1. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Unit 5 Seminar Chapter 6 Process Costing

2. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. (concluded)

3. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5. Equivalent Units of Production (EUP) Approximation of the number of whole units of output that could have been produced from the actual effort expended Includes units  started last period and finished this period  started and finished this period  started this period and not finished See units accounted for on next slide

6. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

7. Two Process Costing Methods Weighted Average Method  combines beginning work in process current period production FIFO Method  separates beginning work in process current period production

8. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Process Costing Methods Weighted Average Beginning WIP 100% Started and finished 100% Ending WIP % completed FIFO Beginning WIP % completed Started and finished100% Ending WIP% completed THE DIFFERENCE

9. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. See Exhibit 4 on slide 6 Equivalent Units of Production WA Production DataActual units DM DL OH Beg WIP5,000 Started60,000 To account for65,000 Beg WIP5,000 Started and comp57,000 Completed62,000 End WIP3,000 750 Accounted for65,000 62,750

10. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. See exhibit 6 on slide 7 Equivalent Units of Production FIFO Production DataActual units DM DL OH Beg WIP5,000 Started60,000 To account for65,000 Beg WIP5,00001,500 Started and comp57,000 Completed62,000 End WIP3,000 750 Accounted for65,00060,00059,250

11. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Process Costing Direct material  added at the beginning, during, and/or at the end of the process Direct labor  added throughout the process Overhead  added throughout the process based on direct labor based on other, multiple cost drivers

12. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Process Costing Steps IMPORTANT 1 Units to account for 2 Units accounted for 3 Determine equivalent units 4 Costs to account for 5 Compute cost per equivalent unit 6 Assign costs to inventories Units Costs

13. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost of Production Report Name of Department for the period --- Production Data: Units to account for Units accounted forEUP for each cost Cost Data: Costs to account for Cost per EUP Cost Assignment: Transferred Out Ending Work In Process Inventory 1 2 3 4 5 6

14. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Process Costing with Standard Costs Simplify costing process Eliminate periodic cost recomputations Same as FIFO computations  emphasize current period costs and production Inventories are stated at standard cost Variances are calculated during production for material, labor, and overhead

15. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Process Costing with Standard Costs Assigns a “normal” production cost to the equivalent units of output each period Allows managers to quickly recognize and investigate significant deviations from expected production costs Allows benchmarking with other firms

16. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Hybrid Costing Systems Characteristics of job order and process costing systems Various product lines  different direct material — job order costing  different direct labor — job order costing  same process — process costing Hybrid costing used for furniture, clothing, jam, etc.

17. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Normal Spoilage Abnormal Spoilage Continuous Loss Discrete Loss Absorbed by all ending inventory and transferred out units on an EUP basis Written off in the Period on an EUP basis. Period expense in EUP Spoilage Loss in all units past inspection point in ending inventory and transferred out on an EUP basis

18. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ex 6-21 Equivalent Units of Production WA Production DataActual units DM DL OH Beg WIP15,000 Started620,000 To account for635,000 Beg WIP15,000??? Started and comp594,600 Completed609,600 End WIP25,400 8,89015,240 Accounted for635,000 618,490624,840

19. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ex 6-21Equivalent Units of Production FIFO Production DataActual unitsDMDLOH Beg WIP15000 Started620000 To account for635000 Beg WIP15000??? Started and comp594600 Completed609600 End WIP25400 889015240 Accounted for635000620000609490613590

20. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. WA EUP & Cost Assignment See Problem 6-47 Plaid-Clad (Demo Problem) Prepare a cost of production report for the Assembly Department. 20

21. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. WA EUP & Cost Assignment See Problem 6-47 Plaid-Clad (Demo Problem) Prepare a cost of production report for the Assembly Department. 21

22. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. WA & FIFO EUP & Cost Assignment Plaid-Clad (Demo Problem) Prepare a cost of production report for the Assembly Department. 22

23. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. WA & FIFO EUP & Cost Assignment Plaid-Clad (Demo Problem) Prepare T-accounts to show the flow of costs through the Assembly and Finishing Departments. 23