Discussion module 3 MC
edina
Hilton_MA_12e_Chap004_PPT.pptCopyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Process Costing and Hybrid
Product-Costing Systems
Chapter 4
McGraw-Hill/Irwin
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Chapter 4: Process Costing and Hybrid Product-Costing Systems
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Learning Objective 4-1 – List and explain the similarities and important differences between job-order and process costing.
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Learning Objective 4-1. List and explain the similarities and important differences between job-order and process costing.
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Comparison of Job-Order Costing and Process Costing (1 of 2)
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Process
Costing
Process
Costing
Job-Order
Costing
- Used for production of small,
identical, low-cost items. - Mass produced in automated
continuous production processes. - Costs cannot be directly traced to
each unit of product.
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This chapter covers process-costing systems. Process costing is used in repetitive production environments, where large numbers of identical or very similar products are manufactured in a continuous flow. (LO 4-1)
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Comparison of Job-Order Costing and Process Costing (2 of 2)
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Process
Costing
Process
Costing
Job-Order
Costing
Typical process cost applications:
- Petrochemical refinery
- Paint manufacturer
- Paper mill
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Industries using process costing include paper, petroleum, chemicals, textiles, food processing, lumber, and electronics. (LO 4-1)
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Job-Order Costing vs. Process Costing
Job-order costing
- Costs accumulated by the job.
- Work in process has a job-cost sheet for each job.
- Many unique, high-cost jobs.
- Jobs built to customer order.
Process costing
- Costs accumulated by department or process.
- Work in process has a production report for each batch of products.
- A few identical, low-cost products.
- Units continuously produced for inventory in automated process.
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In many ways, job-order costing and process costing are similar. Both product-costing systems have the same ultimate purpose—assignment of production costs to units of output. Moreover, the flow of costs through the manufacturing accounts is the same in the two systems. (LO 4-1)
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Direct Material
Finished
Goods
Cost of
Goods
Sold
Direct Labor
Manufacturing Overhead
Jobs
The work-in-process account consists of individual jobs in a
job-order cost system.
Differences Between Process and Job-Order Costing (1 of 2)
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In job-order costing, costs are accumulated by job order and recorded on job-cost records. The cost of each unit in a particular job order is found by dividing the total cost of the job order by the number of units in the job. This cost flow was described in the previous chapter. (LO 4-1)
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Direct Material
Finished
Goods
Cost of
Goods
Sold
Products
The work-in-process account consists of individual products in a process-cost system.
Differences Between Process and Job-Order Costing (2 of 2)
Direct Labor
& Overhead
(Conversion)
When direct labor is a relatively small amount compared to material and overhead, it is often combined with overhead.
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In process costing, costs are accumulated by department, rather than by job order or batch. The cost per unit is found by dividing the total costs incurred by the units produced. (LO 4-1)
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Learning Objective 4-2 – Prepare journal entries to record the flow of costs in a process-costing system with sequential production departments.
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Learning Objective 4-2. Prepare journal entries to record the flow of costs in a process-costing system with sequential production departments.
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Process Cost Flows – Single Department
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In a single production department situation, direct-material, direct-labor, and manufacturing-overhead costs are added to a Work-in-Process Inventory account. As goods are finished, costs are transferred to Finished-Goods Inventory. During the period when goods are sold, the product costs are transferred to Cost of Goods Sold. Let’s take a look at the specific journal entries involved in a two-department process. (LO 4-2)
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Journal Entry
Direct Material, Direct Labor, and Overhead Applied
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The journal entry for the case of two sequential departments is demonstrated. In this journal entry, we see $50,000 of direct materials, $20,000 of direct labor, and $30,000 of manufacturing overhead applied to the WIP account for Department A – the first department. The overhead would have been applied using the same method as we learned about in the job order costing chapter. The numbers used in the journal entry are assumed for the purpose of showing the form of the entries. (LO 4-2)
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Process Cost Flows –Two Departments
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In the two-department case, when goods are finished in the first production department, costs accumulated in the Work-in-Process Inventory account for production department A are transferred to the Work-in-Process Inventory account for production department B. Let’s take a look at a typical entry when the costs are transferred from one department to the next. (LO 4-2)
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Journal Entry
Dept. B – Transferred In Costs
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When production in Department A completes its work on some units of the product, those units are transferred to production Department B. The costs assigned to these goods are transferred from the Work-in-Process Inventory account for Department A to the Work-in-Process Inventory Account for Department B. In Department B, the costs assigned to those partially completed products are called transferred-in costs. (LO 4-2)
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Journal Entry
Dept. B – Direct Material, Direct Labor, and Manufacturing Overhead
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Direct material and direct labor are used in production Department B, and manufacturing overhead is applied using a predetermined rate. These costs are accumulated in Department B and recorded as shown. (LO 4-2)
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Journal Entry
Goods Completed
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As goods are completed in Department B, the cost of those goods are transferred out of Work-in-Process and into Finished-Goods Inventory. (LO 4-2)
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Journal Entry
Cost of Goods Sold
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The costs of the goods completed stay in the Finished-Goods Inventory account until the units are sold, at which point the costs are transferred OUT of Finished-Goods Inventory and INTO Cost of Goods Sold. At this point, the cost has finally been transferred to the Income Statement. The costs have no more future value. (Note: Just as in Job-Order Costing, the revenue earned from the units sold would also typically be recorded when the goods are sold.) (LO 4-2)
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Learning Objective 4-3 – Prepare a table of equivalent units under weighted-average process costing.
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Learning Objective 4-3. Prepare a table of equivalent units under weighted-average process costing.
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Equivalent Units: A Key Concept
By definition, units in work-in-process inventory at both the beginning and end of the period are only partially complete (finished units are transferred out).
Equivalent units is a concept expressing these partially completed units.
Equivalent units refers to the amount of manufacturing activity that has been applied to a batch of physical units.
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The term equivalent units is used in process costing to refer to the amount of manufacturing activity that has been applied to a batch of physical units. (LO 4-3)
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Equivalent Units Example
Two half completed products are equivalent to one completed product.
So, 10,000 units that are 70% complete
are equivalent to 7,000 complete units.
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l
+
=
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For example, two units which are 50 percent complete are equivalent to one unit that is 100 percent complete. Likewise, 10,000 units that are 70 percent complete is 7,000 equivalent units. (LO 4-3)
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For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30% 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
Equivalent Units Question 1
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Jones started 15,000 units and transferred 10,000 units to finished goods. The remaining 5,000 units were 30 percent complete. How many equivalent units did Jones have for the period? (LO 4-3)
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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 × .30)
= 11,500 equivalent units
Equivalent Units Question 1 (Solved)
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The 5,000 units that are 30 percent complete are equivalent to 1,500 units. Add that to the 10,000 units that are 100 percent complete for a total of 11,500 equivalent units. (LO 4-3)
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Jones incurred $27,600 in production costs for the 11,500 equivalent units. What was Jones’s cost per equivalent unit for the period?
a. $1.84
b. $2.76
c. $2.40
d. $2.90
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Equivalent Units Question 2
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The production costs incurred for the period were $27,600. What is the cost per equivalent unit? (LO 4-3)
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Jones incurred $27,600 in production costs for the 11,500 equivalent units. What was Jones’s cost per equivalent unit for the period?
a. $1.84
b. $2.76
c. $2.40
d. $2.90
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Equivalent Units Question 2 (Solved)
$27,600 ÷ 11,500 equivalent units
= $2.40 per equivalent unit
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The production costs are divided by the number of equivalent units to arrive at the cost per equivalent unit. (LO 4-3)
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Calculating and Using Equivalent Units of Production
To calculate the direct materials and conversion costs per equivalent unit for the period:
Materials cost per equivalent
unit
=
Materials cost for the period
Materials equivalent units for the period
Conversion cost per equivalent
unit
=
Conversion cost for the period
Conversion equivalent units for the period
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Direct material is usually placed into production at the beginning of the production process. In contrast, direct labor and manufacturing overhead, called conversion costs, usually are incurred uniformly throughout the process. When an accounting period ends, the partially completed goods that remain in process generally are at different stages of completion with respect to material and conversion activity. The most important feature of process costing is that the costs of direct material and conversion are assigned to equivalent units rather than to physical units. (LO 4-3)
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Departmental Production Report
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Production
Report
Analysis of
physical flow
of units
Calculation
of equivalent
units
Computation
of unit costs
Analysis of
total costs
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The key document in a typical process-costing system is the departmental production report, prepared for each production department at the end of each accounting period. The departmental production report summarizes the flow of production quantities through the department, and it shows the amount of production cost transferred out of the department’s Work-in-Process Inventory account during the period. There are four steps used in preparing a departmental production report:
1. Analysis of physical flow of units.
2. Calculation of equivalent units.
3. Computation of unit costs.
4. Analysis of total costs.
(LO 4-3)
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Equivalent Units of Production –
Weighted-Average Method
The weighted-average method . . .
- Makes no distinction between work done in the prior period and work done in the current period.
- Blends together units and costs from the prior period and the current period.
- The FIFO method is a more complex method and is rarely used in practice.
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The method of process costing that we will focus on in this chapter is called the weighted-average method. This method is almost always used in practice by companies using process costing. There is another process-costing method called the first-in, first-out, or FIFO, method. (LO 4-3)
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Production Report Example (1 of 2)
- MVP Sports Equipment Company makes baseball gloves in two departments, Cutting and Stitching.
- MVP uses the weighted-average process costing.
- Material is added at the beginning of the Cutting Department, while conversion is incurred uniformly throughout the process.
- Using the following information for the month of March, let’s prepare a production report for the Cutting Department.
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The MVP Sports Equipment Company manufactures baseball gloves. Two production departments are used in sequence: the Cutting Department and the Stitching Department. In the Cutting Department, direct material is placed into production at the beginning of the process. Direct-labor and manufacturing overhead costs are incurred uniformly throughout the process. The predetermined overhead rate used in the Cutting Department is 125 percent of direct-labor cost. (LO 4-3)
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Production Report Example (2 of 2)
Work in process, March 1: 20,000 units Cost
Materials: 100% complete $ 50,000
Conversion: 10% complete 7,200
Units started into production in March: 30,000 units
Units completed and transferred out in March: 40,000 units
Work in process, March 31: 10,000 units
Materials 100% complete
Conversion 50% complete
Costs incurred during March
Materials cost 90,000
Conversion costs:
Direct labor $ 86,000
Applied manufacturing overhead 107,500
Total conversion costs 193,500
Total costs to account for $ 340,700
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This slide presents a summary of the activity and costs in the Cutting Department during March. The direct-material and conversion costs for the March 1 work in process consist of costs that were incurred during February. These costs were assigned to the units remaining in process at the end of February. Materials costs of $90,000 and conversion costs of $193,500 were added during the month of March. The beginning work in process and the costs added during March equal the total costs to be accounted for. (LO 4-3)
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- Analysis of Physical Flow of Units
Production Report Example – Units Accounted For
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The first step is to prepare a table summarizing the physical flow of production units during March. (LO 4-3)
Sheet1
| Physical | ||
| Units | ||
| Work in process, March 1 | 20,000 | |
| Units started during March | 30,000 | |
| Total units to account for | 50,000 | |
| Units completed and transferred out during March | 40,000 | |
| Work in process, March 31 | 10,000 | |
| Total units accounted for | 50,000 |
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Production Report Example – Equivalent Units (1 of 2)
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- Calculation of Equivalent Units
50% of 10,000 units
Beginning inventory % is not used in weighted-average method.
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The second step is to calculate the equivalent units of direct material and conversion activity. The table of equivalent units, displayed on this slide, is based on the table of physical flows prepared in Step 1. The Cutting Department completed its work on 40,000 physical units. Thus, it represents 40,000 equivalent units for both direct material and conversion. The 10,000 units in the Cutting Department’s ending work-in-process inventory are 50 percent complete with respect to conversion. Therefore, the ending work-in-process inventory represents 5,000 equivalent units of conversion activity (10,000 physical units x 50% complete). (LO 4-3)
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Conversion
Equivalent Units
Physical
Percentage
Direct
Units
Complete
Material
Conversion
Work in process, March 1
20000.0
0.1
Units started during March
30000.0
Total units to account for
50000.0
Units completed and transferred
40000.0
1.0
40000.0
40000.0
Work in process, March 31
10000.0
0.5
10000.0
5000.0
Total units accounted for
50000.0
Total equivalent units
50000.0
45000.0
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Production Report Example - Equivalent Units (2 of 2)
100% of 10,000 units, all
material added at beginning
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- Calculation of Equivalent Units
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With respect to direct material, the 10,000 units in the Cutting Department’s ending work-in-process inventory are 100 percent complete. Therefore, the ending work-in-process inventory represents 10,000 equivalent units of direct material. (LO 4-3)
Sheet1
| Conversion | Equivalent Units | |||||||
| Physical | Percentage | Direct | ||||||
| Units | Complete | Material | Conversion | |||||
| Work in process, March 1 | 20,000 | 10% | ||||||
| Units started during March | 30,000 | |||||||
| Total units to account for | 50,000 | |||||||
| Units completed and transferred | 40,000 | 100% | 40,000 | 40,000 | ||||
| Work in process, March 31 | 10,000 | 50% | 10,000 | 5,000 | ||||
| Total units accounted for | 50,000 | |||||||
| Total equivalent units | 50,000 | 45,000 |
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Learning Objective 4-4 – Compute the cost per equivalent unit under the weighted-average method of process costing.
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Learning Objective 4-4. Compute the cost per equivalent unit under the weighted-average method of process costing.
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Computation of Unit Costs
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$140,000 ÷ 50,000 equivalent units
$200,700 ÷ 45,000 equivalent units
$2.80 + $4.46
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The third step in the process-costing procedure is calculating the cost per equivalent unit for both direct material and conversion activity. The cost per equivalent unit for direct material is computed by dividing the total direct-material cost, including the cost of the beginning work in process and the cost incurred during March, by the total equivalent units (from Step 2). The same procedure is used for conversion costs. (LO 4-4)
Sheet1
| Direct | |||||||
| Material | Conversion | Total | |||||
| Work in Process, March 1 | $ 50,000 | $ 7,200 | $ 57,200 | ||||
| Costs incurred during March | 90,000 | 193,500 | 283,500 | ||||
| Total costs to account for | $ 140,000 | $ 200,700 | $ 340,700 | ||||
| Equivalent units | 50,000 | 45,000 | |||||
| Cost per equivalent unit | $ 2.80 | $ 4.46 | $ 7.26 |
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Learning Objective 4-5 – Analyze the total production costs for a department under the weighted-average method of process costing.
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Learning Objective 4-5. Analyze the total production costs for a department under the weighted-average method of process costing.
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Production Report Example – Total Costs (1 of 2)
Analysis of total costs
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The final step is to determine the total cost to be transferred out of the Cutting Department’s Work-in-Process Inventory account and into the Stitching Department’s Work-in-Process Inventory account. The cost per equivalent unit, $7.26, was calculated in step 3. The number of units transferred is multiplied by the total cost per equivalent unit. (LO 4-5)
Sheet1
| Cost of goods completed and transferred during March | Cost of goods completed and transferred during March | Cost of goods completed and transferred during March | |||||||||||||||||||||||
| 40,000 units x $7.26 per equivalent unit | $ 290,400 | 40,000 units × $7.26 per equivalent unit | $ 290,400 | 40,000 units x $7.26 per equivalent unit | $ 290,400 | ||||||||||||||||||||
| Costs remaining in work-in-process on March 31 | Costs remaining in work-in-process on March 31 | Costs remaining in work-in-process on March 31 | |||||||||||||||||||||||
| Direct Material: | Direct Material: | Direct Material: | |||||||||||||||||||||||
| 10,000 equivalent units x $2.80 per equivalent unit | $ 28,000 | 10,000 equivalent units × $2.80 per equivalent unit | $ 28,000 | 10,000 equivalent units x $2.80 per equivalent unit | $ 28,000 | ||||||||||||||||||||
| Convserion: | Conversion: | Convserion: | |||||||||||||||||||||||
| 5,000 equivalent units x $4.46 per equivalent unit | 22,300 | 5,000 equivalent units × $4.46 per equivalent unit | 22,300 | 5,000 equivalent units x $4.46 per equivalent unit | 22,300 | ||||||||||||||||||||
| Total cost of March 31 work-in-process | 50,300 | Total cost of March 31 work-in-process | 50,300 | Total cost of March 31 work-in-process | 50,300 | ||||||||||||||||||||
| Total costs accounted for | $ 340,700 | Total costs accounted for | $ 340,700 | Total costs accounted for | $ 340,700 |
Sheet2
Sheet3
Cost of goods completed and transferred during March
40,000 units × $7.26 per equivalent unit290,400$
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units × $2.80 per equivalent unit28,000$
Conversion:
5,000 equivalent units × $4.46 per equivalent unit22,300
Total cost of March 31 work in process50,300
Total costs accounted for340,700$
MBD000EA94A.xls
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Cost of goods completed and transferred during March
40,000 units × $7.26 per equivalent unit
290400.0
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units × $2.80 per equivalent unit
28000.0
Conversion:
5,000 equivalent units × $4.46 per equivalent unit
22300.0
Total cost of March 31 work in process
50300.0
Total costs accounted for
340700.0
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Production Report Example – Total Costs (2 of 2)
Analysis of total costs
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The direct material equivalent units is multiplied by the direct materials cost per equivalent unit. The conversion equivalent units is multiplied by the conversion cost per equivalent unit. These two amounts are added together. (LO 4-5)
Sheet1
| Cost of goods completed and transferred during March | Cost of goods completed and transferred during March | Cost of goods completed and transferred during March | |||||||||||||||||||||||
| 40,000 units x $7.26 per equivalent unit | $ 290,400 | 40,000 units x $7.26 per equivalent unit | $ 290,400 | 40,000 units × $7.26 per equivalent unit | $ 290,400 | ||||||||||||||||||||
| Costs remaining in work-in-process on March 31 | Costs remaining in work-in-process on March 31 | Costs remaining in work-in-process on March 31 | |||||||||||||||||||||||
| Direct Material: | Direct Material: | Direct Material: | |||||||||||||||||||||||
| 10,000 equivalent units x $2.80 per equivalent unit | $ 28,000 | 10,000 equivalent units x $2.80 per equivalent unit | $ 28,000 | 10,000 equivalent units × $2.80 per equivalent unit | $ 28,000 | ||||||||||||||||||||
| Convserion: | Convserion: | Conversion: | |||||||||||||||||||||||
| 5,000 equivalent units x $4.46 per equivalent unit | 22,300 | 5,000 equivalent units x $4.46 per equivalent unit | 22,300 | 5,000 equivalent units × $4.46 per equivalent unit | 22,300 | ||||||||||||||||||||
| Total cost of March 31 work-in-process | 50,300 | Total cost of March 31 work-in-process | 50,300 | Total cost of March 31 work-in-process | 50,300 | ||||||||||||||||||||
| Total costs accounted for | $ 340,700 | Total costs accounted for | $ 340,700 | Total costs accounted for | $ 340,700 |
Sheet2
Sheet3
Cost of goods completed and transferred during March
40,000 units × $7.26 per equivalent unit290,400$
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units × $2.80 per equivalent unit28,000$
Conversion:
5,000 equivalent units × $4.46 per equivalent unit22,300
Total cost of March 31 work in process50,300
Total costs accounted for340,700$
MBD000EA94A.xls
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Cost of goods completed and transferred during March
40,000 units × $7.26 per equivalent unit
290400.0
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units × $2.80 per equivalent unit
28000.0
Conversion:
5,000 equivalent units × $4.46 per equivalent unit
22300.0
Total cost of March 31 work in process
50300.0
Total costs accounted for
340700.0
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Production Report Example – Costs Accounted For
Analysis of total costs
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All costs
accounted for
*
The sum of these costs is added to the cost of goods completed and transferred. Now all costs on the production report have been accounted for. These calculations are used as the basis for the journal entries to transfer the cost of goods completed and transferred out to the Stitching Department. (LO 4-5)
Sheet1
| Cost of goods completed and transferred during March | Cost of goods completed and transferred during March | Cost of goods completed and transferred during March | |||||||||||||||||||||||
| 40,000 units x $7.26 per equivalent unit | $ 290,400 | 40,000 units x $7.26 per equivalent unit | $ 290,400 | 40,000 units × $7.26 per equivalent unit | $ 290,400 | ||||||||||||||||||||
| Costs remaining in work-in-process on March 31 | Costs remaining in work-in-process on March 31 | Costs remaining in work-in-process on March 31 | |||||||||||||||||||||||
| Direct Material: | Direct Material: | Direct Material: | |||||||||||||||||||||||
| 10,000 equivalent units x $2.80 per equivalent unit | $ 28,000 | 10,000 equivalent units x $2.80 per equivalent unit | $ 28,000 | 10,000 equivalent units × $2.80 per equivalent unit | $ 28,000 | ||||||||||||||||||||
| Convserion: | Convserion: | Conversion: | |||||||||||||||||||||||
| 5,000 equivalent units x $4.46 per equivalent unit | 22,300 | 5,000 equivalent units x $4.46 per equivalent unit | 22,300 | 5,000 equivalent units × $4.46 per equivalent unit | 22,300 | ||||||||||||||||||||
| Total cost of March 31 work-in-process | 50,300 | Total cost of March 31 work-in-process | 50,300 | Total cost of March 31 work-in-process | 50,300 | ||||||||||||||||||||
| Total costs accounted for | $ 340,700 | Total costs accounted for | $ 340,700 | Total costs accounted for | $ 340,700 |
Sheet2
Sheet3
Cost of goods completed and transferred during March
40,000 units × $7.26 per equivalent unit290,400$
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units × $2.80 per equivalent unit28,000$
Conversion:
5,000 equivalent units × $4.46 per equivalent unit22,300
Total cost of March 31 work in process50,300
Total costs accounted for340,700$
MBD000EA94A.xls
Sheet: Sheet1
Sheet: Sheet2
Sheet: Sheet3
Sheet: Sheet4
Sheet: Sheet5
Sheet: Sheet6
Sheet: Sheet7
Sheet: Sheet8
Sheet: Sheet9
Sheet: Sheet10
Sheet: Sheet11
Sheet: Sheet12
Sheet: Sheet13
Sheet: Sheet14
Sheet: Sheet15
Sheet: Sheet16
Cost of goods completed and transferred during March
40,000 units × $7.26 per equivalent unit
290400.0
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units × $2.80 per equivalent unit
28000.0
Conversion:
5,000 equivalent units × $4.46 per equivalent unit
22300.0
Total cost of March 31 work in process
50300.0
Total costs accounted for
340700.0
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Learning Objective 4-6 – Prepare a departmental production report under weighted-average process costing.
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4-*
*
Learning Objective 4-6. Prepare a departmental production report under weighted-average process costing.
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
4-*
MVP Sports Equipment Report Example
*
We have now completed all four steps necessary to prepare a production report. The report simply combines the tables prepared in Learning Objectives 3, 4, and 5. The report provides a convenient summary of all of the process-costing calculations made under the weighted-average method. This method is called the weighted-average method because the cost per equivalent unit, for both direct material and conversion activity, is computed as a weighted average of the costs incurred during two different accounting periods. (LO 4-6)
Sheet1
| Managerial Accounting | Financial Accounting | |
| Users of Information | Managers, within the organization. | Interested parties, outside the organization. |
| Regulation | Not required and unregulated, since it is intended only for management. | Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission. |
| Source of Data | The organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delays | Almost exclusively drawn from the organization's basic accounting system, which accumulates financial information. |
| Nature of Reports and Procedures | Reports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events. | Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data. |
Sheet2
| One Production Department | |||||||||||||||||||||||
| Work-in-Process | Finished Goods | ||||||||||||||||||||||
| Inventory | Inventory | Cost of Goods Sold | |||||||||||||||||||||
| Direct material | Cost of goods completed | Cost of goods sold | |||||||||||||||||||||
| Direct labor | Two Sequential Production Departments | ||||||||||||||||||||||
| Applied manufacturing | and transferred to | Work-in-Process Inventory | Work-in-Process Inventory | ||||||||||||||||||||
| overhead | finished goods | Production Department A | Production Department B | ||||||||||||||||||||
| Direct material | Cost of goods completed in department A and | Cost of goods completed | |||||||||||||||||||||
| Direct labor | |||||||||||||||||||||||
| Applied manufacturing | transferred to | and transferred to | |||||||||||||||||||||
| overhead | department B | finished goods | |||||||||||||||||||||
| Direct material | |||||||||||||||||||||||
| Direct labor | |||||||||||||||||||||||
| Applied manufacturing | |||||||||||||||||||||||
| overhead | |||||||||||||||||||||||
| Finished Goods Inventory | Cost of Goods Sold | ||||||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| during current period | |||||||||||||||||||||||
| One Production Department | |||||||||||||||||||||||
| Work-in-Process Inventory | Finished Goods Inventory | ||||||||||||||||||||||
| Direct material | Cost of goods completed | Cost of goods completed | |||||||||||||||||||||
| Direct labor | |||||||||||||||||||||||
| Applied manufacturing | and transferred to | and transferred to | |||||||||||||||||||||
| overhead | Finished goods | finished goods | |||||||||||||||||||||
| Direct material | |||||||||||||||||||||||
| Direct labor | |||||||||||||||||||||||
| Applied manufacturing | |||||||||||||||||||||||
| overhead |
Sheet6
| MVP SPORTS EQUIPMENT COMPANY | ||||||||
| Production Report: Cutting Department | ||||||||
| Percentage of | ||||||||
| Completion | Equivalent Units | |||||||
| Physical | with Respect to | Direct | ||||||
| Units | Conversion | Material | Conversion | |||||
| Work in process, March 1 | 20,000 | 10% | ||||||
| Units started during March | 30,000 | |||||||
| Total units to account for | 50,000 | |||||||
| Units completed and transferred | 40,000 | 100% | 40,000 | 40,000 | ||||
| Work in process, March 31 | 10,000 | 50% | 10,000 | 5,000 | ||||
| Total units accounted for | 50,000 | |||||||
| Total equivalent units | 50,000 | 45,000 | ||||||
| Direct | ||||||||
| Material | Conversion | Total | ||||||
| Work in Process, March 1 | $ 50,000 | $ 7,200 | $ 57,200 | |||||
| Costs incurred during March | 90,000 | 193,500 | 283,500 | |||||
| Total costs to account for | $ 140,000 | $ 200,700 | $ 340,700 | |||||
| Equivalent units | 50,000 | 45,000 | ||||||
| Cost per equivalent unit | $ 2.80 | $ 4.46 | $ 7.26 | |||||
| Cost of goods completed and transferred during March | ||||||||
| 40,000 units x $7.26 per equivalent unit | $ 290,400 | |||||||
| Costs remaining in work-in-process on March 31 | ||||||||
| Direct Material: | ||||||||
| 10,000 equivalent units x $2.80 per equivalent unit | $ 28,000 | |||||||
| Conversion: | ||||||||
| 5,000 equivalent units x $4.46 per equivalent unit | 22,300 | |||||||
| Total cost of March 31 work-in-process | 50,300 | |||||||
| Total costs accounted for | $ 340,700 |
Sheet3
| Cost of goods completed and transferred during March | Cost of goods completed and transferred during March | Cost of goods completed and transferred during March | |||||||||||||||||||||||
| 40,000 units x $7.26 per equivalent unit | $ 290,400 | 40,000 units x $7.26 per equivalent unit | $ 290,400 | 40,000 units x $7.26 per equivalent unit | $ 290,400 | ||||||||||||||||||||
| Costs remaining in work-in-process on March 31 | Costs remaining in work-in-process on March 31 | Costs remaining in work-in-process on March 31 | |||||||||||||||||||||||
| Direct Material: | Direct Material: | Direct Material: | |||||||||||||||||||||||
| 10,000 equivalent units x $2.80 per equivalent unit | $ 28,000 | 10,000 equivalent units x $2.80 per equivalent unit | $ 28,000 | 10,000 equivalent units x $2.80 per equivalent unit | $ 28,000 | ||||||||||||||||||||
| Convserion: | Convserion: | Convserion: | |||||||||||||||||||||||
| 5,000 equivalent units x $4.46 per equivalent unit | 22,300 | 5,000 equivalent units x $4.46 per equivalent unit | 22,300 | 5,000 equivalent units x $4.46 per equivalent unit | 22,300 | ||||||||||||||||||||
| Total cost of March 31 work-in-process | 50,300 | Total cost of March 31 work-in-process | 50,300 | Total cost of March 31 work-in-process | 50,300 | ||||||||||||||||||||
| Total costs accounted for | $ 340,700 | Total costs accounted for | $ 340,700 | Total costs accounted for | $ 340,700 | ||||||||||||||||||||
| Cost of goods completed and transferred out of Stitching Dept. during March | |||||||||||||||||||||||||
| 30,000 units x $12.228 per equivalent unit | $ 366,840 | ||||||||||||||||||||||||
| Costs remaining in work-in-process in Stitching Dept. on March 31 | |||||||||||||||||||||||||
| Direct Material: | |||||||||||||||||||||||||
| 20,000 equivalent units x $7.028 per equivalent unit | $ 140,560 | ||||||||||||||||||||||||
| Convserion: | |||||||||||||||||||||||||
| 18,000 equivalent units x $4.95 per equivalent unit | 89,100 | ||||||||||||||||||||||||
| Total cost of March 31 work-in-process | 229,660 | ||||||||||||||||||||||||
| Total costs accounted for | $ 596,500 |
Sheet4
| Conversion | ||||||||||||||
| Physical | Physical | Percentage | Transferred | Direct | ||||||||||
| Units | Units | Completion | In | Material | Conversion | |||||||||
| Work in process, March 1 | 10,000 | Work in process, March 1 | 10,000 | 20% | ||||||||||
| Units transferred in during March | 40,000 | Units transferred in during March | 40,000 | |||||||||||
| Total units to account for | 50,000 | Total units to account for | 50,000 | |||||||||||
| Units completed and transferred out during March | 30,000 | Units completed and transferred out during March | 30,000 | 30,000 | 30,000 | 30,000 | ||||||||
| Work in process, March 31 | 20,000 | Work in process, March 31 | 20,000 | 90% | 20,000 | -0- | 18,000 | |||||||
| Total units accounted for | 50,000 | Total units accounted for | 50,000 | |||||||||||
| Total equivalent units | 50,000 | 30,000 | 48,000 | |||||||||||
| Physical | ||||||||||||||
| Units | ||||||||||||||
| Work in process, March 1 | 10,000 | |||||||||||||
| Units transferred in during March | 40,000 | |||||||||||||
| Total units to account for | 50,000 | |||||||||||||
| Units completed and transferred out during March | 30,000 | |||||||||||||
| Work in process, March 31 | 20,000 | |||||||||||||
| Total units accounted for | 50,000 |
Sheet5
| Work-in-Process Inventory: | Work-in-Process Inventory: | ||||||||||||||||||
| Transferred | Direct | Cutting Department | Stitching Department | ||||||||||||||||
| In | Material | Conversion | Total | Direct material | Cost of goods | Transferred- | |||||||||||||
| completed and | in costs | ||||||||||||||||||
| Work in Process, March 1 | $ 61,000 | -0- | $ 7,600 | $ 68,600 | Conversion: | transferred out | |||||||||||||
| Costs incurred during March | 290,400 | $ 7,500 | 230,000 | 527,900 | Direct labor | Direct material | |||||||||||||
| Total costs to account for | $ 351,400 | $ 7,500 | $ 237,600 | $ 596,500 | Manufacturing | ||||||||||||||
| overhead | Conversion: | ||||||||||||||||||
| Equivalent units | 50,000 | 30,000 | 48,000 | Direct labor | |||||||||||||||
| Cost per equivalent unit | $ 7.028 | $ 0.25 | $ 4.95 | $ 12.228 | Manufacturing | ||||||||||||||
| overhead | |||||||||||||||||||
| $351,400 | $7,500 | $237,600 | $ 7.028 | ||||||||||||||||
| 50,000 | 30,000 | 48,000 | + $.25 | ||||||||||||||||
| + $4.95 |
Cost of goods completed and transferred during March
40,000 units × $7.26 per equivalent unit290,400$
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units × $2.80 per equivalent unit28,000$
Conversion:
5,000 equivalent units × $4.46 per equivalent unit22,300
Total cost of March 31 work in process50,300
Total costs accounted for340,700$
MBD000FE9F8.xls
Sheet1
| Cost of goods completed and transferred during March | |||
| 40,000 units × $7.26 per equivalent unit | $ 290,400 | ||
| Costs remaining in work-in-process on March 31 | |||
| Direct Material: | |||
| 10,000 equivalent units × $2.80 per equivalent unit | $ 28,000 | ||
| Conversion: | |||
| 5,000 equivalent units × $4.46 per equivalent unit | 22,300 | ||
| Total cost of March 31 work in process | 50,300 | ||
| Total costs accounted for | $ 340,700 |
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Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Manufacturing overhead is applied
to Work-in-Process Inventory using a predetermined overhead rate
Actual costs of manufacturing overhead are entered in Work-in-Process Inventory
4-*
Actual vs. Normal Costing
*
Both actual and normal costing can be used in conjunction with a process costing system. Our illustration used a predetermined overhead rate based on direct-labor cost, which is normal costing. (LO 4-6)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Departmental Production Report
Analysis of
physical flow
of units
4-*
Calculation
of equivalent
units
Computation
of unit costs
Analysis of
total costs
*
The four-step process is summarized on this slide. In our illustration, production requires two sequential production operations: cutting and stitching. Although the process-costing procedures for the second department are similar to those illustrated for the first, there is one additional complication. The cost of goods completed and transferred out of the Cutting Department must remain assigned to the partially completed product units as they undergo further processing in the Stitching Department. Note that process-costing procedures for subsequent production departments are covered in the appendix at the end of this chapter, which may be studied now. (LO 4-6)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Learning Objective 4-7 – Describe how an operation costing system accumulates and assigns the costs of direct-material and conversion activity in a batch manufacturing process.
4-*
*
Learning Objective 4-7. Describe how an operation costing system accumulates and assigns the costs of direct-material and conversion activity in a batch manufacturing process.
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Operation Costing (1 of 2)
Operation costing employs some aspects
of both job-order and process costing.
Job-order Operation Costing Process
Costing (Products produced in batches) Costing
4-*
*
Job-order and process costing represent the polar extremes of product-costing systems. But some production processes exhibit characteristics of both job-order and process costing environments. These production processes often are referred to as batch manufacturing processes. Such processes are characterized by high-volume production of several product lines that differ in some important ways but are nearly identical in others. Since batch manufacturing operations have characteristics of both job-order costing and process-costing environments, a hybrid product-costing system is required. One common approach is called operation costing. (LO 4-7)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Operation Costing (2 of 2)
Operation costing employs some aspects
of both job-order and process costing.
Job-order Operation Costing Process
Costing (Products produced in batches) Costing
4-*
Conversion costs
are assigned to batches
as in process costing.
Material costs are charged
to batches as in
job-order costing.
*
This product-costing system is used when conversion activities are very similar across product lines, but the direct materials differ significantly. Conversion costs are accumulated by department, and process costing methods are used to assign these costs to products. In contrast, direct-material costs are accumulated by job order or batch, and job-order costing is used to assign material costs to products. (LO 4-7)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without prior written consent of McGraw-Hill Education.
End Chapter 4
4-*
*
Physical
Units
Work in process, March 120,000
Units started during March30,000
Total units to account for50,000
Units completed and transferred out during March40,000
Work in process, March 3110,000
Total units accounted for50,000
Conversion
Equivalent Units
Physical
Percentage
Direct
Units
Complete
Material
Conversion
Work in process, March 1
20,000
10%
Units started during March
30,000
Total units to account for
50,000
Units completed and transferred
40,000
100%
40,000
40,000
Work in process, March 31
10,000
50%
10,000
5,000
Total units accounted for
50,000
Total equivalent units
50,000
45,000
ConversionEquivalent Units
PhysicalPercentageDirect
UnitsCompleteMaterialConversion
Work in process, March 120,000 10%
Units started during March30,000
Total units to account for50,000
Units completed and transferred40,000 100%40,000 40,000
Work in process, March 3110,000 50%10,000 5,000
Total units accounted for50,000
Total equivalent units50,000 45,000
Direct
MaterialConversionTotal
Work in Process, March 150,000$ 7,200$ 57,200$
Costs incurred during March90,000 193,500 283,500
Total costs to account for140,000$ 200,700$ 340,700$
Equivalent units50,000 45,000
Cost per equivalent unit2.80$ 4.46$ 7.26$
Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit 290,400$
Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit 28,000$
Conversion: 5,000 equivalent units × $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$
Cost of goods completed and transferred during March
40,000 units × $7.26 per equivalent unit 290,400$
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units × $2.80 per equivalent unit28,000$
Conversion:
5,000 equivalent units × $4.46 per equivalent unit22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$
Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit 290,400$
Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit 28,000$
Conversion: 5,000 equivalent units × $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$
Cost of goods completed and transferred during March
40,000 units × $7.26 per equivalent unit 290,400$
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units × $2.80 per equivalent unit28,000$
Conversion:
5,000 equivalent units × $4.46 per equivalent unit22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$
Cost of goods completed and transferred during March 40,000 units × $7.26 per equivalent unit 290,400$
Costs remaining in work-in-process on March 31 Direct Material: 10,000 equivalent units × $2.80 per equivalent unit 28,000$
Conversion: 5,000 equivalent units × $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$
Cost of goods completed and transferred during March
40,000 units × $7.26 per equivalent unit 290,400$
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units × $2.80 per equivalent unit28,000$
Conversion:
5,000 equivalent units × $4.46 per equivalent unit22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for 340,700$
Percentage of
CompletionEquivalent Units
Physicalwith Respect toDirect
UnitsConversionMaterialConversion
Work in process, March 120,000 10%
Units started during March30,000
Total units to account for50,000
Units completed and transferred40,000 100%40,000 40,000
Work in process, March 3110,000 50%10,000 5,000
Total units accounted for50,000
Total equivalent units50,000 45,000
Direct
MaterialConversionTotal
Work in Process, March 150,000$ 7,200$ 57,200$
Costs incurred during March90,000 193,500 283,500
Total costs to account for140,000$ 200,700$ 340,700$
Equivalent units50,000 45,000
Cost per equivalent unit2.80$ 4.46$ 7.26$
Cost of goods completed and transferred during March
40,000 units x $7.26 per equivalent unit290,400$
Costs remaining in work-in-process on March 31
Direct Material:
10,000 equivalent units x $2.80 per equivalent unit28,000$
Conversion:
5,000 equivalent units x $4.46 per equivalent unit22,300
Total cost of March 31 work-in-process50,300
Total costs accounted for340,700$
MVP SPORTS EQUIPMENT COMPANY
Production Report: Cutting Department
