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Khalid Aziz---0322-3385752 Accounting of ICMAP,ICAP & Other Professionals 1
Process CostingProcess CostingProcess CostingProcess Costing
Khalid Aziz---0322-3385752 Accounting of ICMAP,ICAP & Other Professionals 2
Objective 1Objective 1Objective 1Objective 1
Distinguish between process
costing and job order costing
3
Cost of GoodsSold
Manufacturing Wages
Materials Inventory
FinishedGoods
Manufacturing
Overhead
Job Order CostingJob Order CostingJob Order CostingJob Order Costing
Work in ProcessJob 90
Job 91Job 92
4
Cost of GoodsSold
Manufacturing Wages
Materials Inventory
FinishedGoods
Process CostingProcess CostingProcess CostingProcess Costing
Work in Process,Mixing Dept
Work in Process,Molding Dept
Work in Process,Packaging Dept
Manufacturing
Overhead
5
Tracking Costs Tracking Costs
• Account for the goods completed and transferred out
• Account for the cost of incomplete units that remain as a department’s ending work in process inventory
6
Key ConceptsKey ConceptsKey ConceptsKey Concepts
• Conversion costs– Costs incurred to convert raw materials into a
finished product– Direct labor plus manufacturing overhead
• Equivalent unit of production– Amount of work done during a period in terms
of fully complete units of output
Khalid Aziz---0322-3385752 Accounting of ICMAP,ICAP & Other Professionals 7
Objective 2Objective 2Objective 2Objective 2
Compute equivalent units
8
E20-16E20-16E20-16E20-16
Step 1: Summarize the flow of physical units
Units to account for Units accounted for
Blending Department
Beginning WIP
Units placed in production
+ Units completed
Units in Ending WIP
0 8,000 6,000 2,000+ +
+
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E20-16E20-16E20-16E20-16
Start
Dyes added
100%complete
30%complete
2,000 units startedbut not finished
6,000 units completed and transferred out
Step 2: Compute output in terms of equivalent units
10
E20-16E20-16E20-16E20-16
• Equivalent units for direct materials:
8,000 units x 100% complete 8,000
• Equivalent units for conversion costs:
6,000 units x 100% complete 6,000
2,000 units x 30% complete 600
6,600
Khalid Aziz---0322-3385752 Accounting of ICMAP,ICAP & Other Professionals 11
Objective 3Objective 3Objective 3Objective 3
Use process costing to assign costs to units completed and to units in ending
work in process inventory
12
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Blending Department
Direct Materials
Conversion Costs
Beginning work in process $ 0 $ 0
Costs added during period
Divide by equivalent units
Cost per equivalent unit
Step 3: Compute the cost pre equivalent unit
$4,800
÷ 8,000
$0.45$0.60
$2,970
÷ 6,600
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Direct Materials
Conversion Costs
Total
Completed and transferred out (6,000)
Ending WIP (2,000)
Direct materials
Conversion costs
Total cost of ending WIP
Total costs accounted for
Step 4: Assign costs to units completed and to units in ending work in process inventory
6,000 x ($0.60 + 0.45) $6,300
2,000 x $0.60
600 x 0.45
$7,770
1,470
270
$1,200
14
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GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT
Work in process inventoryblending department 7,770
Materials inventory 4,800
Manufacturing wages 800
Manufacturing overhead 2,170
15
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GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT
Work in process inventorypackaging department 6,300
Work in process inventory blending department 6,300
Khalid Aziz---0322-3385752 Accounting of ICMAP,ICAP & Other Professionals 16
Objective 4Objective 4Objective 4Objective 4
Use the weighted-average method to assign costs to units completed and to
units in ending work in process inventory in a second department
17
E20-23E20-23E20-23E20-23
Step 1: Summarize the flow of physical units
Units to account for Units accounted for
Bottling Department
Beginning WIP
Units placed in production
+ Units completed
Units in Ending WIP
8,000 160,000 154,000 14,000+ +
+
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Step 1: Summarize the flow of physical units
Beg. Bal. 8,000
Transferred in 160,000
End Bal. 14,000
Work in process, bottling department (units)
154,000
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E20-23E20-23E20-23E20-23 Materialsadded
Start 100%complete
40%complete
Step 2: Compute output in terms of equivalent units
146,000 units started and completed
8,000 units in processand completed
70%complete
14,000 units started but not finished
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Equivalent units:
Transferred in costs
Completed and transferred out 154,000
Ending work in process 14,000
Total 168,000
21
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Equivalent units:
Direct materials
Completed and transferred out 154,000
Ending work in process -0-
Total 154,000
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Equivalent units for conversion costs:Completed and transferred out 154,000Ending WIP -14,000 x 70% 9,800 Total 163,800
23
Step 3: Compute the cost per equivalent unit
E20-23E20-23E20-23E20-23
Costs to be Accounted For:
Trans in Dir. Mat.
Conv. Costs
Total
Beginning WIP $ 1,760 $ 0 $ 1,120 $ 2,880
Costs added 136,000 30,800 56,210 22,3010
Total costs $137,760 $30,800 $57,330
÷ equivalent unit 168,000 154,000 163,800
Cost/equiv unit $0.82 $0.20 $0.35
Total costs to account for $225,890
24
Step 3: Compute the cost per equivalent unit
E20-23E20-23E20-23E20-23Trans in Dir.
Mat.Conv. Costs
Total
Completed & transferred out
154,000 x ($.82+$.20+$.35) $210,980
Ending WIP
Transferred in 14,000x.82 11,480
Direct materials 0 x .20 0
Conversion cost
9,800x.35 3,430
Total WIP 14,910
Total costs accounted for $225,890
25
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GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT
Work in process inventorybottling department 223,010
Work in process inventory department 1 136,000
Materials inventory 30,800
Manufacturing wages 33,726
Manufacturing overhead 22,484
26
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GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT
Finished goods inventory 210,980
Work in process inventory bottling department 210,980