a - 14Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Tracking the Flow of Costs
In process costing, the accounting task is to track the flow of costs through the production process.
1 Account for the goods completed and transferred out.
2 Account for the cost of incomplete units that remain as a department’s ending work in process inventory.
21a - 15Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Tracking the Flow of Costs Example
SeaView manufactures swimming masks. The Shaping Department shapes the
masks. Direct materials are added at the beginning
of the process. Conversion costs are incurred evenly
throughout the shaping process. The partially completed masks then move
to the Finishing Department.
21a - 16Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Direct materials $ 140,000Conversion costs:Direct labour $21,250Mfg. overhead 46,750 68,000Costs to account for $208,000
Tracking the Flow of Costs Example
Assume that during October, the Shaping Department incurs these costs in processing 50,000 masks:
21a - 17Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Tracking the Flow of Costs Example
Assume the shaping process is complete for all 50,000 masks.
What is the cost transferred to the Finishing Department?
$208,000 What is the unit cost? $208,000 ÷ 50,000 = $4.16/mask
21a - 18Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Objective 3
Calculate equivalent units.
21a - 19Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Equivalent Units Example
Assume that on October 31, the SeaView’s Shaping Department still had 5,000 masks that were 80% of the way through the shaping process.
What are the conversion equivalent units in ending work in process inventory?
5,000 × .80 = 4,000 masks
21a - 20Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Steps in Process Cost Accounting
1 Summarise the flow of physical units.2 Calculate output in terms of equivalent
units.3 Summarise total costs to account for.4 Calculate the cost per equivalent unit.5 Assign costs to units completed and to
units in ending work in process.
21a - 21Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Physical UnitsBeginning inventory -0-+ Started in production 50,000= Total to account for 50,000
Completed and transferred 40,000+ Work in process 10,000= Total accounted for 50,000
Summarise the Flow of Physical Units
21a - 22Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Calculate Output in Terms of Equivalent Units
Flow ofPhysical Direct Conv.Units Mtls. Costs
Units to account for: 50,000Started and completed 40,000 40,000 40,000Ending WIP 10,000 10,000 2,500Equivalent units 50,000 42,500
100% 25%
21a - 23Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Summarise Total Coststo Account for
Department 1 – ShapingFor the Month Ended October 31, 2005
Physical Units DollarsBeginning Inventory -0- -0-Production Started 50,000Direct Materials $ 140,000Conversion Costs 68,000Total 50,000 $ 208,000
21a - 24Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Department 1 – ShapingFor the Month Ended October 31, 2005
Direct Conversion Materials Costs
Costs added this month $140,000 $68,000÷ Equivalent Units 50,000 42,500= Cost per EU $ 2.80 $ 1.60
Calculate the Cost perEquivalent Unit
21a - 25Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Assign costs to units completed
and to units in endingwork-in-process inventory.
Objective 4
21a - 26Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Assign Costs to Units
Department 1 – ShapingFor the Month Ended October 31, 2005
Units completed and transferred out:40,000 × ($2.80 + $1.60) $ 176,000Units in ending inventory:Materials: 10,000 × $2.80 28,000Conversion: 2,500 × $1.60 4,000Total costs $208,000
21a - 27Horngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education AustraliaHorngren ♦ Harrison ♦ Bamber ♦ Best ♦ Fraser ♦ Willett, Accounting 4e Copyright © 2004 Pearson Education Australia
Work in Process Inventory – Shaping
Balance, Sept. 30 -0- Transferred to
Direct Materials 140,000 Finishing 176,000
Direct labour* 21,250
Overhead* 46,750
Balance Oct.31 32,000
*Conversion costs: $21,250 + $46,750 = $68,000
Assign Costs to Units