Process Costing Chapter 20
Objective 1 Distinguish between process costing and job order costing
Job 92 Job 91 FinishedGoods Job 90 Cost of GoodsSold Job Order Costing Materials Inventory Manufacturing Wages Work in Process Manufacturing Overhead
Cost of GoodsSold Process Costing Materials Inventory Work in Process, Mixing Dept Manufacturing Wages Work in Process, Molding Dept FinishedGoods Manufacturing Overhead Work in Process, Packaging Dept
Tracking Costs • Account for the goods completed and transferred out • Account for the cost of incomplete units that remain as a department’s ending work in process inventory
Key Concepts • Conversion costs • Costs incurred to convert raw materials into a finished product • Direct labor plus manufacturing overhead • Equivalent unit of production • Amount of work done during a period in terms of fully complete units of output
Objective 2 Compute equivalent units
E20-16 Step 1: Summarize the flow of physical units Blending Department Units to account for Units accounted for Beginning WIP Units placed in production Units completed Units in Ending WIP + + 0 8,000 6,000 2,000 + +
Dyes added 30% complete 100% complete Start 6,000 units completed and transferred out 2,000 units startedbut not finished E20-16 Step 2: Compute output in terms of equivalent units
E20-16 2,000 units are 30% complete as to conversion costs Given the costs incurred, 600 units could have been fully completed • Equivalent units for direct materials: 8,000 units x 100% complete 8,000 • Equivalent units for conversion costs: 6,000 units x 100% complete 6,000 2,000 units x 30% complete 600 6,600
Objective 3 Use process costing to assign costs to units completed and to units in ending work in process inventory
E20-16 Blending Department Step 3: Compute the cost pre equivalent unit $4,800 $2,970 ÷ 8,000 ÷ 6,600 $0.60 $0.45
E20-16 Step 4: Assign costs to units completed and to units in ending work in process inventory $6,300 6,000 x ($0.60 + 0.45) $1,200 2,000 x $0.60 600 x 0.45 270 1,470 $7,770
Record the costs incurred in the blending department E20-16 Work in process inventory blending department 7,770 Materials inventory 4,800 Manufacturing wages 800 Manufacturing overhead 2,170
Record the transfer of the inventory completed in the blending department to the packaging department E20-16 Work in process inventory packaging department 6,300 Work in process inventory blending department 6,300
When working with a second department, we have to consider the costs transferred in from the previous department as well as costs added in the second department Objective 4 Use the weighted-average method to assign costs to units completed and to units in ending work in process inventory in a second department
E20-23 Step 1: Summarize the flow of physical units Bottling Department Units to account for Units accounted for Beginning WIP Units placed in production Units completed Units in Ending WIP + + 8,000 160,000 154,000 14,000 + +
E20-23 Step 1: Summarize the flow of physical units Work in process, bottling department (units) Beg. Bal. 8,000 154,000 Transferred in 160,000 End Bal. 14,000
Materials added 100% complete Start 146,000 units started and completed 14,000 units started but not finished E20-23 If the work in process was 40% complete during the previous period, then 60% is completed this period and transferred to finished goods. The weighted average method combines the work in process at the beginning with the work done during the period to get the average cost of the units • Step 2: Compute output in terms of equivalent units 70% complete 40% complete 8,000 units in processand completed
Equivalent units: Transferred in costs Completed and transferred out 154,000 Ending work in process 14,000 Total 168,000 E20-23
Equivalent units: Direct materials Completed and transferred out 154,000 Ending work in process -0- Total 154,000 E20-23 Remember, material costs are added at the end of the process
E20-23 Equivalent units for conversion costs: Completed and transferred out 154,000 Ending WIP -14,000 x 70% 9,800 Total 163,800 Conversion costs are added evenly throughout the process
E20-23 Step 3: Compute the cost per equivalent unit
E20-23 Step 3: Compute the cost per equivalent unit
Record the costs incurred in the bottling department E20-16 Work in process inventory bottling department 223,010 Work in process inventory department 1 136,000 Materials inventory 30,800 Manufacturing wages 33,726 Manufacturing overhead 22,484
Record the transfer of the inventory completed in the bottling department to finished goods E20-16 Finished goods inventory 210,980 Work in process inventory bottling department 210,980
End of Chapter 20
