1. 1-1 PRODUCT COSTING 2

2. JOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. CONTACT: 0322-3385752 0312-2302870 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN.

3. JOIN KHALID AZIZ oFRESH CLASSES oICMAP STAGE 3 o FINANCIAL ACCOUNTING & COST ACCOUNTING PERFORMANCE APPRAISAL oINDIVIDUAL & GROUPS

4. JOIN KHALID AZIZ FRESH CLASSES ICMAP STAGE 1 & 2 FUNDAMENTALS OF FINANCIAL ACCOUNTING & COST ACCOUNTING INDIVIDUAL & GROUPS

5. 1-5 Comparison of Job-Order Costing and Process Costing Process Costing Job-order Costing F Used for production of small, identical, low cost items. F Mass produced in automated continuous production process. F Costs cannot be directly traced to each unit of product.

6. 1-6 Process Costing Job-order Costing Typical process cost applications: v Petrochemical refinery v Paint manufacturer v Paper mill Comparison of Job-Order Costing and Process Costing

7. 1-7 Job-order costing –Costs accumulated by the job. –Work in process has a job-cost sheet for each job. –Many unique, high cost jobs. –Jobs built to customer order. Process costing –Costs accumulated by department or process. –Work in process has a production report for each batch of products. –A few identical, low cost products. –Units continuously produced for inventory in automated process. Comparison of Job-Order Costing and Process Costing

8. 1-8 Direct Material Finished Goods Cost of Goods Sold Direct Labor Manufacturing Overhead Jobs The work-in-process account consists of individual jobs in a job-order cost system. Differences Between Job-Order and Process Costing

9. 1-9 Direct Material Finished Goods Cost of Goods Sold Products The work-in-process account consists of individual products in a process cost system. Differences Between Job-Order and Process Costing Direct Labor & Overhead ( Conversion) When direct labor is a relatively small amount compared to material and overhead, it is often combined with overhead.

10. 1-10 Process Cost Flows

11. 1-11 Process Cost Flows

12. 1-12 Equivalent Units: A Key Concept Costs are accumulated for a period of time for products in work-in-process inventory. Products in work-in-process inventory at the beginning and end of the period are only partially complete. Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products. Costs are accumulated for a period of time for products in work-in-process inventory. Products in work-in-process inventory at the beginning and end of the period are only partially complete. Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products.

13. 1-13 Equivalent Units of Production Equivalent units are partially complete and are part of work in process inventory. Partially completed products are expressed in terms of a smaller number of fully completed units.

14. 1-14 Finished Goods Cost of Goods Sold Process Cost Flows 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

15. 1-15 Equivalent Units of Production Two half completed products are equivalent to one completed product. So, 10,000 units 70 percent complete are equivalent to 7,000 complete units. + = 1

16. 1-16 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 Quick Check

17. 1-17 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 Quick Check

18. 1-18 Calculating and Using 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

19. 1-19 Now assume that Jones incurred $27,600 in production costs for the 11,500 equivalent units of production. What was Jones’ cost per equivalent unit for the period? a.$1.84 b.$2.40 c.$2.76 d.$2.90 Now assume that Jones incurred $27,600 in production costs for the 11,500 equivalent units of production. What was Jones’ cost per equivalent unit for the period? a.$1.84 b.$2.40 c.$2.76 d.$2.90 Quick Check Quick Check

20. 1-20 Now assume that Jones incurred $27,600 in production costs for the 11,500 equivalent units of production. What was Jones’ cost per equivalent unit for the period? a.$1.84 b.$2.40 c.$2.76 d.$2.90 Now assume that Jones incurred $27,600 in production costs for the 11,500 equivalent units of production. What was Jones’ cost per equivalent unit for the period? a.$1.84 b.$2.40 c.$2.76 d.$2.90 $27,600 ÷ 11,500 equivalent units = $2.40 per equivalent unit $27,600 ÷ 11,500 equivalent units = $2.40 per equivalent unit Quick Check Quick Check

21. 1-21 Equivalent Units of Production – Weighted Average Method The weighted average method... –Makes no distinction between work done in prior and current period. –Blends together units and costs from prior period and current period. Let’s see how this works!

22. 1-22 MVP Sports Equipment Company makes baseball gloves in two departments, Cutting and Stitching. MVP uses the weighted-average cost procedure. Material is added at the beginning of the Cutting Department, and conversion is incurred uniformly throughout the process. Using the following information for the month of March, let’s prepare a production report for the Cutting Department. EXP 1: Production Report Example

23. 1-23 Work in process, March 1: 20,000 units Cost Materials: 100% complete. $ 50,000 Conversion: 10% complete. 7,200 Units started into production in March:30,000 units Units completed and transferred out in March:40,000 units Work in process, March 31: 10,000 units Materials100% complete. Conversion 50% complete. Costs incurred during March Materials cost 90,000 Conversion costs: Direct labor$ 86,000 Applied manufacturing overhead 107,500 Total conversion costs 193,500 Total costs to account for $ 340,700 Production Report Example

24. 1-24 Ê Analysis of Physical Flow of Units Production Report Example

25. 1-25 Production Report Example Ë Calculation of Equivalent Units 50% of 10,000 units Beginning inventory % is not used in weighted-average method.

26. 1-26 Production Report Example Ë Calculation of Equivalent Units 100% of 10,000 units, all material added at beginning

27. 1-27 Ì Computation of unit costs Production Report Example $140,000 ÷ 50,000 equivalent units $200,700 ÷ 45,000 equivalent units $2.80 + $4.46

28. 1-28 Production Report Example Í Analysis of total costs

29. 1-29 Production Report Example Í Analysis of total costs

30. 1-30 Production Report Example Í Analysis of total costs All costs accounted for

31. 1-31

32. 1-32 Double Diamond Skis uses process costing to determine unit costs in its Shaping and Milling Department. Double Diamond uses the weighted average cost procedure. Using the following information for the month of May, let’s prepare a production report for Shaping and Milling. Double Diamond Skis uses process costing to determine unit costs in its Shaping and Milling Department. Double Diamond uses the weighted average cost procedure. Using the following information for the month of May, let’s prepare a production report for Shaping and Milling. EXP 2: Production Report Example

33. 1-33 Work in process, May 1: 200 units Materials:55% complete. $ 9,600 Conversion:30% complete. 5,575 Production started during May:5,000 units Production completed during May:4,800 units Costs added to production in May Materials cost $ 368,600 Conversion cost 350,900 Work in process, May 31: 400 units Materials40% complete. Conversion25% complete. Work in process, May 1: 200 units Materials:55% complete. $ 9,600 Conversion:30% complete. 5,575 Production started during May:5,000 units Production completed during May:4,800 units Costs added to production in May Materials cost $ 368,600 Conversion cost 350,900 Work in process, May 31: 400 units Materials40% complete. Conversion25% complete. Production Report Example

34. 1-34 Section 1: Quantity Schedule with Equivalent Units Production Report Example

35. 1-35 Production Report Example Section 1: Quantity Schedule with Equivalent Units

36. 1-36 Production Report Example Section 1: Quantity Schedule with Equivalent Units

37. 1-37 Section 2: Compute cost per equivalent unit Production Report Example

38. 1-38 Production Report Example Section 2: Compute cost per equivalent unit $378,200 ÷ 4,960 units = $76.25

39. 1-39 Production Report Example $356,475 ÷ 4,900 units = $72.75 Section 2: Compute cost per equivalent unit

40. 1-40 Section 3: Cost Reconciliation Production Report Example

41. 1-41 4,800 units @ $149.00 Production Report Example Section 3: Cost Reconciliation

42. 1-42 160 units @ $76.25 Production Report Example Section 3: Cost Reconciliation All costs accounted for 100 units @ $72.75

43. 1-43 Manufacturing overhead is applied to Work-in- Process Inventory using a predetermined overhead rate Actual costs of manufacturing overhead are entered in Work-in- Process Inventory Actual Costingvs.Normal Costing

44. JOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. CONTACT: 0322-3385752 0312-2302870 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN.