Professional Documents
Culture Documents
Process
Costing
6 -2
Objectives
Objectives
1. Describe the After
basic studying
characteristics
this and cost
After studying this
flows associated with process manufacturing.
chapter,
chapter, you
you should
should
2. Define equivalentbeunits and explain their role in
be able
able to:
to:
process costing. Explain the differences
between the weighted average method and the
FIFO method of accounting for process cost.
3. Prepare a departmental production report using
the weighted average method.
Continued
Continued
6 -3
Objectives
Objectives
4. Explain how process costing is affected by
nonuniform application of manufacturing
inputs and the existence of multiple
processing departments.
5. Appendix: Complete a departmental
production report using the FIFO method.
6 -4
Healthblend
Healthblend
Sequential
Nutritional
Nutritional
Supplements
Processing
Supplements
Parallel Processing
(hard disk drives for personal computers)
Process 1 Process 2
Finished
Assembly Goods
Process 3 Process 4
Production
Productionandand Testing
Testingof of
assembly
assemblyofof write-head
write-headand and
write-head
write-headand
and disk
disk drive
drive
Testing
Testingof of
Production
disk
diskdrive
Production of
driveof circuit
circuitboard
board
circuit
circuitboard
board
6 -6
Flow
Flow of
of Manufacturing
Manufacturing Costs
Costs Through
Through the
the
Accounts
Accounts of
of aa Process-Costing
Process-Costing Firm
Firm (Healthblend)
(Healthblend)
Picking Bottling Dept.
Encapsulating Dept.
Department Work in Process
Work in Process
Work in Process
The
The mixture
mixture isis transferred
transferred from
from
picking
picking to
to Encapsulating.
Encapsulating.
6 -8
The
The cost
cost isis transferred
transferred from
from
Encapsulating
Encapsulating to to Bottling.
Bottling.
6 -9
The
The cost
cost isis transferred
transferred to
to the
the
finished
finished goods
goods warehouse.
warehouse.
6 -10
AA production
production report
report
In
In process
process cost,
cost, costs
costs are
are
provides information
provides information about
about
summarized
summarized by department
by department
the
the physical
physical units
units processed
processed
for
for aa period
period of
of time
time in
in aa
in aa department
inproduction
department and
and the
the
report.
production report.
manufacturing
manufacturing costs.costs.
6 -11
Equivalent
Equivalent Units
Units of
of Production
Production
Equivalent
Equivalent units
units of
of output
output are
are the
the
complete
complete units
units that
that could
could have
have been
been
produced
produced given
given the
the total
total amount
amount of of
manufacturing
manufacturing effort
effort expended
expended forfor the
the
period
period under
under consideration.
consideration.
6 -12
Equivalent
Equivalent Units
Units of
of Production
Production
Department A
Equivalent
Equivalent Units
Units of
of Production
Production
Concept:
=
100 units completed = 100 equivalent units
=
200 units, 50% completed = 100 equivalent units
Continued
Continued
6 -14
Equivalent
Equivalent Units
Units of
of Production
Production
Example:
1,000 units completed, 600 units, 25% complete
Preparing
Preparing aa Production
Production Report
Report
1. Physical units flow analysis
2. Calculation of equivalent units
3. Computation of unit cost
4. Valuation of inventories (goods
transferred out and ending work in
process)
5. Cost reconciliation
6 -16
Weighted
Weighted Average
Average Method
Method
Healthblend
Healthblend
Nutritional
Nutritional
Supplements
Supplements
Production:
Units in process, July 1, 75% complete 20,000
Units completed and transferred out 50,000
Units in process, July 31, 25% complete 10,000
Costs:
Work in process, July 1 $ 3,525
Cost added during July 10,125
6 -17
Weighted
Weighted Average
Average Method
Method
Healthblend
Healthblend
Nutritional
Nutritional
Supplements
Supplements
$3,525 $10,125
$13,650
Weighted
Weighted Average
Average Method
Method
Output for July
60,000 Total Physical Units Becomes 52,500
BWIP Equivalent Units
20,000
+
Units Started and Completed
30,000
+
EWIP, 25% Complete
2,500
52,500
6 -19
Weighted
Weighted Average
Average Method
Method
Cost Assignment:
Cost/Unit = $13.650 ÷ 52,500 = $0.26
Transferred Out ($0.26 x 50,000) $13,000
EWIP ($0.26 x 2,500) 650
Total Cost Assigned $13,650
6 -20
Step
Step 1:
1: Physical
Physical Flow
Flow Schedule
Schedule
Units to account for:
Units in beginning work in process (75% complete) 20,000
Units started during the period 40,000
Total units to account for 60,000
Units accounted for:
Unit completed and transferred out:
Started and completed 30,000
From beginning work in process 20,000 50,000
Units in ending work in process (25%
complete) 10,000
Total units accounted for 60,000
6 -21
Step
Step 2:
2: Calculation
Calculation of
of Equivalent
Equivalent Units
Units
Weighted Average Method
Healthblend
Healthblend
Nutritional
Nutritional
Supplements
Supplements
6 -22
Step
Step 3:
3: Computation
Computation of
of Unit
Unit Cost
Cost
$13,650 =
52,500
$0.26 per equivalent
unit
6 -23
Step
Step 4:
4: Valuation
Valuation of
of Inventories
Inventories
Cost of goods transferred to the encapsulating
department:
50,000 equivalent units x $0.26 $13,000
Ending inventory:
2,500 equivalent units x $0.26 650
Healthblend
Healthblend
Nutritional
Nutritional
Supplements
Supplements
6 -24
Step
Step 5:
5: Cost
Cost Reconciliation
Reconciliation
Goods transferred out $13,000
Goods in ending work in process 650
Total costs accounted for $13,650
The
manufacturing
costs to
Healthblend account for are
Healthblend
Nutritional also $13,650.
Nutritional
Supplements
Supplements
6 -25
Production
Report
Weighte Healthblend Company 6 -26
d Picking Department
average Production Report for July 2004
UNIT INFORMATION
Physical Flow
Units to account for: Units accounted for:
Units in beginning Units completed 50,000
work in process 20,000 Units in ending
Units started 40,000 work in process 10,000
Total units to Total units
account for 60,000 accounted for 60,000
Equivalent Units
Units completed 50,000
Units in ending Continued
Continued
work in process 2,500
Total equivalent units 52,500
6 -27
COST INFORMATION
Costs to account for:
Beginning work
in process $ 3,525
Incurred during
period 10,125
Total cost to
account for $13,650
Continued
Continued
6 -28
Transferred Ending
Out WIP Total
Nonuniform
Application of
Manufacturing
Inputs
Healthblend
Healthblend
Nutritional
Nutritional
Supplements
Supplements
6 -30
Equivalent Units
Healthblend
Healthblend Picking Department
Nutritional
Nutritional
Supplements
Supplements
60,000
10,000 units equivalent units
Beginning
WIP inventory 50,000 units
of material and
Started and
conversion cost
completed transferred out
Materials, 100%
complete;
conversion cost,
100% complete as to
50% completeboth materials and
conversion cost
6 -31
Equivalent Units
Healthblend
Healthblend Picking Department
Nutritional
Nutritional Conversion
Supplements
Supplements Materials Costs
10,000 units
Beginning
WIP inventory 50,000 units
Started and 60,000 60,000
completed
20,000 units
September Ending WIP
inventory
Equivalent Units
Healthblend
Healthblend Picking Department
Nutritional
Nutritional Conversion
Supplements
Supplements Materials Costs
10,000 units
Beginning
WIP inventory 50,000 units
Started and 60,000 60,000
completed
20,000 units
September Ending WIP
inventory 20,000 8,000
6 -33
Equivalent Units
Healthblend
Healthblend Picking Department
Nutritional
Nutritional Conversion
Supplements
Supplements Materials Costs
10,000 units
Beginning
WIP inventory 50,000 units
Started and 60,000 60,000
completed
20,000 units
September Ending WIP
inventory 20,000 8,000
Equivalent units 80,000 68,000
6 -34
Healthblend
Healthblend
Nutritional
Nutritional
Materials $12,000
Materials $1,600 Conversion Supplements
Supplements
Conversion cost $3,200
cost $200
MaterialsCost $13,600
Conver. $3,400
10,000 units EU 80,000
68,000
Beginning
WIP inventory 50,000 units = Cost per EU $0.22
$0.05
Started and
completed
20,000 units
Ending WIP
inventory
d Picking Department
average Production Report for September 2004
UNIT INFORMATION
Physical Flow
Units to be accounted for: Units accounted for:
Units in beginning Units completed 60,000
work in process 10,000 Units in ending
Units started 70,000 work in process 20,000
Total units to Total units
account for 80,000 accounted for 80,000
Continued
6 -36
Equivalent Units
Materials Conversion Cost
Continued
Continued
6 -37
COST INFORMATION
Conversion
Materials Cost Total
Costs to account for:
Beginning work in process $ 1,600 $ 200 $ 1,800
Incurred during the period 12,000 3,200 15,200
Total costs to account for $13,600 $3,400 $17,000
Cost per equivalent unit $ 0.17 $ 0.05 $ 0.22
Continued
Continued
6 -38
Transferred Ending
Out WIP Total
Multiple
Multiple Departments
Departments
Units to account for:
Units in beginning work in process 15,000
Units transferred in during September 60,000
Total units to account for 75,000
Units accounted for:
Units completed and transferred out:
Started and completed 55,000
From beginning work in process 15,000
Units in ending work in process 5,000
Total units accounted for 75,000
6 -40
Multiple
Multiple Departments
Departments
Transferred in:
Units completed 70,000
Add: Units in ending work in
process X Fraction complete
(5,000 x 100%) 5,000
Equivalent units of output 75,000
Production Report
—Fifo Costing
6 -42
FIFO
FIFO Method
Method
$3,525 $10,125
BWIP Current-
Units Period Units
6 -43
FIFO
FIFO Method
Method
Output for July
60,000 Total Physical Units Become 37,500
BWIP (20.000 unit, 75% complete) Equivalent Units
5,000
+
Units Started and Completed
30,000
+
EWIP, 25% complete
2,500
37,500
6 -44
FIFO
FIFO Method
Method
Cost Assignment:
Unit Cost = $10,125 ÷ 37,500 = $0.27
Transferred Out:
From beginning work in process $ 3,525
Complete BWIP ($0.27 x 5,000) 1,350
Started and Completed in July
($0.27 x 30,000) 8,100
EWIP ($0.27 x 2,500) 675
Total Cost Assigned $13,640
Healthblend Company 6 -45
Continued
Continued
6 -46
Physical Equivalent
Flow Units
Continued
Continued
6 -47
COST INFORMATION
Costs to account for:
Beginning work
in process $ 3,525
Incurred during
period 10,125
Total cost to
account for $13,650
Continued
Continued
6 -48
Transferred Ending
Out WIP Total
Chapter Six
The
The End
End
6 -50