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Chapter 17

Chapter 17. Sequential Processing Departments. T-Account Model of Process Costing Flows. Process Costing and Direct Labor. Direct Materials. Direct labor costs may be small in comparison to other product costs in process cost systems. Mfg. Ovhd. Dollar Amount. Direct Labor.

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Chapter 17

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  1. Chapter 17

  2. Sequential Processing Departments

  3. T-Account Model of Process Costing Flows

  4. Process Costing and Direct Labor DirectMaterials Direct labor costsmay be smallin comparison toother product costs in processcost systems. Mfg. Ovhd. Dollar Amount DirectLabor Type of Product Cost

  5. Process Costing and Direct Labor DirectMaterials Direct labor costsmay be smallin comparison toother product costs in processcost systems. Conversion Dollar Amount Type of Product Cost Direct labor and manufacturing overhead iscombined into one product cost called conversion.

  6. Production Report Example • Global Defense uses process costing to determine unit costs in its Assembly Department. • Upon completion, units are transferred to the Testing Department. • Direct materials are added at the beginning of the assembly process. Conversion costs are added evenly during assembly.

  7. January 2009Assembly Department - No Beginning/No Ending Inventory Work in process, January 1: 0 units Materials: $ 0 Conversion: 0 Production started during January: 400 units Production completed during January: 400 units Costs added to production in January Materials cost $ 32,000 Conversion cost 24,000 Work in process, January 31 0 units Manufacturing Costs in Ending Inventory: ? Manufacturing Costs transferred out in January: ?

  8. February 2009Assembly Department - No Beginning/Some Ending Inventory Work in process, February 1: 0 units Materials: $ 0 Conversion: 0 Production started during February: 400 units Production completed during February: 175 units Costs added to production in February Materials cost $ 32,000 Conversion cost 18,600 Work in process, February 29 225 units Materials 100% complete Conversion 60% complete Manufacturing Costs in Ending Inventory: ? Manufacturing Costs transferred out in February: ?

  9. Equivalent Units of Production Equivalent unitsare partially complete and are part of work in process inventory. Partially completed products are expressed in terms of a smaller number of fully completed units.

  10. + = 1 Equivalent Units of Production Two half completed products are equivalent to one completed product. So, 10,000 units 70 percent completeare equivalent to 7,000 complete units.

  11. Quick Check  For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process that were 30 percent complete for conversion costs. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000

  12. Calculating and Using Equivalent Units of Production To calculate the cost perequivalent unit for the period: Cost perequivalent unit Costs for the periodEquivalent units of productionfor the period =

  13. Quick Check  Now assume that Jones incurred $27,600 in conversion costs for the 11,500 equivalent units of production. What was Jones’ conversion cost per equivalent unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90

  14. Quick Check  Now assume that Jones incurred $27,600 in production costs for the 11,500 equivalent units of production. What was Jones’ cost per equivalent unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90 $27,600 ÷ 11,500 equivalent units = $2.40 per equivalent unit

  15. March 2009Assembly Department - Some Beginning/Some Ending Inventory Work in process, March 1: 225 units Materials: 100% complete $ 18,000 Conversion: 60% complete 8,100 Production started during March: 275 units Production completed during March: 400 units Costs added to production in March: Materials cost $ 19,800 Conversion cost 16,380 Work in process, March 31: 100 units Materials 100% complete Conversion 50% complete Manufacturing Costs in Ending Inventory: ? Manufacturing Costs transferred out in March: ?

  16. March 2009Testing Department with Transferred-in Costs – W.A.Method Work in process, March 1: 240 units Transferred-in 100% complete $ 33,600 Materials: 0% complete 0 Conversion: 62.5% complete 18,000 Transferred-in during March: 400 units Production completed during March: 440 units Costs added to production in March: Transferred-in cost $ 52,000 Materials cost 13,200 Conversion cost 48,600 Work in process, March 31: 200 units Transferred-in 100% complete Materials 0% complete Conversion 80% complete Manufacturing Costs in Ending Inventory: ? Manufacturing Costs transferred out in March: ?

  17. March 2009Testing Department with Transferred-in Costs – FIFO Method Work in process, March 1: 240 units Transferred-in 100% complete $ 33,600 Materials: 0% complete 0 Conversion: 62.5% complete 18,000 Transferred-in during March: 400 units Production completed during March: 440 units Costs added to production in March: Transferred-in cost $ 52,480 Materials cost 13,200 Conversion cost 48,600 Work in process, March 31: 200 units Transferred-in 100% complete Materials 0% complete Conversion 80% complete Manufacturing Costs in Ending Inventory: ? Manufacturing Costs transferred out in March: ?

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