PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Process Costing Chapter 04 Adapted by Cynthia Fortin, CPA, CMA

4-2 Video preparation  /2011/08/06/process-costing/ /2011/08/06/process-costing/

4-3 Similarities Between Job-Order and Process Costing 1. Material, labor, and overhead costs assigned to products to compute unit product costs. 2. Same manufacturing accounts. 3. Same flow of costs

4-4 Quick Check Process costing is used for products that are: a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors. Process costing is used for products that are: a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors.

4-5 Process costing is used for products that are: a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors. Process costing is used for products that are: a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications. d. Purchased from vendors. Quick Check

4-6 Job-Order Costing Finished Goods Cost of Goods Sold Work in Process Direct Materials Direct Labor Manufacturing Overhead

4-7 Comparing Job-Order Finished Goods Cost of Goods Sold Direct Labor Manufacturing Overhead Jobs Costs are traced and applied to individual jobs in a job-order cost system. Direct Materials

4-8 Process Costing Finished Goods Cost of Goods Sold Direct Labor Manufacturing Overhead ProcessingDepartmentProcessingDepartment Costs are traced and applied to departments in a process cost system. Direct Materials

4-9 T-Account Views of Process Cost Flows Two processing departments – Departments A and B.

4-10 Raw Materials Process Cost Flows: The Flow of Raw Materials Work in Process Department B Work in Process Department A Direct Materials

4-11 Process Cost Flows: The Flow of Labor Costs Work in Process Department B Work in Process Department A Salaries and Wages Payable Direct Materials Direct Labor

4-12 Process Cost Flows: The Flow of Manufacturing Overhead Costs Work in Process Department B Work in Process Department A Manufacturing Overhead Overhead Applied to Work in Process Applied Overhead Direct Labor Direct Materials Direct Labor Direct Materials Actual Overhead

4-13 Process Cost Flows: Transfers from WIP- Dept. A to WIP-Dept. B Work in Process Department B Work in Process Department A Direct Materials Direct Labor Applied Overhead Direct Materials Direct Labor Applied Overhead Transferred to Dept. B Transferred from Dept. A Department A Department B

4-14 Finished Goods Process Cost Flows: Transfers from WIP- Dept. B to Finished Goods Work in Process Department B Cost of Goods Manufactured Direct Materials Direct Labor Applied Overhead Transferred from Dept. A Cost of Goods Manufactured

4-15 Finished Goods Cost of Goods Sold Process Cost Flows: Transfers from Finished Goods to COGS Work in Process Department B Cost of Goods Manufactured Direct Materials Direct Labor Applied Overhead Transferred from Dept. A Cost of Goods Sold Cost of Goods Manufactured

4-16

4-17 Equivalent Units – The Basic Idea Two half-completed products are equivalent to one complete product. So, 10,000 units 70% complete are equivalent to 7,000 complete units. + = 1

4-18 For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 Quick Check

4-19 For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 10,000 units + (5,000 units × 0.30) = 11,500 equivalent units Quick Check

4-20 Equivalent Units of Production The weighted-average method... 1.Makes no distinction between work done in prior or current periods. 2.Blends together units and costs from prior and current periods. 3.Equivalent units = Units transferred out + equivalent units in ending Work in Process Inventory. The weighted-average method... 1.Makes no distinction between work done in prior or current periods. 2.Blends together units and costs from prior and current periods. 3.Equivalent units = Units transferred out + equivalent units in ending Work in Process Inventory.

4-21 Compute and Apply Costs The formula for computing the cost per equivalent unit is: Cost per equivalent unit = Cost of beginning Work in Process Inventory Cost added during the period Equivalent units of production +

4-22 Treatment of Direct Labor Direct labor costs may be small in comparison to other product costs in process cost systems. Direct labor costs may be small in comparison to other product costs in process cost systems. Direct Materials Type of Product Cost Dollar Amount Direct Labor Manufacturing Overhead

4-23 Treatment of Direct Labor Type of Product Cost Dollar Amount Conversion Direct labor and manufacturing overhead may be combined into one classification of product cost called conversion costs. Direct Materials Direct Labor Manufacturing Overhead

4-24 Double Diamond Skis Production Process

4-25 Shaping and Milling Dept. Data for May operations

4-26 Day 8 Process costing soda and skis.xlsx