Presentation on theme: "Chapter 4: Process Costing and Hybrid Product-Costing Systems"— Presentation transcript:
1Chapter 4: Process Costing and Hybrid Product-Costing Systems Job order costing: costs are accumulated and assigned to discrete products and jobs.Process costing: cost are accumulated and averaged in departments and applied to batches/flow of products on equivalent units (assuming labor and overhead are uniformly applied).WIP Inv.Production Department ADirect MaterialDirect LaborManufacturing OverheadWIP Inv.Production Department BFinished Goods Inv.Cost of Goods Sold
2More Process Costing Definitions Equivalent Units: a measure of the amount or production effort applied to a physical unit of production. For example, if there are 100 units that are 75% complete, there are 750 equivalent fully complete units.Transferred-in Costs: costs that are assigned to in-process parts that are transferred from one production department to another.Weighted -Average Method: method of process costing where the costs assigned to the beginning WIP inventory are added to thecurrent period production costs. The cost perequivalent unit is a weighted average of thebeginning WIP and the current cost.
3Process Costing at Bala’s Cookie Factory Direct Materials:FlourEggsSugarSprinklesDirect Labor andMOHA are applieduniformly throughout cookie making process.Batter/Baking (0% Stage)DM Input (80% of DM)FlourEggsSugarQC (30% Stage)Defect rate = 1%Icing (40% Stage)DM Input (10% DM)Decoration (80% Stage)SprinklesCookie making is performed in a single stage production facility (Bala’s kitchen). DM transferred in at 0% completion for Batter/BakingQC to remove burnt, broken, and malformed cookies is performed at 30% completion. Taste samples are also taken form this 30%Additional DM added at 40% complete to enhance taste and physical characteristics of cookie.Additional DM added at 80% complete for decoration.COOKIES FOR D39, Section 69!
4Weighted Average Method of Process Costing Steps to Prepare Departmental Production Report Step 1: Analysis of Physical Flow of Units(Physical units in beginning work in process)+ (Physical units started)- (Physical units completed and transferred out)Physical units in ending work in process.Step 2: Calculation of Equivalent Units(Eq. units of activity in units completed/transferred out)+ (Eq. Units of activity in ending work in process)Total equivalent units of activity
5Weighted Average Method of Process Costing Steps to Prepare Departmental Production Report Step 3: Computation of Unit CostsWork in process+ Costs incurred during MarchTotal costs to account forTotal costs to account for = Cost per equivalent unitEquivalent UnitsStep 4: Analysis of Total CostsCalculate cost of goods complete and transferred out of department.Calculate costs remaining in WIP and then the conversion.