2. Some of the action has been automated, so click the mouse when you see this lightning bolt in the lower right-hand corner of the screen. You can point and click anywhere on the screen.
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5. 1. Distinguish between job order costing and process costing systems. 2. Explain and illustrate the physical flows and cost flows for a process manufacturer. 3. Calculate and interpret the accounting for completed and partially completed units under the fifo method. 4. Prepare a cost of production report. Objectives
6. 5. Prepare journal entries for transactions of a process manufacturer. Objectives 6. Use cost of production reports for decision making. 7. Contrast just-in-time processing with conventional manufacturing practices.
7. Job Order Cost System Comparing Job Order Costing and Process Costing Direct materials Factory overhead Direct labor Work in Process Account to Finished Goods Job Cost Sheets Dept. A and Dept. B
8. Process Cost System Direct materials Work in Process Account Work in Process Account DEPT. A DEPT. B Factory Overhead Direct Labor Factory Overhead Direct Labor to Finished Goods Comparing Job Order Costing and Process Costing
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10. Physical Flows for a Process Manufacturer Scrap Metal Materials Melting Department Casting Department
11. Molten metal transferred from Melting Casting Department Melting Department Physical Flows for a Process Manufacturer To finished goods
12. Materials WIP – Melting Factory OH – Melting DM Purchases of direct and indirect materials Direct materials used in production DM Finished Goods Cost of Goods Sold Factory OH – Casting WIP – Casting Cost Flows for a Process Manufacturer DM
13. Materials WIP – Melting DM DL DM Direct labor used in production DL Purchases of direct and indirect materials Finished Goods Cost of Goods Sold Factory OH – Casting Actual costs incurred WIP – Casting Factory OH – Melting Cost Flows for a Process Manufacturer
14. Materials WIP – Melting Finished Goods WIP – Casting Cost of Goods Sold DM DL DM Indirect materials used in production IM Purchases of direct and indirect materials IM Factory OH – Casting Factory OH – Melting Cost Flows for a Process Manufacturer Actual costs incurred Actual costs incurred
15. Materials WIP – Melting Finished Goods WIP – Casting Cost of Goods Sold DM DL DM Factory overhead applied FOA Purchases of direct and indirect materials IM Factory OH – Casting Actual costs incurred FOA Factory OH – Melting Cost Flows for a Process Manufacturer Actual costs incurred FOA
16. Materials WIP – Melting Finished Goods WIP – Casting Cost of Goods Sold DM DL DM Cost transferred out/transferred in TO/TI Purchases of direct and indirect materials IM Factory OH – Casting Actual costs incurred FOA FOA TO Factory OH – Melting Cost Flows for a Process Manufacturer Actual costs incurred TI
17. Materials WIP – Melting Finished Goods WIP – Casting Cost of Goods Sold DM DL DM Purchases of direct and indirect materials IM Factory OH – Casting Actual costs incurred FOA FOA TO TI DL Factory overhead applied FOA Direct labor used in production DL FOA Factory OH – Melting Cost Flows for a Process Manufacturer Actual costs incurred FOA
18. Materials WIP – Melting Finished Goods WIP – Casting Cost of Goods Sold DM DL DM Purchases of direct and indirect materials IM Factory OH – Casting Actual costs incurred FOA FOA TO TI DL FOA FOA Cost transferred out/transferred in TO/TI TO Factory OH – Melting Cost Flows for a Process Manufacturer Actual costs incurred TI
19. Cost Flows for a Process Manufacturer Materials WIP – Melting Finished Goods WIP – Casting Cost of Goods Sold DM DL DM Purchases of direct and indirect materials IM Factory OH – Casting Actual costs incurred FOA FOA TO TI DL FOA FOA Cost of goods sold COGS TO TI COGS Factory OH – Melting Actual costs incurred COGS
21. Melting Department of McDermott Steel Inc. Inventory in process, July 1, 500 tons: Direct materials cost, 500 tons $24,550 Conversion costs, 500 tons, 70% completed 3,600 Total inventory in process, July 1 $28,150 Direct materials cost for July, 1,000 tons 50,000 Conversion costs for July 9,690 Goods transferred to Casting in July, 1,100 tons ? Inventory in process, July 31, 400 tons, 25% complete as to conversion costs ?
22. Step 1: Determine the Units to be Assigned Costs Beginning Inventory 500 Tons Work in Process – Melting Started 1,000 Tons
23. Beginning Inventory 500 Tons Work in Process – Melting Started 1,000 Tons Transferred 1,100 Tons In a perpetual inventory system, outflows are recorded as they occur. Step 1: Determine the Units to be Assigned Costs
24. Beginning Inventory 500 Tons Work in Process – Melting Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Step 1: Determine the Units to be Assigned Costs Beginning Inventory 500 Tons 1
25. Beginning Inventory 500 Tons Work in Process – Melting Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Step 1: Determine the Units to be Assigned Costs Beginning Inventory 500 Tons 1 Started & Completed ? Tons + 2
26. Beginning Inventory 500 Tons Work in Process – Melting Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Step 1: Determine the Units to be Assigned Costs Beginning Inventory 500 Tons 1 Started & Completed 600 Tons + 2
27. Beginning Inventory 500 Tons Work in Process – Melting Started 1,000 Tons Transferred 1,100 Tons Ending Inventory 400 Tons Beginning Inventory 500 Tons 1 = + Step 1: Determine the Units to be Assigned Costs Total tons to be assigned costs Started & Completed 600 Tons + 2 Transferred Out 1,100 Tons Ending Inventory 400 Tons 3 Total units 1,500 Tons =
28. The equivalent units of production are the number of units that could have been completed within a given accounting period. Step 2: Calculate equivalent units of production
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30. Step 2: Calculate Equivalent Units of Production Materials Equivalent Units Total Percent Equivalent Units Added Units Inventory in process, July 1 500 0% 0 Started and completed in July 600 100% 600 Transferred out to Casting Dept. 1,100 600 Inventory in process, July 31 400 100% 400 Total tons to be assigned cost 1,500 1,000
31. Step 2: Calculate Equivalent Units of Production 500 EU of materials 500 tons beginning inventory 100% materials added in June JULY 1 JULY 31 1,000 Equivalent Units No materials equivalent units added to beginning inventory for July 600 EU of materials 600 tons started and completed 100% materials added in July 400 EU of materials 400 tons ending inventory 100% materials added in July Inventory in process, July 1 Note: Started and completed Inventory in process, July 31
32. Step 2: Calculate Equivalent Units of Production Conversion Equivalent Units Inventory in process, July 1 500 30% 150 Started and completed in July 600 100% 600 Transferred out to Casting Dept. 1,100 750 Inventory in process, July 31 400 25% 100 Total tons to be assigned cost 1,500 850 Total Percent Equivalent Units Added Units
33. 350 EU 500 tons beginning inventory 70% completed for conversion in June JULY 1 600 EU 600 tons started and completed 100% completed for conversion in July JULY 31 100 EU 400 tons ending inventory 25% completed for conversion in July 850 Equivalent Units Step 2: Calculate Equivalent Units of Production 150 EU 300 EU 30% completed for conversion in July Inventory in process, July 1 Inventory in process, July 31 (75% to be completed for conversion in August)
34. Step 3: Determine the Cost per Equivalent Unit Equivalent Units Direct Materials Conversion Inventory in process, July 1 0 150 Started and completed in July (1,100 – 500) 600 600 Transferred out to Casting Dept. in July 600 750 Inventory in process, July 31 400 100 Total tons to be assigned cost 1,000 850
35. Beginning Inventory $28,150 Work in Process – Melting Conversion Equivalent Unit Cost Direct Materials Equivalent Unit Cost $50,000 direct materials cost $9,690 conversion cost Step 3: Determine the Cost per Equivalent Unit Materials $50,000 Conversion Costs $9,690 $11.40 per EU of con- version = 1,000 direct materials equivalent units 850 conversion equivalent units $50.00 per EU of DM =
36. Inventory in process, July 1 beginning balance $28,150 Equivalent units for completing the July in-process inventory 0 150 Equivalent unit cost x $50.00 x $11.40 Cost of completed July 1 in- process inventory $0 $1,710 1,710 Cost of July 1 in-process inventory transferred to Casting Department $29,860 Step 4: Allocate Costs to Transferred and Partially Completed Units Direct Materials Conversion Total Costs Costs Costs
37. Units started and completed in July 600 600 Equivalent unit cost x $50.00 x $11.40 Cost to complete the units started and completed in July $ 30,000 $ 6,840 $36,840 Direct Materials Conversion Total Costs Costs Costs Step 4: Allocate Costs to Transferred and Partially Completed Units
38. Equivalent units in ending inventory 400 100 Equivalent unit cost x $50.00 x $11.40 Cost of ending inventory $ 20,000 $ 1,140 $21,140 Direct Materials Conversion Total Costs Costs Costs Step 4: Allocate Costs to Transferred and Partially Completed Units
39. Beginning Inventory $28,150 Materials Costs $50,000 Started and Completed $36,840 Beginning Inventory $29,860 Work in Process – Melting Total Costs Charged $87,840 Ending Inventory $21,140 Conversion Costs $9,690 Total Costs Assigned $87,840 M 600 x 100% x $50.00 = $30,000 C 600 x 100% x $11.40 = 6,840 $36,840 M 400 x 100% x $50.00 = $20,000 C 400 x 25% x $11.40 = 1,140 $21,140 Beginning cost $28,150 M 500 x 0% x $50.00 = 0 C 500 x 30% x $11.40 = 1,710 $29,860 Total Costs Assigned $87,840 Costs Step 4: Allocate Costs to Transferred and Partially Completed Units
40. A cost of production report is prepared for each processing department at periodical intervals.
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42. A cost of production report also is used to control costs.
43. Units Units charged to production: Inventory in process, July 1 500 Received from materials 1,000 Total units accounted for 1,500 Units to be assigned cost: Inventory in process, July 1 (70% complete) 500 0 150 Started and completed in July 600 600 600 Transferred to Casting Dept. 1,100 600 750 Inventory in process, July 31 (25% complete) 400 400 100 Total units to be assigned cost 1,500 1,000 850 Whole Direct Units Materials Conversion Equivalent Units Cost of Production Report —Melting Department Step 1 Step 2
44. Costs Direct Materials Conversion Total Costs Costs Step 3 Unit costs: Total costs for July in Melting Department $50,000 $9,690 Total equivalent units (from Slide 43) ÷ 1,000 ÷ 850 Cost per equivalent unit $ 50.00 $11.40 Cost of Production Report —Melting Department
45. Costs Direct Conversion Total Materials Costs Costs Costs charged to production: Inventory in process, July 1 $28,150 Cost incurred in July 59,690 Total costs accounted for $87,840 Costs allocated to completed and partially completed units Inventory in process, July 1 $28,150 To complete inventory of July 1 $ 0 $1,710 1,710 Started and completed in July 30,000 6,840 36,840 Transferred to Casting Dept. $66,700 Inventory in process, July 31 $20,000 $1,140 21,140 Total costs assigned $87,840 Cost of Production Report —Melting Department Step 4
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49. Upholstery Dept. Assembly Dept. Just-in-Time Processing (JIT) Cutting Dept. Wood Traditional Production Line Drilling Dept. Sanding Dept. Staining Dept. Varnishing Dept.
50. Just-in-Time Processing (JIT) Just-in-Time Production Line Wood Cutting drilling and sanding Staining and varnishing Upholstery and assembly Work Center One Work Center Two Work Center Three
