Product costing

PRODUCT COSTING

JOIN KHALID AZIZ
ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM.
FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA.
COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA.
CONTACT:
0322-3385752
0312-2302870
R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN.

JOIN KHALID AZIZ
CRASH CLASSES
ICMAP STAGE 3
FINANCIAL ACCOUNTING & COST ACCOUNTING PERFORMANCE APPRAISAL
INDIVIDUAL & GROUPS

JOIN KHALID AZIZ
CRASH CLASSES
ICMAP STAGE 1 & 2
FUNDAMENTALS OF FINANCIAL ACCOUNTING & COST ACCOUNTING
INDIVIDUAL & GROUPS

JOIN KHALID AZIZ
FRESH CLASSES
CA MODULE B & D
FINANCIAL ACCOUNTING & COST ACCOUNTING
INDIVIDUAL & GROUPS

Comparison of Job-Order Costing and Process Costing Process Costing Process Costing Job-order Costing
Used for production of small, identical, low cost items.
Mass produced in automated continuous production process.
Costs cannot be directly traced to each unit of product.

Comparison of Job-Order Costing and Process Costing Process Costing Process Costing Job-order Costing
Typical process cost applications:
Petrochemical refinery
Paint manufacturer
Paper mill

Job-order costing
Costs accumulated by the job .
Work in process has a job-cost sheet for each job .
Many unique, high cost jobs.
Jobs built to customer order.
Process costing
Costs accumulated by department or process .
Work in process has a production report for each batch of products .
A few identical, low cost products.
Units continuously produced for inventory in automated process.
Comparison of Job-Order Costing and Process Costing

Differences Between Job-Order and Process Costing Direct Material Finished Goods Cost of Goods Sold Direct Labor ManufacturingOverhead Jobs The work-in-process account consists of individual jobs in a job-order cost system.

Differences Between Job-Order and Process Costing Direct Material Finished Goods Cost of Goods Sold Products The work-in-process account consists of individual products in a process cost system. Direct Labor & Overhead ( Conversion) When direct labor is a relatively small amount compared to material and overhead, it is often combined with overhead.

Process Cost Flows

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.

Equivalent Units of Production Equivalent units are 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.

Process Cost Flows Finished Goods Cost of Goods Sold Work in Process Department B
Cost of Goods Manufactured
Direct Materials
Direct Labor
Applied Overhead
Transferred from Dept. A
Cost of Goods Sold
Cost of Goods Sold
Cost of Goods Manufactured

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

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

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 10,000 units + (5,000 units × 0.30) = 11,500 equivalent units

Calculating and Using Equivalent Units of Production
To calculate the cost per equivalent unit for the period:
Cost per equivalent unit = Costs for the period Equivalent units of production for the period

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 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 Quick Check 

Equivalent Units of Production – Weighted Average Method
The weighted average method . . .
Makes no distinction between work done in prior and current period.
Blends together units and costs from prior period and current period.
Let’s see how this works!

MVP Sports Equipment Company makes baseball gloves in two departments, Cutting and Stitching.
MVP uses the weighted-average cost procedure.
Material is added at the beginning of the Cutting Department, and conversion is incurred uniformly throughout the process.
Using the following information for the month of March, let’s prepare a production report for the Cutting Department.
EXP 1: Production Report Example

Work in process, March 1: 20,000 units Cost
Materials: 100% complete. $ 50,000
Conversion: 10% complete. 7,200
Units started into production in March: 30,000 units
Units completed and transferred out in March: 40,000 units
Work in process, March 31: 10,000 units
Materials 100% complete.
Conversion 50% complete.
Costs incurred during March
Materials cost 90,000
Conversion costs:
Direct labor $ 86,000
Applied manufacturing overhead 107,500
Total conversion costs 193,500
Total costs to account for $ 340,700
Production Report Example

Analysis of Physical Flow of Units

Calculation of Equivalent Units
50% of 10,000 units Beginning inventory % is not used in weighted-average method.

Calculation of Equivalent Units
100% of 10,000 units, all material added at beginning

Computation of unit costs
$140,000 ÷ 50,000 equivalent units $200,700 ÷ 45,000 equivalent units $2.80 + $4.46

Analysis of total costs

Analysis of total costs
All costs accounted for

Double Diamond Skis uses process costing to determine unit costs in its Shaping and Milling Department.
Double Diamond uses the weighted average cost procedure.
Using the following information for the month of May, let’s prepare a production report for Shaping and Milling.
EXP 2: Production Report Example

Work in process, May 1: 200 units
Materials: 55% complete. $ 9,600
Conversion: 30% complete. 5,575
Production started during May: 5,000 units
Production completed during May: 4,800 units
Costs added to production in May
Materials cost $ 368,600
Conversion cost 350,900
Work in process, May 31: 400 units
Materials 40% complete.
Conversion 25% complete.

Production Report Example Section 1: Quantity Schedule with Equivalent Units

Production Report Example Section 2: Compute cost per equivalent unit

Production Report Example Section 2: Compute cost per equivalent unit $378,200 ÷ 4,960 units = $76.25

Production Report Example $356,475 ÷ 4,900 units = $72.75 Section 2: Compute cost per equivalent unit

Production Report Example Section 3: Cost Reconciliation

Production Report Example 4,800 units @ $149.00 Section 3: Cost Reconciliation

Production Report Example 160 units @ $76.25 Section 3: Cost Reconciliation All costs accounted for 100 units @ $72.75

Manufacturing overhead is applied to Work-in-Process Inventory using a predetermined overhead rate Actual costs of manufacturing overhead are entered in Work-in-Process Inventory Actual Costing vs. Normal Costing

JOIN KHALID AZIZ
ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM.
FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA.
COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA.
CONTACT:
0322-3385752
0312-2302870
R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN.

http://karachiwala77.blogspot.com	5715
http://karachiwala77.blogspot.in	46
http://karachiwala77.blogspot.co.uk	35
http://www.karachiwala77.blogspot.com	19
http://karachiwala77.blogspot.com.au	17
http://karachiwala77.blogspot.ca	11
http://karachiwala77.blogspot.fr	4
http://translate.googleusercontent.com	3
http://karachiwala77.blogspot.it	2
http://karachiwala77.blogspot.se	2
http://karachiwala77.blogspot.jp	2
http://karachiwala77.blogspot.mx	2
http://webcache.googleusercontent.com	2
http://copyscape.com	2
http://karachiwala77.blogspot.com.es	1
http://karachiwala77.blogspot.de	1
http://karachiwala77.blogspot.sg	1

Product costing

by Khalid Aziz on Nov 21, 2011

Accessibility

Categories

Upload Details

Usage Rights

17 Embeds 5,865

Statistics

Product costing — Presentation Transcript