1. Lecture 14

2. Chapter Overview Types of Costing Systems Used to Determine Product Costs – Job-Order Costing – Process Costing Sequence of Events in a Job-Order Costing System Application of Manufacturing Overhead The Need for a Predetermined Manufacturing Overhead Rate Over/under-applied FOH Job-Order Costing Document Flow Summary Job-Order System Cost Flows MCQs Test Questions

3. Systems Design: Process Costing Chapter 4

4. Types of Costing Systems Used to Determine Product Costs Job-order Costing Process Costing F Many units of a single, homogeneous product flow evenly through a continuous production process. F One unit of product is indistinguishable from any other unit of product.. F Each unit of product is assigned the same average cost. F Many units of a single, homogeneous product flow evenly through a continuous production process. F One unit of product is indistinguishable from any other unit of product.. F Each unit of product is assigned the same average cost.

5. Types of Costing Systems Used to Determine Product Costs Job-order Costing Process Costing F Many units of a single, homogeneous product flow evenly through a continuous production process. F One unit of product is indistinguishable from any other unit of product.. F Each unit of product is assigned the same average cost. F Many units of a single, homogeneous product flow evenly through a continuous production process. F One unit of product is indistinguishable from any other unit of product.. F Each unit of product is assigned the same average cost. Typical process cost applications:  Petrochemical refinery  Paint manufacturer  Paper mill Typical process cost applications:  Petrochemical refinery  Paint manufacturer  Paper mill

6. Job order costing – Many jobs are worked during the period. – Costs are accumulated by individual jobs. – Job cost sheet is the key document. – Unit cost computed by job. Job order costing – Many jobs are worked during the period. – Costs are accumulated by individual jobs. – Job cost sheet is the key document. – Unit cost computed by job. Process costing – A single product is produced for a long period of time. – Costs are accumulated by departments. – Department production report is key document. – Unit costs are computed by department. Process costing – A single product is produced for a long period of time. – Costs are accumulated by departments. – Department production report is key document. – Unit costs are computed by department. Differences Between Job-Order and Process Costing

7. Sequential Processing Departments Processing Department 1 Processing Department 2 Processing Department 3 Finished Goods Start Basic raw materials Processing costs Partially completed goods Processing costs Completed goods Processing costs

8. Parallel Processing Departments Processing Department 1 Processing Department 2 Processing Department 3 Finished Goods Start Basic raw materials Processing costs Partially completed goods Processing costs Completed goods Processing costs Processing Department A

9. Flow of Materials, Labor and Overhead Costs Finished Goods Cost of Goods Sold Direct Labor Processing Department Direct Material Manufacturing Overhead

10. Raw Materials Purchases Direct Material Other Overhead Manufacturing Overhead Flow of Materials, Labor and Overhead Costs Work in Process Finishing Department Work in Process Mixing Department Direct Material Indirect Material ActualApplied

11. Wages Payable Direct Material Flow of Materials, Labor and Overhead Costs Direct Labor Indirect Labor Other Overhead Manufacturing Overhead Indirect Material ActualApplied Indirect Labor Work in Process Finishing Department Work in Process Mixing Department

12. Wages Payable Direct Material Flow of Materials, Labor and Overhead Costs Direct Labor Indirect Labor Overhead Applied to Work in Process Applied Overhead Other Overhead Manufacturing Overhead Indirect Material ActualApplied Indirect Labor Work in Process Finishing Department Work in Process Mixing Department

13. Flow of Materials, Labor and Overhead Costs Now, let’s transfer the partially completed goods from Mixing Department to Finishing Department.

14. Flow of Materials, Labor and Overhead Costs Direct Material Direct Labor Applied Overhead Direct Material Direct Labor Applied Overhead Transferred to Finishing Transferred from Mixing Work in Process Finishing Department Work in Process Mixing Department

15. Flow of Materials, Labor and Overhead Costs The goods have been completed in the Finishing Department and will be transferred to Finished Goods Inventory when they are ready to be sold.

16. Finished Goods Cost of Goods Sold Flow of Materials, Labor and Overhead Costs Direct Material Direct Labor Applied Overhead Transferred from Dept. A Cost of Goods Sold Cost of Goods Manufactured Work in Process Finishing Department

17. Materials, Labor, and Overhead Cost Entries

18. Flow of Materials, Labor and Overhead Costs

23. Lecture Overview Types of Costing Systems Used to Determine Product Costs Differences Between Job-Order and Process Costing Sequential Processing Departments Parallel Processing Departments Flow of Materials, Labor and Overhead Costs Materials, Labor, and Overhead Cost Entries

24. Equivalent Units of Production Equivalent units are partially complete and are part of work in process inventory. It is the concept of expressing partially completed products as a smaller number of fully completed units. += Two one-half completed products are equivalent to one completed product. So, 10,000 units 70% complete are equivalent to 7,000 complete units.

25. For the current period, Matrix 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 Matrix have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 For the current period, Matrix 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 Matrix have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 MCQs Test

26. For the current period, Matrix 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 Matrix have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 For the current period, Matrix 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 Matrix have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000 MCQs Test 10,000 units + (5,000 units ×.30) = 11,500 equivalent units

27. Equivalent Units of Production To calculate the cost per equivalent unit for the period: Cost per equivalent unit = Costs for the period Equivalent units of production for the period

28. Now assume that Matrix incurred $27,600 in production costs for the 11,500 equivalent units of production. What was Matrix’s cost per equivalent unit for the period? a.$1.84 b.$2.40 c.$2.76 d.$2.90 MCQs Test

29. Now assume that Matrix incurred $27,600 in production costs for the 11,500 equivalent units of production. What was Matrix’s cost per equivalent unit for the period? a.$1.84 b.$2.40 c.$2.76 d.$2.90 MCQs Test $27,600 ÷ 11,500 equivalent units = $2.40 per equivalent unit $27,600 ÷ 11,500 equivalent units = $2.40 per equivalent unit

30. Lecture Overview Types of Costing Systems Used to Determine Product Costs Differences Between Job-Order and Process Costing Sequential Processing Departments Parallel Processing Departments Flow of Materials, Labor and Overhead Costs Materials, Labor, and Overhead Cost Entries

31. End of Lecture 14