GNB 04 12e

Systems Design: Process Costing
Chapter Four
McGraw-Hill/Irwin
Copyright 2008, The McGraw-Hill Companies, Inc.
4-2
Similarities Between Job-Order and Process Costing
Both systems assign material, labor and overhead costs to products and they provide a mechanism for computing unit product cost. Both systems use the same manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods. The flow of costs through the manufacturing accounts is basically the same in both systems.
McGraw-Hill/Irwin Copyright 2008, The McGraw-Hill Companies, Inc.
4-3
Differences Between Job-Order and Process Costing
Process costing is used when a single product is produced on a continuing basis or for a long period of time. Job-order costing is used when many different jobs are worked on each period. Process costing systems accumulate costs by department. Job-order costing systems accumulated costs by individual jobs. Process costing systems compute unit costs by department. Job-order costing systems compute unit costs by job on the job cost sheet.
4-4
Quick Check
Process costing is used for products that are:

a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications.
d. Purchased from vendors.
McGraw-Hill/Irwin
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Quick Check
Process costing is used for products that are:

a. Different and produced continuously. b. Similar and produced continuously. c. Individual units produced to customer specifications.
d. Purchased from vendors.
McGraw-Hill/Irwin
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Processing Departments
Any unit in an organization where materials, labor or overhead are added to the product. The activities performed in a processing department are performed uniformly on all units of production. Furthermore, the output of a processing department must be homogeneous.
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Learning Objective 1
Record the flow of materials, labor, and overhead through a process cost system.
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Comparing Job-Order and Process Costing
Direct Materials Direct Labor Work in Proces s Finished Goods
Manufacturing Overhead
Cost of Goods Sold

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Costs are traced and applied to individual jobs in a job-order cost system. Finished Goods
Direct Materials Direct Labor
Jobs
Cost of Goods Sold

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Costs are traced and applied to departments in a process cost system. Processing Department Finished Goods
Cost of Goods Sold

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T-Account and Journal Entry Views of Cost Flows
For purposes of this example, assume there are two processing departments Departments A and B. We will use T-accounts and journal entries.
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Process Cost Flows (in T-account form)

Raw Materials
Direct Materials
Work in Process Department A

Direct Materials
Work in Process Department B

Direct Materials
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Process Cost Flows

(in journal entry form)
GENERAL JOURNAL
Date Description Work in Process - Department A Work in Process - Department B Raw Materials To record the use of direct material. Post. Ref. Debit XXXXX XXXXX
Page 4
Credit
XXXXX
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Wages Payable
Direct Labor

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Process Costing
GENERAL JOURNAL
Date Description Work in Process - Department A Work in Process - Department B Salaries and Wages Payable To record direct labor costs. Post. Ref. Debit XXXXX XXXXX
Page 4
Credit
XXXXX
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Actual Overhead Overhead Applied to Work in Process
Direct Materials Direct Labor Applied Overhead

Direct Materials Direct Labor Applied Overhead
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Process Costing
(In journal entry form)
GENERAL JOURNAL
Date Description Work in Process - Department A Work in Process - Department B Manufacturing Overhead To apply overhead to departments. Post. Ref. Debit XXXXX XXXXX
Page 4
Credit
XXXXX
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Work in Process Department A Direct Transferred Materials to Dept. B Direct Labor Applied Overhead Work in Process Department B Direct Materials Direct Labor Applied Overhead Transferred from Dept. A
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Process Costing
GENERAL JOURNAL
Date Description Work in Process - Department B Work in Process - Department A To record the transfer of goods from Department A to Department B. Post. Ref. Debit XXXXX
Page 4
Credit XXXXX
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Finished Goods Cost of Goods Manufactured
Direct Cost of Materials Goods Direct Manufactured Labor Applied Overhead Transferred from Dept. A
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Process Costing
GENERAL JOURNAL
Date Description Finished Goods Work in Process - Department B To record the completion of goods and their transfer from Department B to finished goods inventory. Post. Ref. Debit XXXXX
Page 4
Credit XXXXX
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Process Cost Flows (in journal entry form)

Finished Goods
Direct Cost of Cost of Cost of Materials Goods Goods Goods Direct Manufactured Manufactured Sold Labor Applied Overhead Transferred Cost of Goods Sold from Dept. A
Cost of Goods Sold
4-23
Process Costing
GENERAL JOURNAL
Date Sales To record sales on account. Cost of Goods Sold Finished Goods To record cost of goods sold. XXXXX Description Accounts Receivable Post. Ref. Debit XXXXX
Page 4
Credit XXXXX
XXXXX
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Equivalent Units of Production

Equivalent units are the product of the number of partially completed units and the percentage completion of those units.
We need to calculate equivalent units because a department usually has some partially completed units in its beginning and ending inventory.
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Equivalent Units The Basic Idea

Two half completed products are equivalent to one completed product.
+
McGraw-Hill/Irwin
So, 10,000 units 70% complete are equivalent to 7,000 complete units.
4-26
Quick Check
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
4-27
Quick Check
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 0.30) b. 11,500 = 11,500 equivalent units c. 13,500 d. 15,000
4-28
Calculating Equivalent Units Equivalent units can be calculated two ways: The First-In, First-Out Method FIFO is
covered in the appendix to this chapter.
The Weighted-Average Method This

method will be covered in the main portion of the chapter.
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Compute the equivalent units of production using the weighted-average method.
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Equivalent Units of Production

Weighted-Average Method
The weighted-average method . . . Makes no distinction between work done in prior or current periods. Blends together units and costs from prior and current periods. Determines equivalent units of production for a department by adding together the number of units transferred out plus the equivalent units in ending work in process inventory.
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Treatment of Direct Labor

Direct Materials Dollar Amount
Direct Labor
Direct labor costs may be small in comparison to Conversion other product costs in process cost systems.
Type of Product Cost
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Treatment of Direct Labor

Direct Materials Dollar Amount
Direct labor costs may be small Conversion in comparison to other product costs in process cost systems.
Type of Product Cost
Direct labor and manufacturing overhead may be combined into one product cost called conversion.
4-33
Weighted-Average Example
Double Diamond Skis reported the following activity in Shaping and Milling Department for the month of May:
Percent Completed Shaping and Milling Department Beginning work in process Units started into production in May Units completed during May and transferred to the next department Ending work in process Units 200 5,000 4,800 100% 100% Materials Conversion 55% 30%
400
40%
25%
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The first step in calculating the equivalent units is to identify the units completed and transferred out of the Department in May (4,800 units)
Materials Units completed and transferred to the next department 4,800 Conversion 4,800
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The second step is to identify the equivalent units of production in ending work in process with respect to materials for the month (160 units) and add this to the 4,800 units from step one.
Materials Units completed and transferred to the next department Work in process, June 30: 400 units 40% 160 4,800 Conversion 4,800
Equivalent units of Production in during the month of May

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4,960
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The third step is to identify the equivalent units of production in ending work in process with respect to conversion for the month (100 units) and add this to the 4,800 units from step one.
Materials Units completed and transferred to the next department Work in process, June 30: 400 units 40% 400 units 25% Equivalent units of Production in during the month of May
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Conversion 4,800
4,800
160 100 4,960 4,900
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Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in process
Materials Units completed and transferred to the next department Work in process, June 30: 400 units 40% 400 units 25% Equivalent units of Production in during the month of May
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Conversion 4,800
4,800
160 100 4,960 4,900
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Materials
Beginning Work in Process 200 Units 55% Complete
5,000 Units Started
4,800 Units Started and Completed
Ending Work in Process 400 Units 40% Complete
4,800 Units Completed 160 Equivalent Units 4,960 Equivalent units of production
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400 40%
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Conversion
5,000 Units Started
4,800 Units Completed 100 Equivalent Units 4,900 Equivalent units of production
McGraw-Hill/Irwin
400 25%
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Compute the cost per equivalent unit using the weighted-average method.
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Compute and Apply Costs

Beginning work in process: Materials: 55% complete Conversion: 30% complete $ 200 units 9,600 5,575 5,000 units 4,800 units $ 368,600 350,900 400 units
Production started during May Production completed during May Costs added to production in May Materials cost Conversion cost Ending work in process Materials: 40% complete Conversion: 25% complete
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The formula for computing the cost per equivalent unit is :
Cost per equivalent = unit
Cost of beginning work in process + Cost added during inventory the period Equivalent units of production
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Here is a schedule with the cost and equivalent unit information.
Total Cost Cost to be accounted for: Work in process, May 1 Costs added in the Shipping and Milling Department Total cost Equivalent units Cost per equivalent unit $ 15,175 719,500 $ 734,675 Materials $ 9,600 368,600 $ 378,200 4,960 Conversion $ 5,575 350,900 $ 356,475 4,900
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Here is a schedule with the cost and equivalent unit information.
Total Cost Cost to be accounted for: Work in process, May 1 Costs added in the Shipping and Milling Department Total cost Equivalent units $ 15,175 719,500 $ 734,675 Materials $ 9,600 368,600 $ 378,200 4,960 $ Conversion $ 5,575 350,900 $ 356,475 4,900 72.75
Cost per equivalent unit $ 76.25 Total cost per equivalent unit = $76.25 + $72.75 = $149.00
$356,475 4,900 units = $72.75 $378,200 4,960 units = $76.25

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Assign costs to units using the weighted-average method.
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Applying Costs
Shaping and Milling Department Cost of Ending Work in Process Inventory and the Units Transferred Out Materials Conversion Total Ending work in process inventory: Equivalent units of production 160 100 Cost per equivalent unit $ 76.25 $ 72.75 Cost of ending work in process inventory $ 12,200 $ 7,275 $ 19,475 Units completed and transferred out: Units transferred to the next department Cost per equivalent unit Cost of units transferred out
$ $
4,800 76.25 366,000
$ $
4,800 72.75 349,200
715,200
McGraw-Hill/Irwin
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Applying Costs
$ $
4,800 76.25 366,000
$ $
4,800 72.75 349,200
715,200
McGraw-Hill/Irwin
4-48
Applying Costs
$ $
4,800 76.25 366,000
$ $
4,800 72.75 349,200
715,200
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Computing the Cost of Units Transferred Out

$ $
4,800 76.25 366,000
$ $
4,800 72.75 349,200
715,200
McGraw-Hill/Irwin
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$ $
4,800 76.25 366,000
$ $
4,800 72.75 349,200
715,200
McGraw-Hill/Irwin
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$ $
4,800 76.25 366,000
$ $
4,800 72.75 349,200
715,200
McGraw-Hill/Irwin
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Reconciling Costs
Shaping and Milling Department Cost Reconciliation Costs to be accounted for: Cost of beginning work in process inventory $ Costs added to production during the period Total cost to be accounted for $ Cost accounted for as follows: Cost of ending work in process inventory Cost of units transferred out Total cost accounted for
15,175 719,500 734,675
$ $
19,475 715,200 734,675
McGraw-Hill/Irwin
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Reconciling Costs
Shaping and Milling Department Cost Reconciliation Costs to be accounted for: Cost of beginning work in process inventory $ Costs added to production during the period Total cost to be accounted for $ Cost accounted for as follows: Cost of ending work in process inventory Cost of units transferred out Total cost accounted for
15,175 719,500 734,675
$ $
19,475 715,200 734,675
McGraw-Hill/Irwin
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Operation Costing
Operation costing is a hybrid of job-order and process costing because it possesses attributes of both approaches Operation costing is commonly used when batches of many different products pass through the same processing department.
FIFO Method
Appendix 4A
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FIFO vs. Weighted-Average Method

The FIFO method (generally considered more accurate that the weighted-average method) differs from the weighted-average method in two ways:
1. The computation of equivalent units.

2. The way in which the costs of beginning inventory are treated in the cost reconciliation report.
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Compute the equivalent units of production using the FIFO method.
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Equivalent Units FIFO Method

Lets revisit the Double Diamond Skis example. Assume the following activity is reported in Shaping and Milling Department for May:
Percent Completed Shaping and Milling Department Beginning work in process Units started into production in May Units completed during May and transferred to the next department Ending work in process Units 200 5,000 4,800 100% 100% Materials Conversion 55% 30%
400
40%
25%
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Step 1: Determine equivalent units needed to complete beginning inventory.

Materials To complete beginning work in process: Materials: 200 units (100% - 55%) Conversion: 200 units (100% - 30%) Units started and completed during May Ending work in process Materials: 400 units 40% complete Conversion: 400 units 25% complete Equivalent units of production
McGraw-Hill/Irwin
Conversion
90 140 4,600 160 100 4,850 4,840 4,600
4-60
Step 2: Determine units started and completed during the period.

Materials To complete beginning work in process: Materials: 200 units (100% - 55%) Conversion: 200 units (100% - 30%) Units started and completed during May Ending work in process Materials: 400 units 40% complete Conversion: 400 units 25% complete Equivalent units of production
McGraw-Hill/Irwin
Conversion
90 140 4,600 160 100 4,850 4,840 4,600
4-61

Step 3: Add the equivalent units in ending work in process inventory.
Materials Conversion
To complete beginning work in process: Materials: 200 units (100% - 55%) Conversion: 200 units (100% - 30%) Units started and completed during May Ending work in process Materials: 400 units 40% complete Conversion: 400 units 25% complete Equivalent units of production
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90 140 4,600 160 100 4,850 4,840 4,600
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FIFO Example
Materials
5,000 Units Started
200 45%
90 Equivalent Units 4,600 Units Completed 160 Equivalent Units 4,850 Equivalent units of production
400 40%
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FIFO Example
Conversion
5,000 Units Started
200 70%
140 Equivalent Units 4,600 Units Completed 100 Equivalent Units 4,840 Equivalent units of production
400 25%
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Equivalent Units: Weighted Average vs. FIFO

As shown below, the equivalent units in beginning inventory are subtracted from the equivalent units of production per the weightedaverage method to obtain the equivalent units of production under the FIFO method.
Materials 4,960 110 4,850 60 4,840 Conversion 4,900
Equivalent units - weighted average method Less equivalent units in beginning inventory: 200 units 55% 200 units 30% Equivalent units - FIFO method
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Compute the cost per equivalent unit using the FIFO method.
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Cost per Equivalent Unit - FIFO

Lets revisit the Double Diamond Skis Shaping and Milling Department for the Month of May to prepare our production report.
Beginning work in process: Materials: 55% complete Conversion: 30% complete Production started during May Production completed during May 200 units $ 9,600 5,575 $15, 175 5,000 units 4,800 units
Costs added to production in May Materials cost $ 368,600 Conversion cost 350,900 Ending work in process: 400 units Materials: 40% complete Conversion: 25% complete
4-67

The formula for computing the cost per equivalent unit under FIFO method is as follows:
Cost per equivalent = unit
Cost added during the period
Equivalent units of production
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Total Cost Costs added in the Shaping and Milling Department Equivalent units $ 719,500
Materials $ 368,600 4,850
Conversion $ 350,900 4,840 $ 72.50
Cost per equivalent unit $ 76.00 Total cost per equivalent unit = $76.00 + $72.50 = $148.50
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Assign costs to units using the FIFO method.
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Applying Costs - FIFO

Step 1: Record the equivalent units of production in ending work in process inventory.
Shaping and Milling Department Cost of Ending Work in Porcess Inventory and the Units Transferred Out Materials Conversion Total Ending work in process inventory: Equivalent units of production 160 100 Cost per equivalent unit $ 76.25 $ 72.75 Cost of ending work in process inventory $ 12,200 $ 7,275 $ 19,475 Units completed and transferred out: Units transferred to the next department Cost per equivalent unit Cost of units transferred out
$ $
4,800 76.25 366,000
$ $
4,800 72.75 349,200
715,200
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Step 2: Record the cost per equivalent unit.
$ $
4,800 76.25 366,000
$ $
4,800 72.75 349,200
715,200
McGraw-Hill/Irwin
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Step 3: Compute the cost of ending work in process inventory.
$ $
4,800 76.25 366,000
$ $
4,800 72.75 349,200
715,200
McGraw-Hill/Irwin
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Cost of Units Transferred Out

Step 1: Record the cost in beginning work in process inventory.
Shaping and Milling Department Cost of Ending Work in Porcess Inventory and the Units Transferred Out Materials Conversion Units transferred out: Cost in beginning work in process (WIP) $ 9,600 $ 5,575 Cost to complete beginning WIP: Equivalent units to complete 90 140 Cost per equivalent unit $ 76.00 $ 72.50 Cost to complete beginning WIP $ 6,840 $ 10,150 Cost of units started and completed in May Units started and completed in May 4,600 4,600 Cost per equivalent unit $ 76.00 $ 72.50 Cost of units started and completed in May $ 349,600 $ 333,500 Cost of units transferred out
Total $ 15,175
16,990
$ $
683,100 715,265
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Step 2: Compute the cost to complete the units in beginning work in process inventory.
Shaping and Milling Department Cost of Ending Work in Porcess Inventory and the Units Transferred Out Materials Conversion Units transferred out: Cost in beginning work in process (WIP) $ 9,600 $ 5,575 Cost to complete beginning WIP: Equivalent units to complete 90 140 Cost per equivalent unit $ 76.00 $ 72.50 Cost to complete beginning WIP $ 6,840 $ 10,150 Cost of units started and completed in May Units started and completed in May 4,600 4,600 Cost per equivalent unit $ 76.00 $ 72.50 Cost of units started and completed in May $ 349,600 $ 333,500 Cost of units transferred out Total $ 15,175
16,990
$ $
683,100 715,265
McGraw-Hill/Irwin
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Step 3: Compute the cost of units started and completed this period.
Shaping and Milling Department Cost of Ending Work in Porcess Inventory and the Units Transferred Out Materials Conversion Units transferred out: Cost in beginning work in process (WIP) $ 9,600 $ 5,575 Cost to complete beginning WIP: Equivalent units to complete 90 140 Cost per equivalent unit $ 76.00 $ 72.50 Cost to complete beginning WIP $ 6,840 $ 10,150 Cost of units started and completed in May Units started and completed in May 4,600 4,600 Cost per equivalent unit $ 76.00 $ 72.50 Cost of units started and completed in May $ 349,600 $ 333,500 Cost of units transferred out Total $ 15,175
16,990
$ $
683,100 715,265
McGraw-Hill/Irwin
4-76

Step 4: Compute the total cost of units transferred out.
Shaping and Milling Department Cost of Ending Work in Porcess Inventory and the Units Transferred Out Materials Conversion Units transferred out: Cost in beginning work in process (WIP) $ 9,600 $ 5,575 Cost to complete beginning WIP: Equivalent units to complete 90 140 Cost per equivalent unit $ 76.00 $ 72.50 Cost to complete beginning WIP $ 6,840 $ 10,150 Cost of units started and completed in May Units started and completed in May 4,600 4,600 Cost per equivalent unit $ 76.00 $ 72.50 Cost of units started and completed in May $ 349,600 $ 333,500 Cost of units transferred out
Total $ 15,175
16,990
$ $
683,100 715,265
McGraw-Hill/Irwin
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Reconciling Costs
Shaping and Milling Department Cost Reconciliation Costs to be accounted for: Cost of beginning work in process inventory Costs added to production during the period Total cost to be accounted for Cost accounted for as follows: Cost of ending work in process inventory Cost of units transferred out Total cost accounted for
15,175 719,500 $ 734,675
19,475 715,200 $ 734,675
McGraw-Hill/Irwin
4-78
Reconciling Costs
Shaping and Milling Department Cost Reconciliation Costs to be accounted for: Cost of beginning work in process inventory Costs added to production during the period Total cost to be accounted for Cost accounted for as follows: Cost of ending work in process inventory Cost of units transferred out Total cost accounted for
15,175 719,500 $ 734,675
19,410 715,265 $ 734,675
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A Comparison of Costing Methods

In a lean production environment, FIFO and weighted-average methods yield similar unit costs. When considering cost control, FIFO is superior to weighted-average because it does not mix costs of the current period with costs of the prior period.
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Service Department Allocations

Appendix 4B
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Operating Departments
An operating department carries out the central purpose of the organization
The Accounting Department at your University. An Assembly Department at General Motors.
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Service Departments
A service department does not directly engage in operating activities.
The Accounting Department at Macys The Human Resources Department at Walgreens.
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Interdepartmental Services
Service Department
Operating Department
Costs of the service department become overhead costs to the operating department
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Allocation Approaches
Direct Method

Reciprocal Method
Step-Down Method
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Reciprocal Services
Service Department 1
When service departments provide services to each other we call them reciprocal services.
Service Department 2
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Allocate service department costs to operating departments using the direct method.
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Direct Method
Service Department (Cafeteria) Operating Department (Machining)
Interactions between service departments are ignored and all costs are allocated directly to operating departments.
Service Department (Custodial)
Operating Department (Assembly)
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Direct Method
Service Department Cafeteria Custodial
Allocation Base Number of employees Square feet occupied
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Direct Method
How much of the Cafeteria and Custodial costs should be allocated to each operating department using the direct method of cost allocation?
4-90
Direct Method
20 $360,000 = $144,000 20 + 30 Allocation base: Number of employees

4-91
Direct Method
$360,000
30 = $216,000 20 + 30
Allocation base: Number of employees

4-92
Direct Method
25,000 $90,000 25,000 + 50,000
= $30,000
Allocation base: Square feet occupied

4-93
Direct Method
50,000 $90,000 25,000 + 50,000
= $60,000

4-94
To allocate service department costs to operating departments using the step-down method.
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Step Method
Once a service departments costs are allocated, other service department costs are not allocated back to it.
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Step Method
There are three key points to understand regarding the step method:
In both the direct and step methods, any amount of the allocation base attributable to the service department whose cost is being allocated is always ignored.
Any amount of the allocation base that is attributable to a service department whose cost has already been allocated is ignored. Each service department assigns its own costs to operating departments plus the costs that have been allocated to it from other service departments.
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Step Method
We will use the same data used in the direct method example.
Service Department Cafeteria Custodial

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Allocation Base Number of employees Square feet occupied

4-98
Step Method
Allocate Cafeteria costs first since it provides more service than Custodial.
4-99
Step Method
10 $360,000 10 + 20 + 30
= $60,000

4-100
Step Method
20 $360,000 10 + 20 + 30
= $120,000

4-101
Step Method
30 $360,000 10 + 20 + 30
= $180,000

4-102
Step Method
New total = $90,000 original Custodial cost plus $60,000 allocated from the Cafeteria.
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Step Method
25,000 $150,000 25,000 + 50,000
= $50,000

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Step Method
50,000 $150,000 25,000 + 50,000
= $100,000

4-105
Reciprocal Method
Interdepartmental services are given full recognition rather than partial recognition as with the step method.
Because of its mathematical complexity, the reciprocal method is rarely used.

4-106
Quick Check Data for Direct and Step Methods
The direct method of allocation is used.

Allocation bases: Business school administration costs (ADMIN): Number of employees
Business
McGraw-Hill/Irwin
Administration computer services (BACS): Number of personal computers

4-107
Quick Check
How much cost will be allocated from Administration to Accounting? a. $ 36,000 b. $144,000 c. $180,000 d. $ 27,000
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4-108
Quick Check
How much cost will be allocated from Administration to Accounting? a. $ 36,000 b. $144,000 c. $180,000 d. $ 27,000
20 $180,000 = $36,000 20 + 80
4-109
Quick Check
How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $ 52,500 b. $135,000 c. $270,000 d. $ 49,500
McGraw-Hill/Irwin
4-110
Quick Check
How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $ 52,500 b. $135,000 c. $270,000 d. $ 49,500
$90,000
McGraw-Hill/Irwin
18 = $13,500 18 + 102
4-111
Quick Check Data
The step method of allocation is used.

Allocation bases: Business school administration costs (ADMIN): Number of employees
Business
McGraw-Hill/Irwin
administration computer services (BACS): Number of personal computers

4-112
Quick Check
How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $35,250 b. $49,072 c. $18,000 d. $26,333
McGraw-Hill/Irwin
4-113
Quick Check
How much total cost will be allocated from ADMIN and BACS combined to the Accounting Department? a. $35,250 b. $49,072 c. $18,000 d. $26,333
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End of Chapter 4
McGraw-Hill/Irwin

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Systems Design: Process Costing

Copyright 2008, The McGraw-Hill Companies, Inc.

Similarities Between Job-Order and Process Costing

Differences Between Job-Order and Process Costing

Process costing is used for products that are:

d. Purchased from vendors.

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Process costing is used for products that are:

d. Purchased from vendors.

Copyright 2008, The McGraw-Hill Companies, Inc.

Copyright 2008, The McGraw-Hill Companies, Inc.

Copyright 2008, The McGraw-Hill Companies, Inc.

Comparing Job-Order and Process Costing

Direct Materials Direct Labor Work in Proces s Finished Goods

Cost of Goods Sold

Comparing Job-Order and Process Costing

Direct Materials Direct Labor

Cost of Goods Sold

Comparing Job-Order and Process Costing

Direct Materials Direct Labor

Cost of Goods Sold

T-Account and Journal Entry Views of Cost Flows

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Process Cost Flows (in T-account form)

Work in Process Department A

Work in Process Department B

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Process Cost Flows

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Process Cost Flows (in T-account form)

Work in Process Department B

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Copyright 2008, The McGraw-Hill Companies, Inc.

Process Cost Flows (in T-account form)

Direct Materials Direct Labor Applied Overhead

Work in Process Department B

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Copyright 2008, The McGraw-Hill Companies, Inc.

Process Cost Flows (in T-account form)

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Copyright 2008, The McGraw-Hill Companies, Inc.

Process Cost Flows (in T-account form)

Finished Goods Cost of Goods Manufactured

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Copyright 2008, The McGraw-Hill Companies, Inc.

Process Cost Flows (in journal entry form)

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Equivalent Units of Production

Equivalent Units The Basic Idea

The Weighted-Average Method This

Compute the equivalent units of production using the weighted-average method.

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Equivalent Units of Production

Treatment of Direct Labor

Type of Product Cost

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Treatment of Direct Labor

Type of Product Cost

Copyright 2008, The McGraw-Hill Companies, Inc.

Copyright 2008, The McGraw-Hill Companies, Inc.

Equivalent units of Production in during the month of May

160 100 4,960 4,900