1. The document compares and contrasts job-order costing and process costing. Process costing accumulates costs by department rather than individual jobs and computes unit costs by department rather than per job.
2. Processing departments are where materials, labor, or overhead are added to products uniformly. In process costing, products typically flow sequentially from one department to the next.
3. The document outlines the flow of costs including direct materials, direct labor, manufacturing overhead, and cost of goods sold through the manufacturing accounts under process costing. Costs flow from raw materials to work in process to finished goods and eventually to cost of goods sold.
- Process costing is used for products that are similar and produced continuously, while job-order costing is used for unique jobs.
- Process costing accumulates costs by department rather than individual jobs. Costs flow through manufacturing accounts like Work in Process and are ultimately transferred to Finished Goods.
- Equivalent units of production considers partially completed units by calculating a percentage of completion and combining it with fully completed units to determine total production for the period.
This document discusses process costing and compares it to job order costing. Process costing is used when a company mass produces uniform products continuously. Costs are tracked by production department rather than individual jobs. Equivalent units of production are calculated using the weighted average method to determine the cost per unit. The key document is the production cost report which shows quantity, costs and unit costs by department. A comprehensive example is provided to illustrate calculating equivalent units, unit costs and completing a production cost report for the mixing department of a company that makes waffles.
Managerial Accounting Garrison Noreen Brewer Chapter 04Asif Hasan
This document provides an overview of process costing, including definitions, similarities and differences between job-order and process costing systems, and examples of how costs flow through processing departments using T-accounts and journal entries. Key points covered include: process costing is used for products produced continuously and in large quantities, costs are accumulated and traced by department rather than individual jobs, and examples illustrate the flow of direct materials, direct labor, and applied overhead from raw materials to work in process to finished goods.
Job order costing is used by companies that produce custom or batch products. Key documents include bills of materials, time tickets, and cost sheets to accumulate costs for each job. Manufacturing overhead is applied using a predetermined overhead rate based on budgeted overhead costs and activity, such as direct labor hours. This ensures accurate overhead assignment to individual products. Variances may occur between actual and applied overhead costs.
cost accounting chapter 6, fundamentals of product and service designBeaDelaPenia1
This document discusses job-order costing systems used by manufacturing firms that produce unique products in small batches. It explains the key aspects of setting up a job-order costing system including cost accumulation, measurement, and assignment. Costs like direct materials, direct labor, and applied overhead are traced to individual jobs and accumulated on job cost sheets. The chapter compares using a single overhead rate versus multiple rates and how they impact cost assignment.
This document discusses job order costing systems, including how they track costs by individual jobs rather than in batches like process costing, how the job order cost sheet accumulates actual direct and overhead costs for each job, and how standard costing compares actual costs to budgeted standards to evaluate performance and set prices.
The document defines and discusses key cost accounting terms and concepts. It describes how costs flow through a manufacturing company, from raw materials to work in process to finished goods. It also covers cost accumulation procedures like job order costing and process costing, and how costs move from the balance sheet to the income statement. Cost classification categories like direct vs indirect, variable vs fixed, and product vs period costs are also summarized.
Resentation for PeopleSoft SCM users group comparing and Standard and Actual Costing for Production Inventories using PeopleSoft Cost Managment functionality.
- Process costing is used for products that are similar and produced continuously, while job-order costing is used for unique jobs.
- Process costing accumulates costs by department rather than individual jobs. Costs flow through manufacturing accounts like Work in Process and are ultimately transferred to Finished Goods.
- Equivalent units of production considers partially completed units by calculating a percentage of completion and combining it with fully completed units to determine total production for the period.
This document discusses process costing and compares it to job order costing. Process costing is used when a company mass produces uniform products continuously. Costs are tracked by production department rather than individual jobs. Equivalent units of production are calculated using the weighted average method to determine the cost per unit. The key document is the production cost report which shows quantity, costs and unit costs by department. A comprehensive example is provided to illustrate calculating equivalent units, unit costs and completing a production cost report for the mixing department of a company that makes waffles.
Managerial Accounting Garrison Noreen Brewer Chapter 04Asif Hasan
This document provides an overview of process costing, including definitions, similarities and differences between job-order and process costing systems, and examples of how costs flow through processing departments using T-accounts and journal entries. Key points covered include: process costing is used for products produced continuously and in large quantities, costs are accumulated and traced by department rather than individual jobs, and examples illustrate the flow of direct materials, direct labor, and applied overhead from raw materials to work in process to finished goods.
Job order costing is used by companies that produce custom or batch products. Key documents include bills of materials, time tickets, and cost sheets to accumulate costs for each job. Manufacturing overhead is applied using a predetermined overhead rate based on budgeted overhead costs and activity, such as direct labor hours. This ensures accurate overhead assignment to individual products. Variances may occur between actual and applied overhead costs.
cost accounting chapter 6, fundamentals of product and service designBeaDelaPenia1
This document discusses job-order costing systems used by manufacturing firms that produce unique products in small batches. It explains the key aspects of setting up a job-order costing system including cost accumulation, measurement, and assignment. Costs like direct materials, direct labor, and applied overhead are traced to individual jobs and accumulated on job cost sheets. The chapter compares using a single overhead rate versus multiple rates and how they impact cost assignment.
This document discusses job order costing systems, including how they track costs by individual jobs rather than in batches like process costing, how the job order cost sheet accumulates actual direct and overhead costs for each job, and how standard costing compares actual costs to budgeted standards to evaluate performance and set prices.
The document defines and discusses key cost accounting terms and concepts. It describes how costs flow through a manufacturing company, from raw materials to work in process to finished goods. It also covers cost accumulation procedures like job order costing and process costing, and how costs move from the balance sheet to the income statement. Cost classification categories like direct vs indirect, variable vs fixed, and product vs period costs are also summarized.
Resentation for PeopleSoft SCM users group comparing and Standard and Actual Costing for Production Inventories using PeopleSoft Cost Managment functionality.
Job-order costing is used for unique products or services built to customer specifications. Costs are accumulated by individual job on a job order cost sheet. This allows the profitability of each job to be determined. Important documents include material requisitions, job order cost sheets, and employee timecards. Manufacturing overhead includes indirect costs like depreciation, utilities, and supervision. Overhead is allocated to jobs using a predetermined overhead rate based on an allocation base like direct labor hours.
1) The document discusses various product costing models including unit-level, functional-based, and activity-based costing.
2) It provides examples of how overhead costs are assigned to products using plantwide or departmental predetermined overhead rates under unit-level costing.
3) Under activity-based costing, it describes the design steps which include identifying activities, assigning resource costs to activities, assigning activity costs to cost objects, and calculating activity rates to determine unit costs.
1) The document discusses various product costing models including unit-level, functional-based, and activity-based costing.
2) It provides examples of how overhead costs are assigned to products using plantwide or departmental predetermined overhead rates under unit-level costing.
3) Under activity-based costing, it describes the design steps which include identifying activities, assigning resource costs to activities, assigning activity costs to cost objects, and calculating activity rates to determine unit costs.
Costi di Processo: 1.Differenza tra Costi per Commessa e Costi di ProcessoManager.it
Process costing is used for products that are similar and produced continuously through a production process. Costs are accumulated by departments rather than individual jobs. The department production report is the key document, and unit costs are computed based on total department costs divided by total units produced in that department. Direct labor and manufacturing overhead costs are often combined into a single conversion cost under process costing.
This document discusses different costing methods used in management accounting including job costing, process costing, batch costing, contract costing, and service costing. It provides examples and explanations of key concepts in job costing like job cost sheets, predetermined overhead rates, and manufacturing overhead. Process costing is explained as a method used for mass production of nearly identical units where costs are accumulated and assigned to units produced. Batch costing is defined as identifying and assigning costs to a set amount of similar goods produced in a batch. Contract costing applies especially to long-term construction projects performed over multiple periods. Finally, service costing calculates the full costs of services an entity provides using direct and indirect costs.
Complete Cost Accumulation Procedures in Manufacturing Organizationsoptiplex7866
The document discusses different cost accumulation systems used in accounting, including job order costing and process costing. It explains that job order costing tracks costs for individual jobs or orders, while process costing accumulates average costs for batches of homogeneous products. The key differences and similarities between the two systems are outlined.
This document provides an overview of standard costing and variance analysis. It defines standard costs as realistic estimates of costs used to set performance targets. Standard costs are developed for direct materials, direct labor, and manufacturing overhead. Variance analysis compares standard costs to actual costs to identify differences known as variances. Managers use variance analysis to control costs by investigating significant variances and taking corrective actions. The document demonstrates how to calculate variances for direct materials costs.
The document discusses job-order costing, including:
1. Job-order costing is used when different products are produced to customer orders and the unique nature of each job requires tracing costs.
2. Manufacturing overhead is allocated to jobs using a predetermined overhead rate based on an allocation base like direct labor hours.
3. Underapplied or overapplied overhead can occur if actual overhead differs from the amount applied using the predetermined rate.
This document discusses key concepts in job order costing systems including:
- Job order costing tracks costs by individual jobs or orders while process costing tracks costs by departments.
- A job can refer to a client, project, or contract. Costs like direct materials, direct labor, and overhead are accumulated for each job.
- Forms like material requisitions, time sheets, and job order cost sheets are used to track costs by job.
- Standard costs can be used to compare actual costs to budgeted costs for management decision making.
- Normal losses are expected and included in overhead rates while abnormal losses are treated as period costs.
1. The document discusses the differences and similarities between job-order costing and process costing. Process costing accumulates costs by department and computes unit costs by department, while job-order costing accumulates costs by individual jobs and computes unit costs by job.
2. It provides steps for calculating equivalent units of production and costs per equivalent unit in process costing. Equivalent units consider partial units by multiplying the quantity by the percentage complete. Costs per equivalent unit are calculated by dividing total costs by equivalent units.
3. Costs are applied to ending work in process inventory and units transferred out based on equivalent units and costs per equivalent unit for each department. Cost reconciliation ensures total costs are properly accounted
This document discusses job costing, including its definition, purpose, characteristics, applicability, differences from process costing, basic terminology, the seven steps of job costing, related journal entries, and an example problem involving actual, normal, and variance costing for a job. Job costing involves collecting and assigning costs to identifiable jobs or orders, and is used when production involves made-to-order or custom goods of short duration. It helps with planning, cost control, and decision making.
Job order costing and process costing are two different costing systems. Job order costing tracks costs for unique jobs or orders, while process costing is used for mass production of standardized products. Under job order costing, a separate cost record is kept for each job, while process costing accumulates costs for each production process over a period of time. Job order costing is suitable when products differ for each order, while process costing is more appropriate for continuous, large-scale production of homogeneous items.
This document discusses job order costing systems. It explains that job order costing accumulates costs for individual jobs or orders and uses a subsidiary ledger to track the costs of each job. It describes how direct materials, direct labor, and overhead costs are recorded for jobs and how journal entries are made to track costs in work in process and finished goods inventory accounts. Finally, it notes that job order costing information is used by management to estimate costs, set prices, develop budgets, compare actual to estimated costs, determine profitable jobs, and manage inventory.
Process costing is used to assign costs to units produced in continuous production and calculates equivalent units of production to account for incomplete units, while job order costing tracks costs for individual jobs or orders; process costing uses weighted average or FIFO methods to calculate equivalent units, with the difference being whether beginning inventory is combined or separated from current production; a company may use a hybrid costing system to apply aspects of both job order and process costing to different product lines or processes within the company.
This document provides an overview of process costing and compares it to job-order costing. It discusses key aspects of process costing including how costs flow through processing departments and accumulate in work-in-process and finished goods inventory. Equivalent units are calculated to determine the total production for a period when units are in partially completed stages. Costs are allocated to departments and inventory based on equivalent units using either a weighted-average or first-in, first-out method. Direct labor costs may be small compared to other conversion costs in process costing systems.
This document discusses activity-based costing (ABC) as a refinement of traditional costing systems. ABC focuses on individual activities as basic cost objects and assigns costs to these activities rather than broad cost pools. It explains that ABC systems improve upon traditional systems by using more direct cost tracing, more homogeneous indirect cost pools, and cost allocation bases related to what causes the cost pools to change. The document also notes several benefits of ABC systems, such as more accurate product costing, improved management decision making, and increased efficiency.
This document discusses cost estimation for manufacturing processes. It defines cost estimation as predicting production costs before actual manufacturing. The key steps in cost estimation are: 1) Analyzing the product and creating a bill of materials, 2) Estimating material, labor, tooling and purchased part costs, 3) Calculating direct costs, overhead costs and profit to determine a selling price. Common cost estimation methods include factor analysis, material cost ratios, and detailed analysis of each manufacturing operation and cost element. Accurate cost estimation allows companies to set prices, evaluate product feasibility, and make production planning decisions.
This document discusses product costing and cost accumulation in a batch production environment. It covers topics like job-order costing, process costing, predetermined overhead rates, flow of costs, manufacturing overhead, work-in-process, cost of goods manufactured, normal and actual costing, departmental overhead rates, and how job-order costing can be used for non-manufacturing organizations.
This document discusses process costing and provides examples of how it is applied. It begins by explaining the key differences between job-order costing and process costing. Process costing accumulates costs by department rather than individual jobs. It then provides an example of calculating equivalent units of production using the weighted-average method for a department that started 6,000 units and completed 5,400 units during the period. The document also includes examples of production reports and cost flows for a process costing system.
This document discusses accounting for factory overhead costs. It covers identifying variable and fixed overhead costs, budgeting overhead, accumulating actual overhead costs, applying overhead to production using predetermined overhead rates, and accounting for differences between actual and applied overhead. Methods discussed include direct labor cost rate, direct labor hour rate, and activity-based costing. The document also addresses distributing service department costs and treating under- or over-applied overhead.
Storytelling is an incredibly valuable tool to share data and information. To get the most impact from stories there are a number of key ingredients. These are based on science and human nature. Using these elements in a story you can deliver information impactfully, ensure action and drive change.
Job-order costing is used for unique products or services built to customer specifications. Costs are accumulated by individual job on a job order cost sheet. This allows the profitability of each job to be determined. Important documents include material requisitions, job order cost sheets, and employee timecards. Manufacturing overhead includes indirect costs like depreciation, utilities, and supervision. Overhead is allocated to jobs using a predetermined overhead rate based on an allocation base like direct labor hours.
1) The document discusses various product costing models including unit-level, functional-based, and activity-based costing.
2) It provides examples of how overhead costs are assigned to products using plantwide or departmental predetermined overhead rates under unit-level costing.
3) Under activity-based costing, it describes the design steps which include identifying activities, assigning resource costs to activities, assigning activity costs to cost objects, and calculating activity rates to determine unit costs.
1) The document discusses various product costing models including unit-level, functional-based, and activity-based costing.
2) It provides examples of how overhead costs are assigned to products using plantwide or departmental predetermined overhead rates under unit-level costing.
3) Under activity-based costing, it describes the design steps which include identifying activities, assigning resource costs to activities, assigning activity costs to cost objects, and calculating activity rates to determine unit costs.
Costi di Processo: 1.Differenza tra Costi per Commessa e Costi di ProcessoManager.it
Process costing is used for products that are similar and produced continuously through a production process. Costs are accumulated by departments rather than individual jobs. The department production report is the key document, and unit costs are computed based on total department costs divided by total units produced in that department. Direct labor and manufacturing overhead costs are often combined into a single conversion cost under process costing.
This document discusses different costing methods used in management accounting including job costing, process costing, batch costing, contract costing, and service costing. It provides examples and explanations of key concepts in job costing like job cost sheets, predetermined overhead rates, and manufacturing overhead. Process costing is explained as a method used for mass production of nearly identical units where costs are accumulated and assigned to units produced. Batch costing is defined as identifying and assigning costs to a set amount of similar goods produced in a batch. Contract costing applies especially to long-term construction projects performed over multiple periods. Finally, service costing calculates the full costs of services an entity provides using direct and indirect costs.
Complete Cost Accumulation Procedures in Manufacturing Organizationsoptiplex7866
The document discusses different cost accumulation systems used in accounting, including job order costing and process costing. It explains that job order costing tracks costs for individual jobs or orders, while process costing accumulates average costs for batches of homogeneous products. The key differences and similarities between the two systems are outlined.
This document provides an overview of standard costing and variance analysis. It defines standard costs as realistic estimates of costs used to set performance targets. Standard costs are developed for direct materials, direct labor, and manufacturing overhead. Variance analysis compares standard costs to actual costs to identify differences known as variances. Managers use variance analysis to control costs by investigating significant variances and taking corrective actions. The document demonstrates how to calculate variances for direct materials costs.
The document discusses job-order costing, including:
1. Job-order costing is used when different products are produced to customer orders and the unique nature of each job requires tracing costs.
2. Manufacturing overhead is allocated to jobs using a predetermined overhead rate based on an allocation base like direct labor hours.
3. Underapplied or overapplied overhead can occur if actual overhead differs from the amount applied using the predetermined rate.
This document discusses key concepts in job order costing systems including:
- Job order costing tracks costs by individual jobs or orders while process costing tracks costs by departments.
- A job can refer to a client, project, or contract. Costs like direct materials, direct labor, and overhead are accumulated for each job.
- Forms like material requisitions, time sheets, and job order cost sheets are used to track costs by job.
- Standard costs can be used to compare actual costs to budgeted costs for management decision making.
- Normal losses are expected and included in overhead rates while abnormal losses are treated as period costs.
1. The document discusses the differences and similarities between job-order costing and process costing. Process costing accumulates costs by department and computes unit costs by department, while job-order costing accumulates costs by individual jobs and computes unit costs by job.
2. It provides steps for calculating equivalent units of production and costs per equivalent unit in process costing. Equivalent units consider partial units by multiplying the quantity by the percentage complete. Costs per equivalent unit are calculated by dividing total costs by equivalent units.
3. Costs are applied to ending work in process inventory and units transferred out based on equivalent units and costs per equivalent unit for each department. Cost reconciliation ensures total costs are properly accounted
This document discusses job costing, including its definition, purpose, characteristics, applicability, differences from process costing, basic terminology, the seven steps of job costing, related journal entries, and an example problem involving actual, normal, and variance costing for a job. Job costing involves collecting and assigning costs to identifiable jobs or orders, and is used when production involves made-to-order or custom goods of short duration. It helps with planning, cost control, and decision making.
Job order costing and process costing are two different costing systems. Job order costing tracks costs for unique jobs or orders, while process costing is used for mass production of standardized products. Under job order costing, a separate cost record is kept for each job, while process costing accumulates costs for each production process over a period of time. Job order costing is suitable when products differ for each order, while process costing is more appropriate for continuous, large-scale production of homogeneous items.
This document discusses job order costing systems. It explains that job order costing accumulates costs for individual jobs or orders and uses a subsidiary ledger to track the costs of each job. It describes how direct materials, direct labor, and overhead costs are recorded for jobs and how journal entries are made to track costs in work in process and finished goods inventory accounts. Finally, it notes that job order costing information is used by management to estimate costs, set prices, develop budgets, compare actual to estimated costs, determine profitable jobs, and manage inventory.
Process costing is used to assign costs to units produced in continuous production and calculates equivalent units of production to account for incomplete units, while job order costing tracks costs for individual jobs or orders; process costing uses weighted average or FIFO methods to calculate equivalent units, with the difference being whether beginning inventory is combined or separated from current production; a company may use a hybrid costing system to apply aspects of both job order and process costing to different product lines or processes within the company.
This document provides an overview of process costing and compares it to job-order costing. It discusses key aspects of process costing including how costs flow through processing departments and accumulate in work-in-process and finished goods inventory. Equivalent units are calculated to determine the total production for a period when units are in partially completed stages. Costs are allocated to departments and inventory based on equivalent units using either a weighted-average or first-in, first-out method. Direct labor costs may be small compared to other conversion costs in process costing systems.
This document discusses activity-based costing (ABC) as a refinement of traditional costing systems. ABC focuses on individual activities as basic cost objects and assigns costs to these activities rather than broad cost pools. It explains that ABC systems improve upon traditional systems by using more direct cost tracing, more homogeneous indirect cost pools, and cost allocation bases related to what causes the cost pools to change. The document also notes several benefits of ABC systems, such as more accurate product costing, improved management decision making, and increased efficiency.
This document discusses cost estimation for manufacturing processes. It defines cost estimation as predicting production costs before actual manufacturing. The key steps in cost estimation are: 1) Analyzing the product and creating a bill of materials, 2) Estimating material, labor, tooling and purchased part costs, 3) Calculating direct costs, overhead costs and profit to determine a selling price. Common cost estimation methods include factor analysis, material cost ratios, and detailed analysis of each manufacturing operation and cost element. Accurate cost estimation allows companies to set prices, evaluate product feasibility, and make production planning decisions.
This document discusses product costing and cost accumulation in a batch production environment. It covers topics like job-order costing, process costing, predetermined overhead rates, flow of costs, manufacturing overhead, work-in-process, cost of goods manufactured, normal and actual costing, departmental overhead rates, and how job-order costing can be used for non-manufacturing organizations.
This document discusses process costing and provides examples of how it is applied. It begins by explaining the key differences between job-order costing and process costing. Process costing accumulates costs by department rather than individual jobs. It then provides an example of calculating equivalent units of production using the weighted-average method for a department that started 6,000 units and completed 5,400 units during the period. The document also includes examples of production reports and cost flows for a process costing system.
This document discusses accounting for factory overhead costs. It covers identifying variable and fixed overhead costs, budgeting overhead, accumulating actual overhead costs, applying overhead to production using predetermined overhead rates, and accounting for differences between actual and applied overhead. Methods discussed include direct labor cost rate, direct labor hour rate, and activity-based costing. The document also addresses distributing service department costs and treating under- or over-applied overhead.
Storytelling is an incredibly valuable tool to share data and information. To get the most impact from stories there are a number of key ingredients. These are based on science and human nature. Using these elements in a story you can deliver information impactfully, ensure action and drive change.
How are Lilac French Bulldogs Beauty Charming the World and Capturing Hearts....Lacey Max
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Starting a business is like embarking on an unpredictable adventure. It’s a journey filled with highs and lows, victories and defeats. But what if I told you that those setbacks and failures could be the very stepping stones that lead you to fortune? Let’s explore how resilience, adaptability, and strategic thinking can transform adversity into opportunity.
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2. 4-2
Similarities Between Job-Order and
Process Costing
• Both systems assign material, labor, and overhead
costs to products and they provide a mechanism
for computing unit product costs.
• Both systems use the same manufacturing
accounts, including Manufacturing Overhead, Raw
Materials, Work in Process, and Finished Goods.
• The flow of costs through the manufacturing
accounts is basically the same in both systems.
3. 4-3
Differences Between Job-Order and
Process Costing
Process costing:
1. Is used when a single product is produced on a
continuing basis or for a long period of time. Job-order
costing is used when many different jobs having
different production requirements are worked on each
period.
2. Systems accumulate costs by department. Job-order
costing systems accumulated costs by individual jobs.
3. Systems compute unit costs by department. Job-order
costing systems compute unit costs by job on the job
cost sheet.
4. 4-4
Processing Departments
Any unit in an organization where materials, labor,
or overhead are added to the product.
The activities performed in a processing
department are performed uniformly on all
units of production. Furthermore, the output of
a processing department must be homogeneous.
Products in a process costing environment
typically flow in a sequence from one department
to another.
5. 4-5
Comparing Job-Order and Process
Costing
Finished
Goods
Cost of
Goods
Sold
Work in
Process
Direct
Materials
Direct Labor
Manufacturing
Overhead
6. 4-6
Comparing Job-Order and Process
Costing
Finished
Goods
Cost of
Goods
Sold
Direct Labor
Manufacturing
Overhead
Jobs
Costs are traced and
applied to individual
jobs in a job-order
cost system.
Direct
Materials
7. 4-7
Comparing Job-Order and Process
Costing
Finished
Goods
Cost of
Goods
Sold
Direct Labor
Manufacturing
Overhead
Processing
Department
Costs are traced and
applied to departments
in a process cost
system.
Direct
Materials
8. 4-8
Raw Materials
Process Cost Flows: The Flow of Raw
Materials (in T-account form)
Work in Process
Department B
Work in Process
Department A
•Direct
Materials
•Direct
Materials
•Direct
Materials
9. 4-9
Process Cost Flows: The Flow of Labor
Costs (in T-account form)
Work in Process
Department B
Work in Process
Department A
Salaries and
Wages Payable
•Direct
Materials
•Direct
Materials
•Direct
Labor
•Direct
Labor •Direct
Labor
10. 4-10
Process Cost Flows: The Flow of Manufacturing
Overhead Costs (in T-account form)
Work in Process
Department B
Work in Process
Department A
Manufacturing
Overhead
•Overhead
Applied to
Work in
Process
•Applied
Overhead
•Applied
Overhead
•Direct
Labor
•Direct
Materials
•Direct
Labor
•Direct
Materials
•Actual
Overhead
11. 4-11
Process Cost Flows: Transfers from WIP-
Dept. A to WIP-Dept. B (in T-account form)
Work in Process
Department B
Work in Process
Department A
•Direct
Materials
•Direct
Labor
•Applied
Overhead
•Direct
Materials
•Direct
Labor
•Applied
Overhead
Transferred
to Dept. B
•Transferred
from Dept. A
Department
A
Department
B
12. 4-12
Finished Goods
Process Cost Flows: Transfers from WIP-Dept.
B to Finished Goods (in T-account form)
Work in Process
Department B
•Cost of
Goods
Manufactured
•Direct
Materials
•Direct
Labor
•Applied
Overhead
•Transferred
from Dept. A
•Cost of
Goods
Manufactured
13. 4-13
Finished Goods
Cost of Goods Sold
Process Cost Flows: Transfers from Finished
Goods to COGS (in T-account form)
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
14. 4-14
Equivalent Units – The Basic Idea
Two half completed products are
equivalent to one complete product.
So, 10,000 units 70% complete
are equivalent to 7,000 complete units.
+ = 1
15. 4-15
Treatment of Direct Labor
Direct labor costs
may be small
in comparison to
other product
costs in process
cost systems.
Direct
Materials
Type of Product Cost
Dollar
Amount
Direct
Labor
Manufacturing
Overhead
16. 4-16
Treatment of Direct Labor
Type of Product Cost
Dollar
Amount
Conversion
Direct labor and
manufacturing
overhead may be
combined into
one classification
of product
cost called
conversion costs.
Direct
Materials
Direct
Labor
Direct
Labor
Manufacturing
Overhead
Chapter 4: Process Costing
Managers need to assign costs to products to facilitate external financial reporting and internal decision making. This chapter illustrates an absorption costing approach to calculating product costs known as process costing.
Job-order and process costing are similar in that they both deal with assigning materials, labor, and overhead to products as a way to calculate the unit product cost.
Both systems use Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory.
The flow of costs is similar, but not exactly the same, in the two systems.
Process costing is best suited for the production of a single product that is continuously produced for a long period of time. Recall the mixing and bottling of Coca-Cola from Chapter Three. Job-order costing is best suited when jobs are produced as discrete projects. For example, building a house.
Process costing accumulates costs by department, while job-order costing accumulates costs by individual jobs.
Process costing uses a fundamental document called a department production report, while job-order costing uses the job cost sheet.
In process costing unit cost is computed by department, while in job-order systems unit cost is computed by job.
While there are similarities between the two systems, there are also significant differences.
A processing department is any unit in an organization where materials, labor, or overhead are added to the product. The output from a processing department is homogeneous, that is, they all appear the same. Products in a process costing environment typically flow in a sequence from one department to another.
The flow of costs through the manufacturing accounts is basically the same for process and job-order costing.
Direct materials, direct labor, and manufacturing overhead are added to Work in Process. When work in process is completed, the costs are transferred to Finished Goods. When finished goods are sold, the costs are transferred to Cost of Goods Sold.
There is a key fundamental difference between process and job-order costing systems. Job-order costing systems trace and apply manufacturing costs to jobs. One Work in Process account is often used to accumulate costs for all jobs. The individual job cost sheets serve as a subsidiary ledger.
In a process costing systems, costs are traced to departments that process the goods. In some companies there may be several processing departments that goods must pass through to become finished goods. A separate Work in Process account is maintained for each processing department. Material, labor, and overhead costs transferred from one department’s Work in Process account to another department’s Work in Process account are called transferred-in costs.
Direct materials can be requisitioned for use in both Department A and Department B. These direct materials are likely to be different in nature. Direct material costs are debited to the appropriate departmental Work in Process account depending upon where the materials were added to the production process. The Raw Materials Inventory account is credited for the corresponding amounts.
Direct labor is transferred from the Salaries and Wages Payable account into the work in process account of Departments A and B depending upon where the individual employee worked. Direct labor costs are debited to the appropriate departmental Work in Process account depending upon where the labor was added to the production process. Salaries and Wages Payable is credited for the corresponding amounts.
Manufacturing overhead is applied to each processing department based on a predetermined rate for each department. The predetermined rate does not have to be based on the same cost driver for each processing department. Manufacturing overhead costs are debited to the respective departmental Work in Process accounts. Manufacturing overhead is credited by the corresponding amounts.
The cost of units complete as to processing in Department A are transferred into Department B for additional work. Department B has incurred additional costs to work on units that were in process at the beginning of the period. The transferred-in costs from Department A are added to the manufacturing costs incurred in Department B.
Here we see the transfer of completed goods from Work in Process – Department B into Finished Goods Inventory. The costs transferred represent the cost of good manufactured.
Once we sell finished goods, we debit Cost of Goods Sold and credit Finished Goods Inventory.
The basic idea behind equivalent units is quite easy to understand, but the computation of equivalent can become complex. Here we can say the two half- completed units of production are equal to one complete unit. Using this logic, we can say that 10,000 units that are 70% complete are equivalent, or the same as, 7,000 complete units.
In today’s economy, direct labor costs are becoming small when compared to materials and overhead costs. Automation is one of the causes for this shift.
As a consequence of the change in volume of direct labor costs, many companies combine labor and overhead costs and refer to the total as conversion costs. That is, these are the costs incurred to convert the direct materials into a finished good. We will make extensive use of the notion of direct materials and conversion costs in the remainder of this chapter.