Presentation on theme: "Chapter 4: Process Costing and Hybrid Product-Costing Systems"— Presentation transcript:
1 Chapter 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
2 More 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.
3 Process 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!
4 Weighted 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
5 Weighted 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.
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