39
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 4 Process Costing and Hybrid Product- Costing Systems
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Chapter 4Chapter 4
Process Costing and Hybrid Product-
Costing Systems
Process Costing and Hybrid Product-
Costing Systems
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objective
1
Learning Objective
1
4-3
Comparison of Job-Order Costing Comparison of Job-Order Costing and Process Costingand Process Costing
ProcessCostingProcessCosting
Job-orderCosting
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.
4-4
ProcessCostingProcessCosting
Job-orderCosting
Typical process cost applications:
Petrochemical refinery
Paint manufacturer
Paper mill
Comparison of Job-Order Costing Comparison of Job-Order Costing and Process Costingand Process Costing
4-5
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 customer order.
Process costing– Costs accumulated by
department or process.
– Work in process has a production report for each batch of products.
– A few identical, low cost products.
– Units continuously produced for inventory in automated process.
Comparison of Job-Order Costing Comparison of Job-Order Costing and Process Costingand Process Costing
4-6
Direct Material
FinishedGoods
Cost of GoodsSold
Direct Labor
ManufacturingOverhead
Jobs
The work-in-process account consists of individual jobs in a
job-order cost system.
Differences Between Job-Order Differences Between Job-Order and Process Costingand Process Costing
4-7
Direct Material
FinishedGoods
Cost of GoodsSold
Products
The work-in-process account consists of
individual products in a process cost system.
Differences Between Job-Order Differences Between Job-Order and Process Costingand Process Costing
Direct Labor& Overhead
(Conversion)
When direct labor is a relatively small amount compared to material and overhead, it is often
combined with overhead.
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objective
2
Learning Objective
2
4-9
Process Cost FlowsProcess Cost Flows
Direct materialDirect laborApplied manufacturing and transferred to during currentoverhead finished goods period
Cost of goods completed Cost of goods sold
Work-in-Process Finished Goods Cost of Goods Sold
One Production Department
Inventory Inventory
4-10
Process Cost FlowsProcess Cost Flows
Direct materialDirect laborApplied manufacturing transferred to and transferred tooverhead department B finished goods
Direct materialDirect laborApplied manufacturing
overhead
during current period
Cost of goods sold
Cost of goods completed in department A and Cost of goods completed
Finished Goods Inventory Cost of Goods Sold
Two Sequential Production DepartmentsWork-in-Process Inventory Work-in-Process InventoryProduction Department A Production Department B
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objective
3
Learning Objective
3
4-12
Equivalent Units: A Key ConceptEquivalent Units: A Key Concept
• Costs are accumulated for a period of time for products in work-in-process inventory.
• Products in work-in-process inventory at the beginning and end of the period are only partially complete.
• Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products.
• Costs are accumulated for a period of time for products in work-in-process inventory.
• Products in work-in-process inventory at the beginning and end of the period are only partially complete.
• Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products.
4-13
Equivalent Units ExampleEquivalent Units Example
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
4-14
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
Equivalent Units Question 1Equivalent Units Question 1
4-15
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 × .30) = 11,500 equivalent units
Equivalent Units Question 1Equivalent Units Question 1
4-16
If Jones incurred $27,600 inproduction costs for the 11,500 equivalent units. What was Jones’s cost per equivalent unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
Equivalent Units Question 2
4-17
If Jones incurred $27,600 inproduction costs for the 11,500 equivalent units. What was Jones’s cost per equivalent unit for the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
Equivalent Units Question 2
$27,600 ÷ 11,500 equivalent units
= $2.40 per equivalent unit
4-18
Calculating and Using Equivalent Calculating and Using Equivalent Units of ProductionUnits of Production
To calculate the direct materials and conversion costs per equivalent unit for the period:
Materials cost per
equivalent
unit
=Materials cost for the periodMaterials equivalent units for
the period
Conversion cost per
equivalent
unit
=Conversion cost for the periodConversion equivalent units for
the period
4-19
Departmental Production ReportDepartmental Production Report
ProductionReport
Analysis of physical flow
of units.
Calculationof equivalent
units.
Computationof unit costs.
Analysis of total costs.
4-20
Equivalent Units of Production –Equivalent Units of Production –Weighted-Average MethodWeighted-Average Method
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.
4-21
• MVP Sports Equipment Company makes baseball gloves in two departments, Cutting and Stitching.
• MVP uses the weighted-average cost procedure.
• Material is added at the beginning of the Cutting Department, and conversion is incurred uniformly throughout the process.
• Using the following information for the month of March, let’s prepare a production report for the Cutting Department.
Production Report ExampleProduction Report Example
4-22
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 MarchMaterials cost 90,000Conversion costs:
Direct labor $ 86,000Applied manufacturing overhead 107,500Total conversion costs 193,500
Total costs to account for $ 340,700
Production Report ExampleProduction Report Example
4-23
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
Production Report ExampleProduction Report Example
4-24
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
Production Report ExampleProduction Report Example
Calculation of Equivalent Units
50% of 10,000 units
Beginning inventory % is not used in weighted-average method.
4-25
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
Production Report ExampleProduction Report Example
Calculation of Equivalent Units
100% of 10,000 units, allmaterial added at beginning
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objective
4
Learning Objective
4
4-27
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
Production Report ExampleProduction Report Example
$140,000 ÷ 50,000 equivalent units
$200,700 ÷ 45,000 equivalent units
$2.80 + $4.46
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objective
5
Learning Objective
5
4-29
Production Report ExampleProduction Report Example
Analysis of total costs
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 $2.80 per equivalent unit 28,000$
Convserion:5,000 equivalent units x $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$
4-30
Production Report ExampleProduction Report Example
Analysis of total costs
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 $2.80 per equivalent unit 28,000$
Convserion:5,000 equivalent units x $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$
4-31
Production Report ExampleProduction Report Example
Analysis of total costs
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 $2.80 per equivalent unit 28,000$
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
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objective
6
Learning Objective
6
4-33
Percentage of Completion Equivalent Units
Physical with Respect to DirectUnits Conversion 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
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 $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$
MVP SPORTS EQUIPMENT COMPANYProduction Report: Cutting Department
4-34
Manufacturing overhead is
appliedto Work-in-
Process Inventory using a
predetermined overhead rate
Actual costs of manufacturing overhead are entered in Work-in-
Process Inventory
Actual Costing vs. Normal Costing
4-35
Departmental Production ReportDepartmental Production Report Analysis of physical flow
of units. Calculationof equivalent
units. Computation
of unit costs.
Analysis of total costs.
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Learning Objective
7
Learning Objective
7
4-37
Operation CostingOperation Costing
Operation costing employs some aspectsof both job-order and process costing.
Job-order Operation CostingOperation Costing Process Costing (Products produced in batches)(Products produced in batches) Costing
4-38
Operation CostingOperation Costing
Operation costing employs some aspectsof both job-order and process costing.
Job-order Operation CostingOperation Costing Process Costing (Products produced in batches)(Products produced in batches) Costing
Conversion costsassigned to batches
as in process costing.
Material Costs chargedto batches as in
job-order costing.
4-39
I’m ready to processsome leisure time.
End of Chapter 4End of Chapter 4
