Khalid Aziz Accounting of ICMAP,ICAP & Other Professionals 1 Process Costing

Khalid Aziz Accounting of ICMAP,ICAP & Other Professionals 2 Objective 1 Distinguish between process costing and job order costing

3 Cost of Goods Sold Manufacturing Wages Materials Inventory Finished Goods Manufacturing Overhead Job Order Costing Work in Process Job 90 Job 91 Job 92

4 Cost of Goods Sold Manufacturing Wages Materials Inventory Finished Goods Process Costing Work in Process, Mixing Dept Work in Process, Molding Dept Work in Process, Packaging Dept Manufacturing Overhead

5 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 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 Accounting of ICMAP,ICAP & Other Professionals 7 Objective 2 Compute equivalent units

8 E20-16E20-16 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 08,0006,0002,

9 E20-16E20-16 Start Dyes added 100% complete 30% complete 2,000 units started but not finished 6,000 units completed and transferred out Step 2: Compute output in terms of equivalent units

10 E20-16E20-16 Equivalent units for direct materials: 8,000 units x 100% complete8,000 Equivalent units for conversion costs: 6,000 units x 100% complete6,000 2,000 units x 30% complete600 6,600

Khalid Aziz Accounting of ICMAP,ICAP & Other Professionals 11 Objective 3 Use process costing to assign costs to units completed and to units in ending work in process inventory

12 E20-16E20-16 Blending Department Direct Materials Conversion Costs Beginning work in process$ 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$0.6 0 $2,970 ÷ 6,600

13 E20-16E20-16 Direct Materials Conversi on 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 ($ ) $6,300 2,000 x $ x 0.45 $7,770 1, $1,200

14 E20-16E20-16 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Work in process inventory blending department7,770 Materials inventory4,800 Manufacturing wages800 Manufacturing overhead2,170

15 E20-16E20-16 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Work in process inventory packaging department6,300 Work in process inventory blending department6,300

Khalid Aziz Accounting of ICMAP,ICAP & Other Professionals 16 Objective 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 E20-23E20-23 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 8,000160,000154,00014,

18 E20-23E20-23 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

19 E20-23E20-23 Materials added Start 100% complete 40% complete Step 2: Compute output in terms of equivalent units 146,000 units started and completed 8,000 units in process and completed 70% complete 14,000 units started but not finished

20 E20-23E20-23 Equivalent units: Transferred in costs Completed and transferred out154,000 Ending work in process14,000 Total168,000

21 E20-23E20-23 Equivalent units: Direct materials Completed and transferred out154,000 Ending work in process -0- Total154,000

22 E20-23E20-23 Equivalent units for conversion costs: Completed and transferred out154,000 Ending WIP -14,000 x 70% 9,800 Total163,800

23 Step 3: Compute the cost per equivalent unit E20-23E20-23 Costs to be Accounted For: Trans inDir. Mat. Conv. Costs Total Beginning WIP $ 1,760$ 0$ 1,120$ 2,880 Costs added 136,00030,80056,21022,3010 Total costs $137,760$30,800$57,330 ÷ equivalent unit 168,000154,000163,800 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 E20-23E20-23 Trans inDir. Mat. Conv. Costs Total Completed & transferred out 154,000 x ($.82+$.20+$.35)$210,980 Ending WIP Transferred in14,000x.82 11,480 Direct materials 0 x.20 0 Conversion cost 9,800x.353,430 Total WIP14,910 Total costs accounted for $225,890

25 E20-16E20-16 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Work in process inventory bottling department223,010 Work in process inventory department 1136,000 Materials inventory30,800 Manufacturing wages33,726 Manufacturing overhead22,484

26 E20-16E20-16 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Finished goods inventory210,980 Work in process inventory bottling department210,980

27 ATTENTION STUDENTS JOIN KHALID AZIZ FOR ICMAP 1,2,3..CA B,C & D PIPFA,MBA,BBA B.COM,M.COM MA-ECONOMICS CONTACT: