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Process Cost System
Chapter M2
Process Cost Used by business that produce
large amounts of the same product Work in process accounts exist for
each process or department Costs are transferred from work in
process account to the next work in process as products are processed from one department to another
First –In, First Out Method Assume that the product moves in
order throughout the production process
Determine units to be assigned costs Units in beginning work in process Units started and completed during
period Units in ending work in process
FIFO Method Calculate Equivalent Units of
Production Process manufacturers often have
some partially processed materials remaining at the end of the period
EUP Number of units that could have been
completed within a given accounting period
Example 1 A company processes their
production in two departments. Beg inventory was 500 units 70% completed, 1,100 units transferred out to the next department and ending inventory of 400 units 25% completed
Example 1
Actual Units % EUP
Beg Inv 500 30% 150
Started 1100-500 = 600
100% 600
Ending Inv 400 25% 100
Total 850
Example 2
Actual Units % EUP
Beg Inv 1000 60% 600
Started 2500-1000=1500
100% 1500
Ending Inv 900 60% 540
Total 2640
Example 3 A company process their
production in two departments. The beginning inventory was 4,000 units 50% completed, transferred into the department 5,000 units and an ending inventory of 2,000 units 40% completed.
Example 3
Actual Units % EUP
Beg Inv 4000 50% 2000
Started 5000-2000=3000
100% 3000
Ending Inv 2000 40% 800
Total 5800
Determine cost per equivalent unit Material cost = based on actual
units transferred into the department
Conversion costs Direct labor + Factory overhead Based on EUP
Example 4 Using the information in Example 1 Calculate the costs for the period Materials transferred in $50,000 Direct labor $6,690 Factory overhead $3,000 Beg WIP $28150
Example 4 Direct materials per actual unit $50,000/1000 = $50 per unit 1000 units = S&C + End Inv
Conversion costs = DL + FO Conversion costs = 6690 + 3000 =
9690 CC per EUP = 9690/850 = $11.40
Example 4Actual % EUP Mtrl CC Total
Beg inv
500 30 150 Beg inv28150
11.40 X 150 = 1710
29860
S & C 600 100 600 600X50 = 30,000
11.40 x 600= 6840
36840
End Inv
400 25 100 400 x 50 = 20,000
11.40 x 100 = 1140
21140
850 9690
Example 5 Example 2 Materials transferred in $30,600 Direct labor 19800 Factory overhead 9240 Beg WIP $35,000
Example 5Actual % EUP Mtrl CC Total
Beg inv
1000 60 600 Beg inv3500
11 x 600 =6600
10100
S & C 1500 100 1500 1500x12.75 = 19125
11 x 1500 = 16500
35625
End Inv
900 60 540 900 x 12.75 = 11475
11x 540 = 5940
17415
2640 29040
Example 6Actual % EUP Mtrl CC Total
Beg inv
4000 50 2000 Beg inv25000
8.5 x2000 = 17000
42000
S & C 3000 100 3000 3000 * 15 = 45000
8.5 x 3000 = 25500
70500
End Inv
2000 40 800 2000 x 15 = 30000
8.5 x 800 = 6800
36800
5800 49300
Questions What is the total cost of units
completed this period? How many actual units are in
ending inventory this period? How many actual units are in next
month’s beginning inventory?
Questions What is conversion costs per unit? What is the amount of work done
on this month’s beginning inventory?
What is the amount of work to be done next month on beginning inventory?
Homework Ex 2-6, ex2-7, ex 2-8, ex2-9