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Chapter 6 Process Costing
Job order costing
Process Costing Systems
Large quantity of identical units
Job Order Assign costs to job and then to units within the job
Process Costing Using an averaging technique, assign costs directly to units produced during the period
Averaging technique to assign costs to units produced Unit Cost = Production Costs Production Quantity .
Production Costs Accumulate costs by department Accumulate costs by product Direct material from material requisitions Direct labor from time sheets and wage rates Overhead x Actual x Predetermined application rates Unit Cost = Production Costs Production Quantity .` The Numerator .
Process Costing Production Costs ± Direct material from material requisitions ± Direct labor from time sheets and wage rates ± Overhead Actual Predetermined application rates .
_________________ Department _______________ Authorized by ___________ Issued by _________________ Received by _____________ Inspected by _______________ Item Part Unit of Quantity Quantity Unit Total No. Descrip. Measure Required Issued Cost Cost . ### Date ___________________ Job No. No.Materials Requisition Form No.
_______________ Department _______________ Type of Work Job No. Start Time For w k i _______ Total Hours Stop Time Day Employee Si ature Supervisor¶s Si ature .Employee Time Sheet Employee Name _______________ Employee No.
` ` The Denominator .Units Produced Complicated by work in process Units started last period and completed this period Units started this period and not completed ` Convert partially completed units to equivalent whole units Unit Cost = Production Costs Production Quantity .
` ` 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 ` Assumes FIFO physical flow through the production department .
` Weighted Average Method combines ` x beginning work in process x current period production FIFO Method separates x beginning work in process x current period production .
Weighted Average Beginning WIP Started and finished Ending WIP THE FIFO DIFFERENCE Beginning WIP Started and finished Ending WIP 100% 100% % completed % completed 100% % completed .
multiple cost drivers . during.` Direct material added at the beginning. and/or at the end of process ` Direct labor added throughout the process ` Overhead added throughout the process x based on direct labor x based on other.
1 2 3 4 5 6 Units to account for Units accounted for Units Determine equivalent units Costs to account for Compute cost per equivalent unit Costs Assign costs to inventories .
Cost of Production Report Name of Department 3 for t e perio --Pro uction Data: 2 1 Units to account for EUP for eac cost Units accounte for Cost Data: 4 Costs to account for 5 Cost per EUP 6 Cost Assignment: Transferre Out En ing Work In Process Inventory .
700 .Beginning WIP Started Units to account for 5.000 200.700 205.
700 .Step 2 .700 equal 205.000 be 2.700 205.Units Accounted For Beginning WIP Started Units to account for Finished and transferred Ending WIP Units accounted for 5.000 200.700 must 203.
000 2.000 Started and completed 198.Step 3 .700 * 80% = 2.160 * ending units * % complete 2.160 Weighted Average Method .160* Ending WIP inventory 2.000 5.000 198.700 Equivalent units 205.Compute Equivalent Units DM Conversion Beginning WIP inventory 5.700 205.
091 Weighted Average Method .028 $1.270 981.004.390 $327.Step 4 .701 321.943 $ 16.Costs to Account For Beginning WIP Current costs To account for DM Conversion Total $ 5.758 $ 22.120 660.063 $677.
59 + 205.758 $ 22.004.700 $1.091 205.30 = $4.Cost per Equivalent Unit Beginning WIP Current costs To account for Divide by EUP Cost per EUP DM Conversion Total $ 5.390 $327.063 $677.89 Weighted Average Method .028 $1.160 $3.Step 5 .270 981.943 $ 16.701 321.120 660.
59) $ 4.700 * $1.670 Transferred Ending WIP Inventory Out Ending Direct Materials WIP (2.091* *must agree with costs to account for Weighted Average Method .30) 7.700 * 80% * $3.004.89) $992.293 Conversion Costs (2.421 Cost accounted for $1.Assign Costs to Inventories Transferred (203.Step 6 .000 * $4.128 11.
` Emphasizes current period costs and production ` Steps 1 and 2 are the same .
FIFO Step 3 DM Conversion Beginning WIP/completed 0 3.000 * 60% = 3.Process Costing .160 * beginning units * % complete in current period 5.700 2.000 .000* Started and completed 198.000 Ending WIP Inventory 2.700 203.160 Equivalent units 200.000 198.
160 $3.270 $981.390 200.60 + 203.85 .700 $1.Process Costing .25 = $4.FIFO Step 4 is the same Step 5 Current costs Divide by EUP Cost per EUP DM Conversion Total $321.120 $660.
000 * $3.091* .750 Started and completed (198.25) 7.7000 * 80% * $3.451 960.60) $4.004.300 $992.85) Total cost transferred Transferred Ending inventory Out Direct Materials (2.25) 9.700 * $1.320 Conversion Costs (2.020 Cost accounted for *must agree with costs to account for Step 6 Assign Costs to Inventories .701 Cost to complete Conversion (3.FIFO $ 32.000 * $4.340 $1.Transferred Beginning WIP Inventory $22.751 Ending WIP 11.
700 ` EUP Conversion 205.421 ` Total $1.700 ` EUP Conversion 203.30 ` Total $4.25 ` Total $ 4. 3.091 .670 ` Ending WIP 11.004.Weighted Average ` EUP DM 205.59 ` Cost per unit Conv.160 ` Cost per unit DM $ 1.091 FIFO ` EUP DM 200.160 ` Cost per unit DM $ 1.004.340 ` Total $1. 3.89 ` Transferred Out $992.85 ` Transferred Out $ 992.60 ` Cost per unit Conv.751 ` Ending WIP 11.
` The purpose of the six steps Assign a value to ending work in process Assign a value to items transferred out Prepare this journal entry Finished Goods Work in Process or Transferred In Cost (successor department) Work in Process (current department) .
000 units $ 2.Landers Company Landers Company has the following information available for May: Beginning Work in Process Inventory (25% complete as to conversion) Started Ending Work in Process Inventory (30% complete as to conversion) Beginning Work in Process Inventory Costs: Material Conversion Curre t eri Costs: Material Conversion 10.695 All material is added at the start of production and all products completed are transferred out.000 units 120.000 109.100 2.030 $ 33.000 units 30. .
Prepare a schedule showing the assignment of costs assuming the (a) FIFO method (b) Weighted average method.REQUIRED: 1. Prepare a schedule showing the computation for cost per equivalent unit assuming the (a) FIFO method (b) Weighted average method. Refer to Landers Company. Prepare an equivalent units schedule using (a) FIFO method (b) Weighted average method. . Refer to Landers Company. Refer to Landers Company. 2. 3.
000 100.000 109.000 10.000 30. CC .000 130.000 120.000 30.000 100.000 CC 7.000 Weighted Average Beginning Work In Process Units Started Units to Acct.000 9.000 130.000 130.000 (b) Weighted Average Mat.000 10.Landers Company Schedule of Equivalent Units for FIFO and Weighted Average May 31.000 106. For Beginning Work In Process Started & Completed Ending Work in Process Units Accounted For (a) FIFO Mat.500 TO EI EUP 100.000 130.000 30.000 90.500 90.000 130. BWIP S&C EWIP EUP 0 90.000 30. 20X5 FIFO Beginning Work In Process Units Started Units to Acct.000 120.000 9. For Transferred Out Ending Work in Process Units Accounted For 10.000 120.
Landers Company Schedule of Average Cost Per Unit FIFO and Weighted Average May 31. $ 35.000 $ 1. 20X5 (a) FIFO Mat.27/eq unit Total cost/eq.305/eq unit . unit $ 1.000 CC $109.275/eq unit $ 1.03/eq unit $.295/eq unit Eq Units 120.100 130.500 (b) Weighted Average Mat.000 CC $111. Costs $33.025/eq unit $ 1.725 109.695 106.000 $.
270 $ 17.305 $ 8.520 $146.Landers Company Schedule of Assigned Costs FIFO May 31.500 x $1.305 = Total costs transferred out Ending Work in Process 30.130 7.000 x $1.450 $129.000 x $1. 20X5 Beginning Work in Process To complete beginning inventory(7.825 .250 9.03) Started and Completed 90.03 = Cost of ending inventory Total costs accounted for $ 4.725 $ 11.855 117.000 x $ .275 = 9.
025 = Total costs accounted for $ 8.325 $146.Landers Company Schedule of Assigned Costs Weighted Average May 31. 20X5 Completed 100.27 = 9.295 = Ending Work in Process 30.000 x $1.000 x $1.225 $ 17.825 $129.100 9.500 .000 x $ .
000 units 120.600 130.Max ell Company Maxwell Company adds material at the start of production.053 $24.905 8. The following production information is available for June: Beginning Work in Process Inventory (45% complete as to conversion) Started this period Ending Work in Process Inventory (80% complete as to conversion) Beginning Work in Process Inventory Costs: Material Conversion Current Period Costs: Material Conversion $ 75.200 units 10.500 68.000 units .
What is the cost of units completed using the weighted average? 11. What are the equivalent units for conversion using the FIFO method? 8.What is the cost of all units transferred out using the FIFO method? . How many units were started and completed in the period? 4. How many units must be accounted for? 2. What is the conversion cost per equivalent unit using the weighted average method? 10. What is the material cost per equivalent unit using the weighted average method? 9.1. What are the equivalent units for material using the weighted average method? 5. What are the equivalent units for material using the FIFO method? 6. What are the equivalent units for conversion using the weighted average method? 7. What is the total cost to account for? 3.What is the conversion cost per equivalent unit using the FIFO method? 12.
$287.360 7.000 6. $1. 123.860 8.ANSWERS: 1. $282.004 . $1. 111.130.576 11. 128.55 10.058 3. 120.000 5.000 2. 130.77 9.800 4. $299. $.05 12.
800 40. What are equivalent units for conversion costs? a.Taylor Company uses a eighted average process costing system and started 30. b.000 units that ere 20 percent complete as to conversion costs in beginning Wor in Process Inventory and 3.000 units this month.200 40. d. 37. c.000 units that ere 40 percent complete as to conversion costs in ending Wor in Process Inventory. Taylor had 12.000 .800 42.
what are the equivalent units for conversion costs? a.700 containers were still in process (45 percent complete as to material and 80 percent complete as to conversion costs).Kerry Company makes small metal containers. 4. During the month. At month end. 1. The company began December with 250 containers in process that were 30 percent complete as to material and 40 percent complete as to conversion costs.910 .610 d.450 b. 4.000 containers were started. Using the weighted average method. 5.560 c. 3. 4.
000 . ses I r cess c sti s stem.Meht .000 nits this period and had 7. 18.000 nits that ere 60 percent c mplete as t c nversi n c sts at the eginning f the month.000 nits in ending or in Process Inventory that ere 3 percent complete as to conversion costs.000 25. d. b. c.000 22. hat are equivalent units for material.000 27. if material is added at the eginning of the process? a. he company started . he c mpany had .
3.395 3. 80 percent complete as to cloth.595 .295 3. 350 boxes were in process (100 percent complete as to cardboard.300 boxes were started. d. c.450 3. 70 percent complete as to cloth. what are equivalent units for cloth? a. and 55 percent complete as to conversion costs). Using the FIFO method. The company began September with 500 boxes in process that were 100 percent complete as to cardboard. and 60 percent complete as to conversion costs. During the month. On September 30.Julia Company makes fabric-covered hatboxes. b. 3.
and overhead . labor.` ` ` 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 for material.
Multidepartment Processing Process 1 Wait Materials Transferred-In Transferred-in Costs Cost Finished Product Process 3 Process 2 Wait .
Process Costing with Standard Costs Assigns a ³normal´ 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 .
jam .job order costing different direct labor ± job order costing same process .` ` Characteristics of job order and process costing systems Various product lines different direct material .process costing ` Hybrid costing used for furniture. clothing.
Appendix 1 ± Alternative Cost Computation There are two alternative methods to calculate Weighted Average and FIFO equivalent units of production (EUP) Use alternative methods ± To confirm standard computation ± As a simplified computation .
000 2.160 Equivalent units 205.000 3.160 Ending WIP inventory 2.160 .160 203.000 Started and completed 198.000 198.Conversion Costs WA FIFO Beginning WIP inventory 5.
Units transferred out (whole units) Plus Ending work in process (equivalent units) Weighted average equivalent units (EUP) Less Beginning work in process (equivalent units) FIFO equivalent units (EUP) .
000) 203.160 .160 205.000 2.160 (2.Appendix 1 ± Alternative Cost Computation 1 Conversion Costs Candles transferred Ending WIP EUP Weighted Average EUP Beginning WIP EUP FIFO EUP 203.
Appendix 1 ± Alternative Cost Computation 2 Total units to account for Less EUP to be completed next period Weighted Average EUP Less EUP completed in prior period FIFO EUP .
000) 203.700 (540) 205.160 .160 (2.Appendix 1 ± Alternative Cost Computation 2 Conversion Costs Total units to account for EUP to be completed next period Weighted Average EUP EUP completed in prior period FIFO EUP 205.
Loss occurs fairly uniformly through the process
Loss occurs at a specific point and is detectable only when a quality check is performed
Use Method of Neglect
Excludes spoiled units in the equivalent units schedule Spreads cost of lost units proportionately over the good units transferred and those remaining in WIP inventory
NOTE: Cost of Normal spoilage = 0
SPOILAGE ( NORMAL AND DISCRETE )
Normal shrinkage and discrete losses
± Assign costs only to units that have passed the inspection point
INSPECTION POINT> PERCENTAGE OF COMPLETION ASSIGNED TO TRANSFERRED OUT UNITS INSPECTION POINT < PERCENTAGE OF COMPLETION ASSIGNED TO TRANSFERRED OUT UNITS AND ENDING INVENTORY
SPOILAGE ( ABNORMAL)
± Period expense ± ALWAYS accounted for on an equivalent unit basis
SPOILAGE Normal Spoilage Continuous Loss Loss in all ending inventory and transferred out units on an EUP basis Loss in all units passed inspection point in ending inventory and transferred out on an EUP basis Abnormal Spoilage Period expense in EUP Discrete Loss Period expense in EUP .
500 units 5.000 units All materials are added at the start of production. .500 units 75.000 66.000 units 14.000 300.000 $25.000 units 2.000 units Costs of Beginning Work in Process: Material Conversion Current Costs: Material Conversion $120.100 50.Talmidge Company The following information is available for Talmidge Company for the current year: Beginning Work in Process (75% complete) Started Ending Work in Process (60% complete) Abnormal spoilage Normal spoilage (continuous) Transferred out 16.
75 AND COST PER EUP. 4. WHAT IS THE COST ASSIGNED TO ENDING WORK IN PROCESS? .55.COMPUTE THE FOLLOWING USING WEIGHTED AVERAGE 1. 5. EUP MATERIALS EUP.CC= 4. 3. 6. 2.CONVERSION COST COST PER EUP-MATERIALS COST PER EUP-CONVERSION COST COST ASSIGNED TO NORMAL SPOILAGE ASSUMING THAT COST PER EUP-MATERIALS=1.
CONVERSION COST= 78.500 EUP.COMPUTE THE FOLLOWING USING WEIGHTED AVERAGE 1.CC= 4. 2. CONTINUOUS SPOILAGE.75 AND COST PER EUP.680 .55.48 COST ASSIGNED TO NORMAL SPOILAGE. EUP MATERIALS= 84. ASSUMING THAT COST PER EUP-MATERIALS=1.100 COST PER EUP-MATERIALS= 1. 3. HIGHER COSTS ARE ASSIGNED TO GOOD UNITS PRODUCED 6. 5. WHAT IS THE COST ASSIGNED TO ENDING WORK IN PROCESS?= 71.72 COST PER EUP-CONVERSION COST= 4.0. NO COSTS ARE ASSIGNED TO NORMAL . 4.
Bo man Company inspects goods at 75 percent completion as to conversion.000 $15.Bowman Company Bowman Company has the following information for July: Units started Beginning Work in Process: (35% complete) Normal spoilage (discrete) Abnormal spoilage Ending Work in Process: (70% complete) Transferred out Beginning Work in Process Costs: Material Conversion 100.500 97.000 14.500 5.000 10. .000 units 3.000 units 20.000 units units units units All materials are added at the start of the production process.
00 AND COST PER EUP. WHAT IS THE AMOUNT OF THE PERIOD COST FOR JULY? 6. .CC= 1. 3. 4.50. 5. 2.COMPUTE THE FOLLOWING USING THE FIFO METHOD: EUP MATERIALS EUP.CONVERSION COST COST PER EUP-MATERIALS COST PER EUP-CONVERSION COST ASSUMING THAT COST PER EUP-MATERIALS=1.50.00 AND COST PER EUP.CC= 1. WHAT IS THE TOTAL COST ASSIGNED TO TRANSFERRED OUT UNITS? 1. ASSUMING THAT COST PER EUP-MATERIALS=1.
438 .CONVERSION COST= 106.50. WHAT IS THE AMOUNT OF THE PERIOD COST FOR JULY?= 10. ASSUMING THAT COST PER EUP-MATERIALS=1.000 2. EUP.50. ASSUMING THAT COST PER EUP-MATERIALS=1.00 AND COST PER EUP.625 4.CC= 1.00 AND COST PER EUP.CC= 1.COMPUTE THE FOLLOWING USING THE FIFO METHOD: 1. EUP MATERIALS= 100. WHAT IS THE TOTAL COST ASSIGNED TO TRANSFERRED OUT UNITS?= 244.625 3.
000 units 72.000 units 7.000 350.400 13.000 All materials are added at the start of production and the inspection point is at the end of the process.100 units 900 units 13.800 $120.500 units 1.Jones Company The following information is available for Jones Company for April: Started this month Beginning WIP (40% complete) Normal spoilage (discrete) Abnormal spoilage Ending WIP (70% complete) Transferred out Beginning Work in Process Costs: Material Conversion Current Costs: Material Conversion 80. .500 units $10.
. WHAT IS THE TOTAL COST ASSIGNED TO GOODS TRANSFERRED OUT? 1. 4. 3.COMPUTE THE FOLLOWING USING THE WEIGHTED AVERAGE METHOD: EUP MATERIALS EUP.CONVERSION COST COST PER EUP-MATERIALS COST PER EUP-CONVERSION COST WHAT IS THE COST ASSIGNED TO NORMAL SPOILAGE AND HOW IS IT CLASSIFIED? 6. 2. 5.
35 WHAT IS THE COST ASSIGNED TO NORMAL SPOILAGE AND HOW IS IT CLASSIFIED?= 6. EUP MATERIALS = 87. 4.CONVERSION COST= 83.824 . 5.600 COST PER EUP-MATERIALS= 1.COMPUTE THE FOLLOWING USING THE WEIGHTED AVERAGE METHOD: 1.424 ASSIGNED TO TRANSFERRED OUT UNITS 6.49 COST PER EUP-CONVERSION COST= 4. WHAT IS THE TOTAL COST ASSIGNED TO GOODS TRANSFERRED OUT?= 429.500 EUP. 2. 3.
000 gallons Started during June 180. Spoilage of 1 percent or fewer of the gallons of raw material placed into production is considered normal.000 gallons Spoiled 1. The following operating statistics are available for June 2006: Beginning inventory ( 60% complete as to material.South Company produces paint in a process in which spoilage occurs continually.000 gallons Ending inventory( 40% complete as to material 20% complete as to conversion ) 4. 70% complete as to conversion) 8.400 gallons .
1. 2. How many gallons were transferred out? What are the FIFO equivalent units of production for Material? For Conversion? .
000 units .000 units 58.000 units 60. All raw material is added at the start of the production process. March processing information follows: Beginning inventory ( 30% complete as to conversion ) Started during March Completed during March Ending inventory( 20% complete as to conversion) 10. and company management has specified that the normal loss from shrinkage cannot exceed 5% of the units started in a period.Weezer Plastics uses the Weighted Average process costing system.200 units 8.
B. D. E. F.A. How many units are there to account for? How many units should be treated as normal loss? How many units should be treated as abnormal loss? What are the equivalent units of production for direct material? For conversion? How are costs associated with the normal spoilage handled? How are costs associated with the abnormal spoilage handled? . C.
000 lbs.Rodin Inc.800 lbs.000 lbs. shrinkage occurs. Loss ? lbs. Management believes that shrinkage of less than 8% is normal. All direct material is entered at the beginning of the process.530 37. Started during the month 60.400 12.000 lbs. March 2006 data as follow: Beginning inventory ( 30% complete as to conversion) 18. As the raw material is heated.400 Current period: Material 19.458 Conversion 17.928 Total costs 49. Transferred 63. produces small plastic toys.000 Conversion 5.858 . Ending inventory 10. The following costs are associated with March production: Beginning inventory: Material 7.
Prepare a March 2006 cost of production report for Rodin Inc. using FIFO process costing .
they are transferred into Packaging.000 units ? 500 units . 80% complete as to conversion) Units started during period Ending WIP (80% complete as to material and 80% complete as to conversion) 4. Ingredients are placed into production at the beginning of the process in Cooking. All material added in Packaging is considered as one material for convenience.400 units 1. where they are formed into various shapes.The Sweet Temptations Company has two processing departments. where the candy is placed into heart and tuxedo boxes and covered with foil. When finished. Cooking and Packaging.000 units 2. they are considered partially complete until filled with the appropriate assortment. The following information relates to the two departments for February 20X7: Cooking Department: Beginning WIP (30% complete as to conversion) Units started this period Ending WIP (60% complete as to conversion) Packaging Department: Beginning WIP (90% complete as to material. Since the boxes contain a variety of candies.500 units 15.
b . Determine equivalent units of production for both departments using the weighted average method.a. . Determine equivalent units of production for both departments using the FIFO method.
540 Transferred Out Ending Work in Process TOTAL EUP .600 400 18.000 Conversion Costs 17.600 400 18.400 1.100 2.Cooking Department Materials Transferred Out Ending Work in Process TOTAL EUP Packaging Department Transferred In 17.600 500 18.440 19.100 Materials 17.500 18.000 Conversion Costs 17.100 17.
150 12.100 Materials Conversion Costs 100 16.190 .Cooking Department Materials Beginning Work in Process Transferred Ending Work in Process TOTAL EUP Packaging Department Transferred In Beginning Work in Process Transferred from Cooking Ending Work in Process TOTAL EUP 0 16.600 1.600 400 17.400 15.440 17.600 500 17.100 200 16.600 400 17.200 0 12.000 Conversion Costs 3.600 2.
500 $ 34.450 Materials are not added in Department 2 until the very end of processing Department 2.The following costs were accumulated by Department 2 of Hughes Company during April: Production for April in Department 2 (in units): WIP-April 1 Complete period transferred WIP-April 30 Cost Transferred from DEPARTMENT 1 $ 17.000 $344.500 322.000 60% complete 20. .000 40% complete Material Conversion Costs $ 5.050 2.450 Total Beginning Inventory Current Period Cost $ 22.000 $ 34.000 $ 109.000 5.000 104.050 184.000 $ 201.
Weighted average inventory assumption b FIFO inventory assumption .Required: Compute the cost of units completed and the value of ending WIP for: a. .
975 = $40. Weighted average inventory assumption COGM = $344.210 = 9. FIFO inventory assumption COGM = $344.340 End WIP 5.950 $50.000 units x $5.$50.000 .$50.042 CC = 2.500 .000x $8.500 .000 units x $4.160 .a.000 = 10.000 $50.00 = $40.160 = $294.500 End WIP 5.000 = $294.000 units x $8.00 CC = 2.
These components are transferred to Assembly. 35% complete as to conversion) Units started during period Ending WIP (0% complete as to material and 15% complete as to conversion) 5.The Sour Temptations Company has two processing departments. Fabrication and Assembly.60% complete as to conversion) Assembly Department: Beginning WIP (0% complete as to material. where it is cut and formed into various components.100 units .800 units 2.000 units 40.000 units 6. Production data follow for these two departments for March 2006: Fabrication Department: Beginning WIP (100% complete as to material . polished and coated with imported material.000 units ? 6. 25% complete as to conversion) Units started this period Ending WIP (100% complete as to material . where they are welded. Metal is placed into production in the Fabrication Department.
Compute the EUP for each department using a. FIFO WEIGHTED AVERAGE . b.
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