1. Process Cost Accounting
Chapter3
Process Cost Accounting

2. Keep your eye on the goal of Cost Accounting!+
Direct Material
Direct Labor
What did the Finished Goods cost??? +
Manufacturing Overheads =

3. Differences Between Job-Order and Process Costing
Job order costing
One (or more) work in process account.
Costs are determined for each job.
Job cost sheet is the key document.
Unit cost computed by costs added to job /units in the job.
Process costing
WIP account for each department.
Costs are determined by department.
Production cost report is the key document.
Unit costs computed by total department costs/units produced.

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

5. Process Costing Direct Materials
Direct labor costs may be small in comparison to other product
costs in process cost systems.
Conversion
Dollar Amount
Type of Product Cost
So, direct labor and manufacturing overhead are often combined into one cost called conversion costs.

6. Comparing Job-Order and Process Costing
Direct Materials
Finished Goods
Work in Process
Direct Labor
ManufacturingOverhead
Cost of Goods Sold

7. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
Job A
Dept 1
Dept 2
Dept 3

8. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
Job A
Dept 1
Dept 2
Dept 3

9. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
Job A
Finished Goods
Dept 1
Dept 2
Dept 3
Cost of Goods Sold
Costs are traced and applied to individual jobs in a job-order cost system.

10. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
Job B
Dept 1
Dept 2
Dept 3

11. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
Job B
Dept 1
Dept 2
Dept 3

12. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
Job B
Finished Goods
Dept 1
Dept 2
Dept 3
Cost of Goods Sold
Costs are traced and applied to individual jobs in a job-order cost system.

13. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
Job C
Dept 1
Dept 2
Dept 3

14. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
Job C
Dept 1
Dept 2
Dept 3

15. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
Job C
Finished Goods
Dept 1
Dept 2
Dept 3
Cost of Goods Sold
Costs are traced and applied to individual jobs in a job-order cost system.

16. Comparing Job-Order and Process Costing
Costs are traced and applied to departments in a process cost system.
Direct Materials
Processing
Department
Finished Goods
Direct Labor
ManufacturingOverhead
Cost of Goods Sold

17. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
WIP
Dept 1
WIP
Dept 2
WIP
Dept 3
Finished Goods
Cost of Goods Sold

18. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
WIP
Dept 1
WIP
Dept 2
WIP
Dept 3
Finished Goods
Cost of Goods Sold

19. Comparing Job-Order and Process Costing
Direct Labor
Raw Materials
ManufacturingOverhead
WIP
Dept 1
WIP
Dept 2
WIP
Dept 3
Finished Goods
Cost of Goods Sold

20. Process Cost Flows Materials Journal Entry
Raw Materials or other overheads
A/P or Cash
(Purchase material)
WIP – Dept B
Raw Materials
WIP - Dept A
(Transfer direct material)
(Transfer indirect material)
Raw Materials
Manufacturing O/H

21. Manufacturing Overhead
Process Cost Flows
Work in Process Department A
Raw Materials
Direct Materials
Direct Materials
Purchases
Indirect Materials
Manufacturing Overhead
Work in Process Department B
Actual
Applied
Direct Materials
Other Overhead
Indirect Materials

22. Process Cost Flows Labor Journal Entry
Factory Wages
Cash
(Payroll)
WIP – Dept B
Factory Wages
WIP - Dept A
(Transfer direct labor)
Manufacturing O/H
Factory Wages
(Transfer indirect labor)

23. OR Factory Wages Cash (Payroll) WIP - Dept A WIP – Dept B
Manufacturing O/H
Factory Wages
(Transfer manufacturing labor)

24. Manufacturing Overhead
Process Cost Flows
Work in Process Department A
Factory Wages
Direct Materials
Direct Labor
Direct Labor
Indirect Labor
Manufacturing Overhead
Work in Process Department B
Actual
Applied
Direct Materials
Other Overhead
Direct Labor
Indirect Materials
Indirect Labor

25. Process Cost Flows Overhead Journal Entry
WIP – Dept B
Manufacturing Overhead
WIP - Dept A
(Apply overheads)

26. Manufacturing Overhead Overhead Applied to Work in Process
Process Cost Flows
Work in Process Department A
Factory Wages
Direct Materials
Direct Labor
Direct Labor
Indirect Labor
Applied Overhead
Manufacturing Overhead
Work in Process Department B
Actual
Applied
Direct Materials
Other Overhead
Overhead Applied to Work in Process
Direct Labor
Indirect Materials
Applied Overhead
Indirect Labor

27. Process Cost Flows Next, transfer work from Dept. A to Dept. B.
Then complete and sell them.

28. Process Cost Flows Work in Process Department A Factory Wages
Direct Materials
Direct Labor
Direct Labor
Transferred to Dept. B
Applied Overhead
Indirect Labor
Manufacturing Overhead
Work in Process Department B
Actual
Applied
Direct Materials
Other Overhead
Overhead Applied to Work in Process
Direct Labor
Applied Overhead
Indirect Materials
Transferred from Dept. A
Indirect Labor

29. Process Cost Flows Work in Process Department B Finished Goods
Direct Materials
Cost of Goods Manufactured
Cost of Goods Manufactured
Cost of Goods Sold
Direct Labor
Applied Overhead
Transferred from Dept. A
Cost of Goods Sold
Cost of Goods Sold

30. Group Exercise
Take 10 minutes to do
BE3-1, 2, & 3 on page 130

31. Group Exercise
BE 3-1 Altex Manufacturing purchases $45,000 of raw materials on account, and it incurs $50,000 of factory labor costs. Journalize the two transactions on March 31 assuming the labor costs are not paid until April.
BE 3-2 Supporting records show that (a) the Assembly Department used $24,000 of raw materials and $30,000 of the factory labor, and (b) the Finishing Department used the remainder. Journalize the assignment of the costs to the two departments on March 31.
BE 3-3 Manufacturing overhead is assigned to departments on the basis of 200% of labor costs. Journalize the assignment of overhead to the Assembly and Finishing Departments.

32. Try this problem:
Schiller Company has unit costs of $5 for materials and $15 for conversion costs. There are 4,200 units in ending work in process which are 25% complete as to conversion costs, and fully complete as to materials cost. How much is the total cost assignable to the ending work in process?
$36,750
$84,000
$21,000
$15,750
$5 * 4, = $21,000
$15 * 4,200 * 25% = $15,750
$36,750

33. 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.

34. 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.

35. Equivalent Units
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

36. Equivalent Units
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

37. 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 =

38. Equivalent Units
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

39. 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!

40. Weighted Average Example
Smith Company reported the following activity in Department A for the month of June:
@100%
@100%
@60%
@30%
Calculate the Equivalent Units of Production.

41. Weighted Average Example
Smith Company reported the following activity in Department A for the month of June:
@100%
@100%
@60%
@30%
Equivalent Units of Production.

42. Weighted Average Example
Smith Company reported the following activity in Department A for the month of June:
Equivalent units of production always equals:
Units completed and transferred out
+ Equivalent units remaining in work in process
@100%
@100%
@60%
@30%
Equivalent Units of Production.

43. Equivalent Units Exercise 3-6
Do (a) only

44. Equivalent Units Exercise 3-6
The Cutting Department of Thakur Manufacturing has the following production and cost data for July.
Materials are entered at the beginning of the process. Conversion costs are incurred uniformly during the process.
(a)  Determine the equivalent units of production for (1) materials and (2) conversion costs.
Production
Costs 1.
Transferred out 9,000 units.
Beginning work in process
$ -0- 2.
Started 3,000 units that are 60% complete as to conversion costs and 100% complete as to materials at July %
Materials
45,000
Labor
16,200
Manufacturing overhead
18,900

45. Production Cost Report
Shows the flow of units and costs through work in process
Provides cost information for financial statements
Production Report
Becomes the job cost sheet in job costing
Helps managers control their departments

46. Production Report Section 1 Section 2 Section 3 Production Report
A quantity schedule showing the flow of units and the computation of equivalent units.

47. A computation of cost per equivalent unit.
Production Report
Section 1
Section 2
Section 3
Production Report
A computation of cost per equivalent unit.

48. Production Report Section 1 Section 2 Section 3 Production Report
A reconciliation of cost flows for the period, including:
Total cost for units completed and transferred from the processing department.
Total cost for partially completed units remaining in work in process.

49. Production Report Example
Double Diamond Skis uses process costing to determine unit costs in its 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 the Milling Department.

50. Production Report Milling
Work in process, May 1: units
Materials: 50% complete $ 3,000
Conversion: 30% complete ,000
Units started into production in May: 5,000
Units completed and transferred out in May: 4,800
Costs added to production in May
Materials cost $ 74,000
Conversion cost ,000
Work in process, May 31: 400 units
Materials 40% complete.
Conversion 25% complete.
Cost

51. Production Report Milling
Section 1: Quantity Schedule with Equivalent Units

52. Production Report Milling
Section 1: Quantity Schedule with Equivalent Units

53. Production Report Milling
Section 1: Quantity Schedule with Equivalent Units

54. Production Report Milling
Section 2: Compute cost per equivalent unit

55. Production Report Milling
Section 2: Compute cost per equivalent unit
Notice: The beginning % complete is irrelevant

56. Production Report Milling
Section 2: Compute cost per equivalent unit
$77,000 ÷ 4,960 units = $ (rounded)

57. Production Report Milling
Section 2: Compute cost per equivalent unit
$71,000 ÷ 4,900 units = $ (rounded)

58. Production Report Milling
Section 2: Compute cost per equivalent unit

59. Production Report Milling
Section 3: Cost Reconciliation

60. Production Report Milling
Section 3: Cost Reconciliation
4,800 $30.014

61. Production Report Milling
Section 3: Cost Reconciliation
160 $15.524
$2,484

62. Production Report Milling
Section 3: Cost Reconciliation
100 $14.490
$2,484
$1,449
$3,933
$148,000

64. Equivalent Units Exercise 3-6
Now Do (b)

65. Equivalent Units Exercise 3-6
The Cutting Department of Thakur Manufacturing has the following production and cost data for July.
Materials are entered at the beginning of the process. Conversion costs are incurred uniformly during the process.
(b)  Compute unit costs and prepare a cost reconciliation schedule.
Production
Costs 1.
Transferred out 9,000 units.
Beginning work in process
$ -0- 2.
Started 3,000 units that are 60% complete as to conversion costs and 100% complete as to materials at July %
Materials
45,000
Labor
16,200
Manufacturing overhead
18,900

66. End of Chapter 3
Are we smart now?
Or WHAT???