Financial and Managerial Accounting Wild Shaw and Chiappetta

Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fifth Edition Mc. Graw-Hill/Irwin Copyright © 2013 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Chapter 16 Process Costing and Analysis

Conceptual Learning Objectives C 1: Explain process operations and the way they differ from job order operations. C 2: Define and compute equivalent units and explain their use in process cost accounting. C 3: Describe accounting for production activity and preparation of a process cost summary using weighted average. C 4: Appendix: 16 A Describe accounting for production activity and preparation of a process cost summary using FIFO. 16 -3

Analytical Learning Objectives A 1: Compare process cost accounting and job order cost accounting. A 2: Explain and illustrate a hybrid costing system. 16 -4

Procedural Learning Objectives P 1: Record the flow of direct materials costs in process cost accounting. P 2: Record the flow of direct labor costs in process cost accounting. P 3: Record the flow of factory overhead costs in process cost accounting. P 4: Record the transfer of completed goods to Finished Goods Inventory and Cost of Goods Sold. 16 -5

C 1 Process Manufacturing Operations l Used for production of identical, low-cost items. l Mass produced in automated continuous production process. l Costs cannot be directly traced to each unit of product. 16 -6

A 1 Comparing Job Order and Process Operations Job Order Operations n Custom orders n Heterogeneous products n Process Operations n Repetitive operations n Homogeneous products Low production volume n High product flexibility n Low to medium standardization n High standardization 16 -7

A 1 Job and Process Costing Similarities Same objective: to determine the cost of products Same inventory accounts: Raw Materials, Work in Process, and Finished Goods Same overhead assignment method: predetermined rate times actual activity 16 -8

A 1 Job and Process Costing Similarities and Differences Journal entries for both job order and process costing are identical. The difference between job order and process costing lies in how the cost of goods transferred to finished goods is determined. 16 -9

A 1 Job Order and Process Costing Differences Job order costing Process costing The cost of goods transferred to finished goods is equal to the sum of all of the completed jobs for that period The cost of goods transferred to finished goods equals the number of completed units times the cost per equivalent unit 16 -10

P 1 Process Costing Typical Accounting Entries 16 -11

P 1 Process Costing Typical Accounting Entries 16 -12

P 1 Process Costing Typical Accounting Entries 16 -13

P 2 Process Costing Typical Accounting Entries 16 -14

P 2 Process Costing Typical Accounting Entries 16 -15

P 3 Process Costing Typical Accounting Entries 16 -16

P 3 Process Costing Typical Accounting Entries 16 -17

P 3 Process Costing Typical Accounting Entries 16 -18

C 2 Equivalent Units of Production Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units. Two one-half full pitchers are equivalent to one full pitcher. + = 16 -19

C 2 Equivalent Units 40% of material 60% of material Stage 1 Stage 2 Stage 3 25% of labor and overhead 50% of labor and overhead The process is now complete. 16 -20

C 2 Cost per Equivalent Unit Average cost per equivalent unit Product costs for the period = Equivalent units for the period 16 -21

Process Manufacturing Operations Gen. X C 1 Indirect Materials Direct Factory Allocated Overhead Indirect Overhead Labor Direct Goods in Process Finished Goods Delivered to Customers 16 -22

C 2 Accounting for Gen. X 16 -23

C 2 Accounting for Gen. X 16 -24

C 2 Accounting for Gen. X uses a weighted-average cost flow system with the following steps: Determine the physical flow of units. Compute equivalent units of production. Compute the cost per equivalent unit. Assign and reconcile costs. 16 -25

C 2 Determine Physical Flow of Units Exh. 20 -13 16 -26

C 2 Compute Equivalent Units of Production - Materials 16 -27

C 2 Compute Equivalent Units of Production – Direct Labor and Factory Overhead 16 -28

C 2 Compute Equivalent Units of Production 16 -29

C 2 Compute Cost Per Equivalent Unit 16 -30

C 2 Cost Reconciliation In the cost reconciliation, we will account for all costs incurred by assigning unit costs to the: A. 100, 000 units transferred out. B. 20, 000 units remaining in ending inventory. 16 -31

C 2 No. of EU of direct labor 16 -32

C 3 Process Cost Summary Shows the flow of units and costs through work in process. Provides cost information for financial statements. Process Cost Summary Helps factory managers evaluate department manager performance. Helps managers control their departments. 16 -33

C 3 Process Cost Summary (part 1) 16 -34

C 3 (part 2) 16 -35

C 3 (part 3) 16 -36

C 3 (part 3 continued) 16 -37

P 4 Process Costing Typical Accounting Entries 16 -38

P 4 Process Costing Typical Accounting Entries 16 -39

A 2 Hybrid Costing Systems Hybrid costing systems contain features of both job order and process operations. Job Order Costing Hybrid Costing Material costs are accounted for using a job order system. Process Costing Conversion costs are accounted for using a process system. 16 -40

End of Chapter 16 16 -41