C2 - 1 Learning Objectives Power Notes 1.Comparing Job Order Costing and Process Costing 2.Physical Flows and Cost Flows for a Process Manufacturer 3.The First-In, First-Out (Fifo) Method 4.Bringing It All Together: The Cost of Production Report 5.Journal Entries for a Process Cost System 6.Using the Cost of Production Report for Decision Making 7.Just-in-Time Processing Chapter M2 C2 Process Cost Systems Process Cost Systems

C2 - 2 Job Order and Process Cost Systems Process Cost Accounting: Steps 1, 2, 3, 4 Cost of Production Report Journal Entries for a Process Cost System Just-in-Time Processing Slide #Power Note Topics Note: To select a topic, type the slide # and press Enter. Power Notes Chapter 1 Process Cost Systems Process Cost Systems

C2 - 3 Job Order Cost System Job Order and Process Cost Systems Compared Job Cost Sheets Dept. A and Dept. B Direct materials Direct labor Factory overhead

C2 - 4 Job Order Cost System Job Order and Process Cost Systems Compared Job Cost Sheets Dept. A and Dept. B Direct materials Direct labor Factory overhead Finished goods

C2 - 5 Job Order Cost System Job Order and Process Cost Systems Compared Job Cost Sheets Dept. A and Dept. B Process Cost System Direct materials Direct labor Factory overhead Finished goods Dept. A Dept. B Direct materials

C2 - 6 Job Order Cost System Job Order and Process Cost Systems Compared Job Cost Sheets Dept. A and Dept. B Process Cost System Direct materials Direct labor Factory overhead Finished goods Dept. A Dept. B Factory overhead Direct labor Direct materials Factory overhead Direct labor

C2 - 7 Job Order Cost System Job Order and Process Cost Systems Compared Job Cost Sheets Dept. A and Dept. B Process Cost System Direct materials Direct labor Factory overhead Finished goods Dept. A Dept. B Factory overhead Direct labor Direct materials Factory overhead Direct labor Finished goods

C2 - 8 Similarities in Job Order and Process Costing 4determine a product cost by measuring the amount of direct materials and direct labor used and allocating overhead costs. 4allocate overhead using a predetermined overhead rate (or activity-based costing). 4maintain perpetual inventory records with subsidiary ledgers for materials, work in process, and finished goods. Both systems:

C2 - 9 Flow of Costs in a Process Cost System FOH – Melting WIP – Melting Finished Goods FOH – Casting WIP – Casting Cost of Goods Sold DM DL Actual costs incurred Actual costs incurred DL Direct materials used in productionDM Direct labor used in productionDL

C Flow of Costs in a Process Cost System FOH – Melting WIP – Melting Finished Goods FOH – Casting WIP – Casting Cost of Goods Sold DM DL FOHA Actual costs incurred Actual costs incurred FOHA FOHA FOHA DL Factory overhead applied to work in processFOHA

C Flow of Costs in a Process Cost System FOH – Melting WIP – Melting Finished Goods FOH – Casting WIP – Casting Cost of Goods Sold DM DL FOHA Actual costs incurred Actual costs incurred FOHA FOHA TRAN FOHA DL TRAN Cost of goods transferred to WIP – Casting TRAN

C Flow of Costs in a Process Cost System FOH – Melting WIP – Melting Finished Goods FOH – Casting WIP – Casting Cost of Goods Sold DM DL FOHA COGM Actual costs incurred Actual costs incurred FOHA FOHA TRANCOGM FOHA DL TRAN Cost of goods manufactured and transferred to finished goodsCOGM

C Flow of Costs in a Process Cost System FOH – Melting WIP – Melting Finished Goods FOH – Casting WIP – Casting Cost of Goods Sold SOLD DM DL FOHA COGM SOLD Actual costs incurred Actual costs incurred FOHA FOHA TRANCOGM FOHA DL TRAN Finished goods soldSOLD

C Flow of Costs in a Process Cost System FOH – Melting WIP – Melting Finished Goods FOH – Casting WIP – Casting Cost of Goods Sold SOLD DM DL FOHA COGM SOLD Actual costs incurred Actual costs incurred FOHA Summary of cost flows FOHA TRANCOGM FOHA DL TRAN

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory 500 Tons Work in Process – Tons

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory 500 Tons Started 1,000 Tons Work in Process – Tons 1,500 Tons

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory 500 Tons Started 1,000 Tons Work in Process – Tons 1,500 Tons Units charged to production Responsibility

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory 500 Tons Started 1,000 Tons Transferred 1,100 Tons Work in Process – Tons 1,500 Tons Units charged to production Responsibility In a perpetual inventory system, outflows are recorded as they occur. In this example, what is the ending amount of tons?

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory 500 Tons Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Work in Process – Tons 1,500 Tons Units charged to production Responsibility If the inventory level decreases during the period by 100 tons, are we completing more units than we are starting or starting more units than we are completing?

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory 500 Tons Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Work in Process – Tons 1,500 Tons Units charged to production Units to be assigned costs ResponsibilityAccountability If a manager is charged with the responsibility of 1,500 tons, the accountability must also be for 1,500 tons. This accountability consists of two parts: units transferred out and remaining units.

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory500 Tons Started & Completed Tons Beginning Inventory 500 Tons Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Work in Process – Tons 1,500 Tons Units charged to production Units to be assigned costs How many units were started and completed? + ResponsibilityAccountability 1 2

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory500 Tons Beginning Inventory 500 Tons Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Work in Process – Tons 1,500 Tons Units charged to production Units to be assigned costs + ResponsibilityAccountability 1 Started & Completed600 Tons Units started of 1,000 tons less ending inventory of 400 tons. 2

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory500 Tons Started & Completed600 Tons Transferred Out1,100 Tons Beginning Inventory 500 Tons Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Work in Process – Tons 1,500 Tons Units charged to production Units to be assigned costs + = ResponsibilityAccountability 1 2

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory500 Tons Started & Completed600 Tons Ending Inventory400 Tons Transferred Out1,100 Tons Beginning Inventory 500 Tons Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Work in Process – Tons 1,500 Tons Units charged to production Units to be assigned costs + = + ResponsibilityAccountability 1 2 3

C Step 1: Determine the Units to be Assigned Costs Beginning Inventory500 Tons Started & Completed600 Tons Ending Inventory400 Tons Transferred Out1,100 Tons Beginning Inventory 500 Tons Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Work in Process – Tons 1,500 Tons Units charged to production Units to be assigned costs + = + Total units1,500 Tons = ResponsibilityAccountability

C Step 2: Calculate Equivalent Units of Production Materials Equivalent Units TotalPercentEquivalent UnitsAddedUnits Conversion Equivalent Units Conversion Equivalent Units TotalPercentEquivalent UnitsConvertedUnits Inventory in process, July 15000%0 Started and completed in July600100%600 Transferred out to Casting Dept.1, Inventory in process, July %400 Total tons to be assigned cost1,000 Inventory in process, July %150 Started and completed in July600100%600 Transferred out to Casting Dept.1, Inventory in process, July %100 Total tons to be assigned cost850

C Step 3: Determine the Cost per Equivalent Unit Beginning Inventory $28,150 Materials $50,000 Work in Process – $$ Total Costs $87,840 Costs Charged Conversion Costs $9,690 Direct Materials Equivalent Unit Cost Direct Materials Equivalent Unit Cost Direct materials cost $50,000 Direct materials1,000 equivalent units Conversion Equivalent Unit Cost Conversion Equivalent Unit Cost $50.00 = Conversion cost $9,690 Conversion equiv. units850 $11.40 =

C Beginning Inventory: Beginning balance$28,150 Equivalent units0150 Equivalent unit costx $50.00x $11.40 $0$1,7101,710 $29,860 Started and Completed: Equivalent units Equivalent unit costx $50.00x $11.40 Started and completed in July$30,000$6,840$36,840 Ending Inventory: Equivalent units Equivalent unit costx $50.00x $11.40 Cost of ending inventory$20,0001,140$21,140 Step 4: Allocate Costs to Appropriate Units DirectConversionTotal MaterialsCostsCosts = = =

C Step 4: Allocate Costs to Appropriate Units Beginning Inventory $28,150 Materials Costs $50,000 Started and Completed $36,840 Beginning Inventory $29,860 Work in Process – $$ Total Costs Charged $87,840 Ending Inventory $21,140 Conversion Costs $9,690 Total Costs Assigned $87,840 M600x100%x$50.00=$30,000 C600x100%x$11.40= 6,840 $36,840 M400x100%x$50.00=$20,000 C400x25%x$11.40= 1,140 $21,140 Beginning cost$28,150 M500x0%x$50.00= 0 C500x30%x$11.40=1,710 $29,860 Total Costs Assigned $87,840 Costs

C Cost of Production Report – Melting Department Units Units charged to production: Inventory in process, July 1500 Received from materials1,000 Total units accounted for1,500 Units to be assigned costs: Inventory in process, July Started and completed in July Transferred to Casting Dept.1, Inventory in process, July Total units to be assigned cost1,5001, Step 1 WholeDirect UnitsMaterialsConversion Equivalent Units Step 2

C Cost of Production Report – Melting Department Units and Unit Costs Units charged to production: Inventory in process, July 1500 Received from materials1,000 Total units accounted for1,500 Units to be assigned costs: Inventory in process, July Started and completed in July Transferred to Casting Dept.1, Inventory in process, July Total units to be assigned cost1,5001, Unit costs: Total costs for July$50,000$9,690 Cost per equivalent unit$ 50.00$11.40 WholeDirect UnitsMaterialsConversion Equivalent Units Step 3

C Cost of Production Report – Melting Department Costs assigned DirectConversionTotal MaterialsCostsCosts Costs charged to production: Inventory in process, July 1$28,150 Cost incurred in July59,690 Total costs accounted for$87,840 Costs assigned: Inventory in process, July 1$28,150 To complete inventory of July 1$ 0$1,7101,710 Started and completed in July$30,000$6,84036,840 Transferred to Casting Dept.$66,700 Inventory in process, July 31$20,000$1,14021,140 Total costs assigned$87,840 Step 4

C Journal Entries for a Process Cost System Materials62,000 Accounts Payable62,000 Work in Process–Melting50,000 Factory Overhead–Melting4,000 Factory Overhead–Casting3,000 Materials57,000 Work in Process–Melting5,000 Work in Process–Casting4,500 Wages Payable9,500 Factory Overhead–Melting1,000 Factory Overhead–Casting7,000 Accumulated Depreciation8,000 a. Materials purchased on account. b. Direct and indirect materials requisitioned. c. Direct labor used. d.Depreciation expenses. TransactionJournal EntryDebitCredit

C Journal Entries for a Process Cost System Work in Process–Melting4,690 Work in Process–Casting9,640 Factory Overhead–Melting4,690 Factory Overhead–Casting9,640 Work in Process–Casting66,700 Work in Process–Melting66,700 Finished Goods78,600 Work in Process–Casting78,600 Cost of Goods Sold73,700 Finished Goods73,700 e. Factory overhead applied. f. Costs transferred to Casting Dept. g.Casting Dept. transferred to Finished Goods. h. Goods sold. TransactionJournal EntryDebitCredit

C Just-in-Time Processing (JIT) 4JIT is a business philosophy that focuses on reducing time and cost and eliminating poor quality. 4JIT organizes work cells that perform several manufacturing steps. 4Workers are cross-trained to perform more than one task. This provides flexibility and worker pride and involvement in the final product. 4Because products have limited movement between departments, the nonvalue-added cost of transporting products and parts is reduced.

C Note: To see the topic slide, type 2 and press Enter. This is the last slide in Chapter M2. Power Notes Chapter M2 Process Cost Systems Process Cost Systems