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Product costing

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Product costing

  1. 1. PRODUCT COSTING
  2. 2. JOIN KHALID AZIZ <ul><li>ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. </li></ul><ul><li>FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. </li></ul><ul><li>COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. </li></ul><ul><li>CONTACT: </li></ul><ul><li>0322-3385752 </li></ul><ul><li>0312-2302870 </li></ul><ul><li>R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN. </li></ul>
  3. 3. JOIN KHALID AZIZ <ul><li>CRASH CLASSES </li></ul><ul><li>ICMAP STAGE 3 </li></ul><ul><li>FINANCIAL ACCOUNTING & COST ACCOUNTING PERFORMANCE APPRAISAL </li></ul><ul><li>INDIVIDUAL & GROUPS </li></ul>
  4. 4. JOIN KHALID AZIZ <ul><li>CRASH CLASSES </li></ul><ul><li>ICMAP STAGE 1 & 2 </li></ul><ul><li>FUNDAMENTALS OF FINANCIAL ACCOUNTING & COST ACCOUNTING </li></ul><ul><li>INDIVIDUAL & GROUPS </li></ul>
  5. 5. JOIN KHALID AZIZ <ul><li>FRESH CLASSES </li></ul><ul><li>CA MODULE B & D </li></ul><ul><li>FINANCIAL ACCOUNTING & COST ACCOUNTING </li></ul><ul><li>INDIVIDUAL & GROUPS </li></ul>
  6. 6. Comparison of Job-Order Costing and Process Costing Process Costing Process Costing Job-order Costing <ul><li>Used for production of small, identical, low cost items. </li></ul><ul><li>Mass produced in automated continuous production process. </li></ul><ul><li>Costs cannot be directly traced to each unit of product. </li></ul>
  7. 7. Comparison of Job-Order Costing and Process Costing Process Costing Process Costing Job-order Costing <ul><li>Typical process cost applications: </li></ul><ul><ul><li>Petrochemical refinery </li></ul></ul><ul><ul><li>Paint manufacturer </li></ul></ul><ul><ul><li>Paper mill </li></ul></ul>
  8. 8. <ul><li>Job-order costing </li></ul><ul><ul><li>Costs accumulated by the job . </li></ul></ul><ul><ul><li>Work in process has a job-cost sheet for each job . </li></ul></ul><ul><ul><li>Many unique, high cost jobs. </li></ul></ul><ul><ul><li>Jobs built to customer order. </li></ul></ul><ul><li>Process costing </li></ul><ul><ul><li>Costs accumulated by department or process . </li></ul></ul><ul><ul><li>Work in process has a production report for each batch of products . </li></ul></ul><ul><ul><li>A few identical, low cost products. </li></ul></ul><ul><ul><li>Units continuously produced for inventory in automated process. </li></ul></ul>Comparison of Job-Order Costing and Process Costing
  9. 9. 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.
  10. 10. 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.
  11. 11. Process Cost Flows
  12. 12. Process Cost Flows
  13. 13. Equivalent Units: A Key Concept <ul><li>Costs are accumulated for a period of time for products in work-in-process inventory. </li></ul><ul><li>Products in work-in-process inventory at the beginning and end of the period are only partially complete. </li></ul><ul><li>Equivalent units is a concept expressing these partially completed products as a smaller number of fully completed products. </li></ul>
  14. 14. 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.
  15. 15. Process Cost Flows Finished Goods Cost of Goods Sold Work in Process Department B <ul><li>Cost of Goods Manufactured </li></ul><ul><li>Direct Materials </li></ul><ul><li>Direct Labor </li></ul><ul><li>Applied Overhead </li></ul><ul><li>Transferred from Dept. A </li></ul><ul><li>Cost of Goods Sold </li></ul><ul><li>Cost of Goods Sold </li></ul><ul><li>Cost of Goods Manufactured </li></ul>
  16. 16. 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
  17. 17. 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
  18. 18. 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
  19. 19. Calculating and Using Equivalent Units of Production <ul><li>To calculate the cost per equivalent unit for the period: </li></ul>Cost per equivalent unit = Costs for the period Equivalent units of production for the period
  20. 20. 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 
  21. 21. 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 
  22. 22. Equivalent Units of Production – Weighted Average Method <ul><li>The weighted average method . . . </li></ul><ul><ul><li>Makes no distinction between work done in prior and current period. </li></ul></ul><ul><ul><li>Blends together units and costs from prior period and current period. </li></ul></ul>Let’s see how this works!
  23. 23. <ul><li>MVP Sports Equipment Company makes baseball gloves in two departments, Cutting and Stitching. </li></ul><ul><li>MVP uses the weighted-average cost procedure. </li></ul><ul><li>Material is added at the beginning of the Cutting Department, and conversion is incurred uniformly throughout the process. </li></ul><ul><li>Using the following information for the month of March, let’s prepare a production report for the Cutting Department. </li></ul>EXP 1: Production Report Example
  24. 24. <ul><li>Work in process, March 1: 20,000 units Cost </li></ul><ul><li>Materials: 100% complete. $ 50,000 </li></ul><ul><li>Conversion: 10% complete. 7,200 </li></ul><ul><li>Units started into production in March: 30,000 units </li></ul><ul><li>Units completed and transferred out in March: 40,000 units </li></ul><ul><li>Work in process, March 31: 10,000 units </li></ul><ul><li>Materials 100% complete. </li></ul><ul><li>Conversion 50% complete. </li></ul><ul><li>Costs incurred during March </li></ul><ul><li>Materials cost 90,000 </li></ul><ul><li>Conversion costs: </li></ul><ul><li>Direct labor $ 86,000 </li></ul><ul><li>Applied manufacturing overhead 107,500 </li></ul><ul><li>Total conversion costs 193,500 </li></ul><ul><li>Total costs to account for $ 340,700 </li></ul>Production Report Example
  25. 25. Production Report Example <ul><li>Analysis of Physical Flow of Units </li></ul>
  26. 26. Production Report Example <ul><li>Calculation of Equivalent Units </li></ul>50% of 10,000 units Beginning inventory % is not used in weighted-average method.
  27. 27. Production Report Example <ul><li>Calculation of Equivalent Units </li></ul>100% of 10,000 units, all material added at beginning
  28. 28. Production Report Example <ul><li>Computation of unit costs </li></ul>$140,000 ÷ 50,000 equivalent units $200,700 ÷ 45,000 equivalent units $2.80 + $4.46
  29. 29. Production Report Example <ul><li>Analysis of total costs </li></ul>
  30. 30. Production Report Example <ul><li>Analysis of total costs </li></ul>
  31. 31. Production Report Example <ul><li>Analysis of total costs </li></ul>All costs accounted for
  32. 33. <ul><li>Double Diamond Skis uses process costing to determine unit costs in its Shaping and Milling Department. </li></ul><ul><li>Double Diamond uses the weighted average cost procedure. </li></ul><ul><li>Using the following information for the month of May, let’s prepare a production report for Shaping and Milling. </li></ul>EXP 2: Production Report Example
  33. 34. <ul><li>Work in process, May 1: 200 units </li></ul><ul><li>Materials: 55% complete. $ 9,600 </li></ul><ul><li>Conversion: 30% complete. 5,575 </li></ul><ul><li>Production started during May: 5,000 units </li></ul><ul><li>Production completed during May: 4,800 units </li></ul><ul><li>Costs added to production in May </li></ul><ul><li>Materials cost $ 368,600 </li></ul><ul><li>Conversion cost 350,900 </li></ul><ul><li>Work in process, May 31: 400 units </li></ul><ul><li>Materials 40% complete. </li></ul><ul><li>Conversion 25% complete. </li></ul>Production Report Example
  34. 35. Production Report Example Section 1: Quantity Schedule with Equivalent Units
  35. 36. Production Report Example Section 1: Quantity Schedule with Equivalent Units
  36. 37. Production Report Example Section 1: Quantity Schedule with Equivalent Units
  37. 38. Production Report Example Section 2: Compute cost per equivalent unit
  38. 39. Production Report Example Section 2: Compute cost per equivalent unit $378,200 ÷ 4,960 units = $76.25
  39. 40. Production Report Example $356,475 ÷ 4,900 units = $72.75 Section 2: Compute cost per equivalent unit
  40. 41. Production Report Example Section 3: Cost Reconciliation
  41. 42. Production Report Example 4,800 units @ $149.00 Section 3: Cost Reconciliation
  42. 43. Production Report Example 160 units @ $76.25 Section 3: Cost Reconciliation All costs accounted for 100 units @ $72.75
  43. 44. 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
  44. 45. JOIN KHALID AZIZ <ul><li>ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. </li></ul><ul><li>FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. </li></ul><ul><li>COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. </li></ul><ul><li>CONTACT: </li></ul><ul><li>0322-3385752 </li></ul><ul><li>0312-2302870 </li></ul><ul><li>R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN. </li></ul>

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