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PROCESS COSTING CHAP 32. What is Process Costing? an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of.

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Presentation on theme: "PROCESS COSTING CHAP 32. What is Process Costing? an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of."— Presentation transcript:

1 PROCESS COSTING CHAP 32

2 What is Process Costing? an accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process.

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6 When is process costing applicable -where goods or services result from a sequence of continuous or repetitive operations or processes

7 When is process costing applicable -suitable for industries producing homogeneous products and where production is a continuous flow

8 When is process costing applicable petroleum, coal mining, chemicals, textiles, paper, plastic, glass, and food

9 The importance of process costing to keep track of where their money is being spent in the production and distribution processes ----Understanding these costs is the first step in being able to control them

10 Example: 10 units of a product passed through 3 processes for which the following information is available

11 Requirement: a. Prepare the cost accounts for processes 1, 2, and 3 PROCESS 1 Direct materials $ 1.0 Direct labor 1.5 Overhead 2.5 Transferred to process 2 $ 5.0 5.0

12 Requirement: a.Prepare the cost accounts for processes 1, 2, and 3 PROCESS 2 Direct materials 1.5 Direct labor 3.5 Overhead 5.0 Transferred to process 3 $ 15.0 15.0 Transferred from process 1 $ 5.0

13 Requirement: a.Prepare the cost accounts for processes 1, 2, and 3 PROCESS 3 Direct materials 2.0 Direct labor 1.5 Overhead 1.5 Finished Goods $ 20.0 20.0 Transferred from process 2 $ 15.0

14 b. Calculate the cost of Unit cost= Total cost Units produced = $5 10 units = $0.50

15 b. Calculate the cost of $1.5 $2.0

16 EXER 1 The Alutech Processing Company which passes its product through three refining processes provides the following information for one month, for 10,000 units:

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18 Requirement: 1.Prepare the cost accounts for processes 1, 2, 3 2.Compute for the cost of completed units for process 1, 2 and 3

19 ANSWER: (1)

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22 ANSWER: (2)

23 E N D

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