job costing and process costing problems
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ise304.01-132-lec19-ch08-processcosting.pdf
Product Costing Systems
Job Costing
An accounting
system that
traces costs to
individual units or
to specific jobs,
or batches of
goods.
Process Costing
An accounting
system used
when identical
units are
produced
through a series
of uniform
production steps.
Custom Homes
Services
Cornflakes
Paint
Recap of what we covered past class
Process Costing
Lecture 19
Chapter 8 * Modified from PPT slides of McGraw-Hill/Irwin
Job versus Process costing
Direct Materials,
Direct Labor, and
Factory Overhead
Job 121
Job 122
Job 123
Finished
Goods
Cost of
Goods
Sold
Direct Materials,
Direct Labor, and
Factory Overhead
Process A
Process B
Process C Finished
Goods
Cost of
Goods
Sold
Job Costing
Process Costing
Overview:
1. Explain the concept and purpose of equivalent units.
2. Assign costs to products using a five-step process.
3. Assign costs to products using weighted-average costing.
5. Prepare and analyze a production cost report.
4. Assign costs to products using first-in, first-out (FIFO) costing.
6. Analyze the accounting choice between FIFO and weighted- average costing.
Equivalent Units
When manufacturing a product using a
continuous process we assume all units
have the same costs.
Some units are not
completed
Equivalent units
Problem:
Answer:
Equivalent Units, Continued. . .
Number of complete physical units to which units in inventories are
equal in terms of work done to date.
Equivalent Units (EqU)
Number of units
in process
=x3
x
.65 1.95 EqU
Average Completion of 65%
.3 + =
.75 +
.9
Average Can is 65% Complete
3
EqU =
Assumptions about Costs in WIP
How do we account for beginning balance and current period
activities and costs?
Two Methods:
weighted average
First-in, First-out (FIFO)
What are
the costs? Where are the
costs at the end
of the period?
BB TI TO EB
Assumptions about Costs in WIP
Current Period Beginning Balance
Current Period Prior Period
An inventory method that for product costing
purposes combines costs and equivalent units of a
period with the cost and equivalent units in
beginning inventory.
Unit costs are a weighted average
weighted
average
Assumptions about Costs in WIP, Continued. . .
An inventory method whereby the first
goods received are the first ones
charged out when sold or transferred.
We assume units from last period are
completed and transferred out first.
Prior Period Current Period then
First-in, First-out (FIFO)
Product Costing in a Process Industry
Five steps to Costing a Product
1. Measure the physical flow of resources.
2. Compute the equivalent units of production.
3. Identify the product costs for which to account.
4. Compute the costs per equivalent unit.
5. Assign product cost to batches of work.
Example: Process Costing – Torrance Tape (2T)
Torrance Tape – Compounding Department
Units
Materials
Costs
Conversion
Costs
WIP March 1 20,000a $16,160 $8,126
March activity 92,000 84,640 213,634
Total 112,000 $100,800 $221,760
96,000Transferred out
WIP March 31 16,000b
Total 112,000
a 25% complete with respect to conversion costs.
b 30% complete with respect to conversion costs.
Note: All materials are
added at the
beginning of the
process.
Process Costing: Weighted Average (5 steps)
1. Measure the physical flow of resources.
2. Compute the equivalent units of production.
3. Identify the product costs for which to account.
4. Compute the costs per equivalent unit.
5. Assign product cost to batches of work.
Use the five step process:
Weighted Average
Step 1: Measure the Physical Flow of Resources
BB + Units
Started =
Units
Transferred Out EB+
20,000a + 92,000
112,000
= 96,000 + 16,000b
112,000
a 25% complete with respect to conversion costs.
b 30% complete with respect to conversion costs.
Step 2: Compute the Equivalent Units of Production
96,000Transferred out 96,000 96,000
Work in process,
March 31 16,000 16,000 a 4,800b
Equivalent units 112,000 100,800
Physical
Units Materials Conversion
Equivalent Units
a 16,000 units x 100% (all materials added in beginning)
b 16,000 units x 30%
Step 3: Identify Costs for which to Account
Total
Costs
Materials
Costs
Conversion
Costs
WIP March 1
March costs
Total $322,560 $100,800 $221,760
$24,286 $16,160 $8,126
298,274 84,640 213,634
Step 4: Compute the Cost per Equivalent Unit
112,000 100,800Total EqU (Step 2)
Total costs (Step 3) $322,560 $100,800 $221,760
$0.90 $2.20Cost per EqU
Total
Costs
Materials
Costs
Conversion
Costs
Step 5: Assign Product Cost to Batches of Work
Total Materials Conversion
Transferred out
$0.90 $2.20Cost per EqU (Step 4)
96,000 96,000EqU (Step 2)
$297,600 $86,400 $211,200Costs transferred out
WIP, March 31
$0.90 $2.20Cost per EqU (Step 4)
16,000 4,800EqU (Step 2)
24,960Costs WIP, March 31 $14,400 $10,560
$322,560Total cost assigned $100,800 $221,760
Assumptions about Costs in WIP, Continued. . .
We assume units from last period are
completed and transferred out first.
First-in, First-out (FIFO)
Prior Period Current Period then
Assigning Costs using FIFO
1. Measure the physical flow of resources.
2. Compute the equivalent units of production (using FIFO).
3. Identify the product costs for which to account (using FIFO).
4. Compute the costs per equivalent unit.
5. Assign product cost to batches of work.
Use the five step process:
Step 1: Measure the Physical Flow of Resources
Exactly the same as weighted average.
BB + Units
Started =
Units
Transferred Out EB+
20,000a + 92,000
112,000
= 96,000 + 16,000b
112,000
a 25% complete with respect to conversion costs.
b 30% complete with respect to conversion costs.
Step 2: Compute the Equivalent Units of Production
16,000c 4,800d
Materials Conversion Physical
Units
Equivalent Units
-0-a 15,000b
Transferred out
WIP March 31st
Equivalent units
From WIP March 1st
Units started and completed in March
96,000
16,000
20,000
76,000 76,000 76,000
c 16,000 units x 100% d 16,000 units x 30%
a 20,000 units x 0% b 20,000 units x 75%
92,000 95,800
Step 3: Identify Cost for which to Account
Total
Costs
Materials
Costs
Conversion
Costs
WIP March 1
March costs
Total $322,560 $100,800 $221,760
$24,286 $16,160 $8,126
298,274 84,640 213,634
Step 4: Compute the Cost per Equivalent Unit
Total Materials Conversion
$84,640 $213,634$298,274March costs
92,000 95,800Equivalent units (Step 2)
$0.92 $2.23Cost per equivalent unit
Step 5: Assign Product Cost to Batches of Work
Total Materials ConversionTransferred out
Units in WIP March 1st
Complete beginning WIP
$24,286 $16,160 $8,126Prior period costs
EU (Step 2) [A] -0- 15,000
$0.92 $2.23Cost per EU (Step 4) [B]
Cost to complete
beginning WIP [A x B] 33,450 -0- 33,450
Units started and completed in March
$0.92 $2.23Cost per EU [B]
Cost of units started,
completed and transferred
out [B x C]
239,400 69,920 169,480
$86,080 $211,056Total cost of units transferred
out
$297,136
76,000 76,000 76,000Number of units [C]
Step 5: Assign Product Cost to Batches of Work, Continued. . .
Total Materials Conversion
WIP, March 31st
$0.92 $2.23Cost per EU (Step 4)
16,000 4,800EU (Step 2)
25,424Costs WIP, March 31st $14,720 $10,704
$322,560Total cost assigned $100,800 $221,760
Transferred out* $86,080* $211,056*$297,136*
The Production Cost Report
A report that summarizes production and
costs for a period
Used by managers to
monitor production and
cost flows
Production cost report
Why?
BB + Units
Started =
Units
Transferred Out EB+
Total units/costs to
be accounted for
Total units/costs
accounted for
The Production Cost Report
The Production Cost Report
Month Ending May 31
Blending Department
Materials ConversionPhysicalUnits to be accounted for
Units accounted for
WIP beginning inventory 20,000
Completed & transf. out 96,000 96,000 96,000
Total units to account for 112,000
a 16,000 units x 100% b 16,000 units x 30%
Units started in this period 92,000
WIP ending inventory 16,000 16,000a 4,800b
Total units accounted for 112,000 112,000 100,800
Units Equivalent Units
Weighted Average
The Production Cost Report
Costs accounted for
Costs assigned to units transferred out 297,600 86,400e 211,200f
Costs assigned to WIP ending inventory 24,960 14,400g 10,560h
Total costs accounted for $322,560 $100,800 $221,760
WIP beginning inventory $24,286 16,160 8,126
Total costs to be accounted for $322,560 $100,800 $221,760
Current period costs 84,640 213,634298,274
Materials ConversionTotalCosts to be accounted for
Costs per equivalent unit $0.90c $2.20d
c $100,800/112,000 units d $221,760/100,800 units
e $0.90 x 96,000 units f $2.20 x 96,000 units
g $0.90 x 16,000 units h $2.20 x 4,800 units
