Financial and Managerial Accounting John J. Wild Third Edition John J. Wild Third Edition McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 16 Process Costing and Analysis
16-3 Conceptual Learning Objectives C1: Explain process operations and the way they differ from job order operations. C2: Define equivalent units and explain their use in process cost accounting. C3: Explain the four steps in accounting for production activity in a period. C4: Define a process cost summary and describe its purposes. C5: Appendix 16A: Explain and illustrate the four steps in accounting for production activity using FIFO.
16-4 A1: Compare process cost accounting and job order cost accounting. A2: Explain and illustrate a hybrid costing system. Analytical Learning Objectives
16-5 P1: Record the flow of direct materials costs in process cost accounting. P2: Record the flow of direct labor costs in process cost accounting. P3: Record the flow of factory overhead costs in process cost accounting. P4: Compute equivalent units produced in a period. P5: Prepare a process cost summary. P6: Record the transfer of completed goods to Finished Goods Inventory and Cost of Goods Sold. Procedural Learning Objectives
16-6 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. 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. Process Manufacturing Operations C1
16-7 Job Order Systems Custom orders Heterogeneous products Low production volume High product flexibility Low to medium standardization Job Order Systems Custom orders Heterogeneous products Low production volume High product flexibility Low to medium standardization Process Systems Repetitive operations Homogeneous products High production volume Low product flexibility High standardization Process Systems Repetitive operations Homogeneous products High production volume Low product flexibility High standardization Comparing Job Order and Process Production A1
16-8 Same objective: to determine the cost of products Same inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method: predetermined rate times actual activity Job and Process Costing Similarities A1
16-9 Job and Process Costing Similarities and Differences A1 Journal entries for both job order and process costing are the identical The difference between job order and process costing lies in how the cost of goods transferred to finished goods is determined.
16-10 A1 Job Order and Process Costing Differences Job order costing The cost of goods transferred to finished goods is equal to the sum of all of the completed jobs for that period Process costing The cost of goods transferred to finished goods equals the number of completed units times the cost per equivalent unit
16-11 Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units. Two one-half full pitchers are equivalent to one full pitcher. + = Equivalent Units of Production C2
16-12 Cost per equivalent unit = Product costs for the period Equivalent units for the period Cost Per Equivalent Unit C2
16-13 Stage 3 50% of Labor and Overhead The process is now complete. Stage 2 25% of Labor and Overhead 60% of Material Stage 1 40% of Material 25% of Labor and Overhead Equivalent Units C2
16-14 Labor Materials Indirect Factory Overhead Direct Delivered to Customers Goods in Process Finished Goods Allocated Overhead Process Manufacturing Operations GenX C3
16-15 Accounting for GenX C3
16-16 C4 Accounting for GenX
16-17 GenX uses a weighted average cost flow system with the following four steps: Determine physical flow of units. Compute equivalent units of production. Compute cost per equivalent unit. Assign and reconcile costs. GenX uses a weighted average cost flow system with the following four steps: Determine physical flow of units. Compute equivalent units of production. Compute cost per equivalent unit. Assign and reconcile costs. Accounting for GenX C5
16-18 Determine Physical Flow of Units C5
16-19 Compute Equivalent Units of Production - Materials C5
16-20 Compute Equivalent Units of Production – Direct Labor and Factory Overhead C5
16-21 Compute Equivalent Units of Production C5
16-22 Compute Cost Per Equivalent Unit C5
16-23 In the cost reconciliation, we will account for all costs incurred by assigning unit costs to the: A. 100,000 units transferred out. B. 20,000 units remaining in ending inventory. In the cost reconciliation, we will account for all costs incurred by assigning unit costs to the: A. 100,000 units transferred out. B. 20,000 units remaining in ending inventory. Cost Reconciliation C5
16-24 C5
16-25 Process Cost Summary Helps managers control their departments. Provides cost information for financial statements. Shows the flow of units and costs through work in process. Helps factory managers evaluate department manager performance. C4
16-26 Process Cost Summary C4
16-27 C4
16-28 C4
16-29 C4
16-30 Hybrid costing systems contain features of both job order and process operations. Job Order Costing Process Costing Hybrid Costing Material costs are accounted for using a job order system. Conversion costs are accounted for using a process system. Hybrid Costing Systems A2
16-31 P1 Process Costing Typical Accounting Entries
16-32 P1 Process Costing Typical Accounting Entries
16-33 P3 Process Costing Typical Accounting Entries
16-34 P2 Process Costing Typical Accounting Entries
16-35 P1 Process Costing Typical Accounting Entries
16-36 P3 Process Costing Typical Accounting Entries
16-37 P3 Process Costing Typical Accounting Entries
16-38 P6 Process Costing Typical Accounting Entries
16-39 P6 Process Costing Typical Accounting Entries
16-40 P6 Process Costing Typical Accounting Entries
16-41 End of Chapter 16