Managerial Accounting

PROCESS COSTING

Team

Identify the situations in which process-costing systems are appropriate. Continuous or Mass Production

Illustrating Process Costing

Direct Materials, Direct Labor Indirect Manufacturing Costs

Department A Finished Goods

Department B Cost of Goods Sold

Product Flow
Sequential Product Flow
WIP-Dept 1 WIP-Dept 2 F.Goods

Product flow
Parallel Product flow
WIP Dept-1

WIP Dept-2
WIP Assembly Dept

WIP Packaging
WIP Dept-1

WIP Department-2

Finished Goods

Journal Entries Example

What is the journal entry for conversion costs?

Work in Process, Assembly 62,000 Various accounts 62,000 To record Assembly Department conversion costs

What is the journal entry to transfer completed goods from Assembly to Finishing?

Journal Entries Example

Work in Process, Finishing 132,043 Work in Process, Assembly 132,043 To record cost of goods completed and transferred from Assembly to Finishing during the period

Flow of Costs Example

Accounts Payable 84,050 WIP Assembly 84,050 132,043 62,000 14,007

Various Accounts 62,000

Finishing 132,043

Five Steps in Process Costing (Cost of production report)

Step 1: Summarize the flow of physical units of output Or Quantity Scheduled.
Step 2: Compute output in terms of equivalent units. Step 3: Compute equivalent unit costs.

Step 4: Summarize total costs to account for. Step 5: Assign total costs to units completed and to units in ending work in process inventory.

A companys department 2 costs for june were:

Cost from dept 1.. Cost added in dept 2: Materials. Labor. Factory overhead

$ 16320
$ 43415 $ 56100 $ 58575

The quantity schedule shows 12,000 units were received during the month from dept 1; 7,000 units were transferred to finished goods; and 5,000 units in process at the end of June were 50% complete as to materials cost and 25% complete as to conversion cost.

1. Flow of physical units output

Quantity schedule: Units received from dept 1....... 1,2000 Units transferred to finished goods 7,000 Units still in process ( 50% material, 25% conversion) 5,000 1,2000

2. Compute output in terms of equivalent units cost

Cost charged to the Department: T. Cost unit cost

Cost from preceding department: Transferred in during the month (1,2000 units) $ 16,320 $ 1.36 Cost added by Department: Material (43415/9500) 43,415 $ 4.57 Labor (56100/8250) 56,100 6.80 Factory overhead (58575/8250) 58,575 7.10 Total cost to be accounted for $174,410 $19.83

3. Compute equivalent units

Dept 1 7,000 5,000 12,000 Dept 2 7,000 2,500 9,500 Labor FOH 7,000 7,000 1,250 1,250 8,250 8,250

Transferred W/Process Total

4 & 5.Cost accounted for as follows:

Transferred to finished goods(7,000*19.83) $ 138,810

Work in process Ending inventory:

Cost from preceding dept(5,000*1.36)$ 6,800 Materials(5,000*50%*$4.57) 11,425 Labor (5,000*25%*6.80) 8,500 Factory overhead (5,000*25%*7.10) 8,875 Total cost accounted for ..

35,600 174,410

THANK YOU