Professional Documents
Culture Documents
Chapter - 4
Process Costing
McGraw-Hill/Irwin Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Comparison of Job-Order Costing and
Process Costing
Process
Process Job-order
Costing
Costing Costing
4-3
Comparison of Job-Order Costing and
Process Costing
Finished
Direct Labor Jobs Goods
Manufacturing Cost of
Overhead Goods
Sold
4-5
Differences Between Job-Order and
Process Costing
The work-in-process
account consists of
individual products in a
Direct Material
process-cost system.
4-7
Process Cost Flows
Two Sequential Production Departments
Work-in-Process Inventory Work-in-Process Inventory
Production Department A Production Department B
Direct material Cost of goods completed
Direct labor in department A and Cost of goods completed
Applied manufacturing transferred to and transferred to
overhead department B finished goods
Direct material
Direct labor
Applied manufacturing
overhead
4-8
Equivalent Units: A Key Concept
Costs are accumulated for a period of time for products in
work-in-process inventory.
Products in work-in-process inventory at the beginning and
end of the period are only partially complete.
Equivalent units is a concept expressing these partially
completed products as a smaller number of fully
completed products.
4-9
Equivalent Units Example
Two half completed products are
equivalent to one completed product.
+ = l
4-10
Equivalent Units Question 1
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
4-11
Equivalent Units Question 1
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
10,000 units + (5,000 units × .30)
b. 11,500
= 11,500 equivalent units
c. 13,500
d. 15,000
4-12
Equivalent Units Question 2
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. $2.40
c. $2.76
d. $2.90
4-13
Equivalent Units Question 2
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 $27,600 ÷ 11,500 equivalent units
c. $2.40 = $2.40 per equivalent unit
d. $2.90
4-14
Calculating and Using Equivalent Units of
Production
To calculate the direct materials and conversion costs per
equivalent unit for the period:
Materials
cost per Materials cost for the period
= Materials equivalent units for
equivalent
unit the period
Conversion
cost per Conversion cost for the period
equivalent = Conversion equivalent units for
unit the period
4-15
Departmental Production Report
Analysis of Calculation
physical flow of equivalent
of units. units.
Production
Report
Computation Analysis of
of unit costs. total costs.
4-16
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.
4-17
Production Report Example
MVP Sports Equipment Company makes baseball gloves in two
departments, Cutting and Stitching.
MVP uses weighted-average process costing.
4-18
Production Report Example
Work in process, March 1: 20,000 units Cost
Materials: 100% complete. $ 50,000
Conversion: 10% complete. 7,200
Physical
Units
Work in process, March 1 20,000
Units started during March 30,000
Total units to account for 50,000
4-20
Production Report Example
Calculation of Equivalent Units
4-22
Production Report Example
Computation of unit costs
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
4-24
Production Report Example
Analysis of total costs
Cost of goods completed and transferred during March
40,000 units x $7.26 per equivalent unit $ 290,400
4-25
Production Report Example
Analysis of total costs
Cost of goods completed and transferred during March
40,000 units x $7.26 per equivalent unit $ 290,400
4-26
MVP SPORTS EQUIPMENT COMPANY
Production Report: Cutting Department
Percentage of
Completion Equivalent Units
Physical with Respect to Direct
Units Conversion Material Conversion
Direct
Material Conversion Total
Conversion:
5,000 equivalent units x $4.46 per equivalent unit 22,300
4-27
Actual Costing vs. Normal Costing
Manufacturing
overhead is
Actual costs of applied
manufacturing overhead to Work-in-
are entered in Work-in- Process Inventory
Process Inventory using a
predetermined
overhead rate
4-28
Departmental Production Report
Analysis of
physical flow
of units.
Calculation
of equivalent
units.
Computation
of unit costs.
Analysis of
total costs.
4-29