4-1
Types of Costing Systems Used
to Determine Product Costs
Chapter 4
Systems Design:
Process Costing
Job-order
Costing
Process
Costing
) Many units of a single, homogeneous product
flow evenly through a continuous production
process.
) One unit of product is _______________from any
other unit of product.
) Each unit of product is assigned the same
______________cost.
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Types of Costing Systems Used
to Determine Product Costs
Process
Costing
Job-order
Costing
Differences Between JobOrder and Process Costing
Job order costing
Typical process cost applications:
™
™
Many jobs are worked
during the period.
z
Costs are accumulated
by individual jobs.
A single product is
produced for a long
period of time.
z
z
z
Job cost sheet is the
key document.
Costs are accumulated
by departments.
z
z
Unit cost computed by
job.
Department production
report is key document.
z
Unit costs are computed
by department.
Petrochemical refinery
™________manufacturer
Process costing
z
Paper mill
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Quick Check 9
Process Costing
Direct
Materials
b. Similar and produced continuously.
c. Individual units produced to customer
specifications.
d. Purchased from vendors.
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Dollar Amount
Process costing is used for products that are:
a. Different and produced continuously.
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Overhead
Direct
Labor
Direct labor costs
may be small
in comparison to
other product
costs in process
cost systems.
Type of Product Cost
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4-2
Comparing Job-Order
and Process Costing
Process Costing
Direct
Materials
Dollar Amount
Conversion
Direct
Materials
Direct Labor
Type of Product Cost
So, direct labor and manufacturing overhead are often
combined into one product cost called_____________.
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Comparing Job-Order
and Process Costing
Direct Labor
Finished
Goods
Jobs
Manufacturing
Overhead
Cost of
Goods
Sold
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Manufacturing
Overhead
•Purchases
•Direct
Materials
•Indirect
Materials
Manufacturing
Overhead
Actual
•Other
Overhead
•Indirect
Materials
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Applied
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Work in Process
Department A
•Direct
Materials
•Direct
Labor
Work in Process
Department B
•Direct
Materials
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Costs are traced and
applied to __________
in a process cost
system.
Direct
Materials
Direct Labor
Finished
Goods
Processing
Department
Manufacturing
Overhead
Cost of
Goods
Sold
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Process Cost Flows
Raw Materials
Cost of
Goods
Sold
Comparing Job-Order
and Process Costing
Costs are traced and
applied to individual
_______ in a job-order
cost system.
Direct
Materials
Finished
Goods
Work in
Process
Process Cost Flows
Wages Payable
•Direct
Labor
•Indirect
Labor
Manufacturing
Overhead
Actual
•Other
Overhead
•Indirect
Materials
•Indirect
Labor
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Applied
Work in Process
Department A
•Direct
Materials
•Direct
Labor
Work in Process
Department B
•Direct
Materials
•Direct
Labor
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4-3
Process Cost Flows
Process Cost Flows
Work in Process
Department A
Next, transfer work
from Department A
to Department B.
•Direct
Materials
•Direct
Labor
•Applied
Overhead
Work in Process
Department B
Manufacturing
Overhead
Actual
Applied
•Direct
Materials
•Direct
Labor
•Applied
Overhead
•Other •Overhead
Overhead Applied to
•Indirect Work in
Materials Process
•Indirect
Labor
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Process Cost Flows
Work in Process
Department A
•Direct
Transferred
Materials
to Dept. B
•Direct
Labor
•Applied
Overhead
Now let’s complete
the goods in
Department B
and sell them.
•Direct
Materials
•Direct
Labor
•Applied
Overhead
•Transferred
from Dept. A
Process Cost Flows
Work in Process
Department B
Process Cost Flows
Work in Process
Department B
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Finished Goods
•Direct
•Cost of
•Cost of
•Cost of
Materials
Goods
Goods
Goods
•Direct
Manufactured
Manufactured
Sold
Labor
•Applied
Overhead
•Transferred
Cost of Goods Sold
from Dept. A
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Equivalent Units of Production
Equivalent units are _____________
and are part of work in process
inventory. Partially completed
products are expressed in terms of a
smaller number of fully completed
units.
•Cost of
Goods
Sold
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4-4
Equivalent Units of Production
Two half completed products are
___________to one completed product.
+
=
1
So, 10,000 units 70 percent complete
are equivalent to 7,000 complete units.
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Quick Check 9
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
Calculating and Using
Equivalent Units of Production
To calculate the cost per
equivalent unit for the period:
Cost per
equivalent
unit
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=
Costs for the period
Equivalent units of production
for the period
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Equivalent Units of Production –
Weighted Average Method
The weighted average method . . .
Makes no distinction between work done in prior
and current period.
z Blends together units and costs from ________
period and _________ period.
z
Let’s see how this works!
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Quick Check 9
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
Weighted Average Example
Smith Company reported the following activity
in Department A for the month of June:
Percent Completed
Units
Work in process, June 1
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300
Units started into production in June
6,000
Units completed and transferred out
of Department A during June
5,400
Work in process, June 30
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900
Materials Conversion
40%
20%
60%
30%
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4-5
Weighted Average Example
Production Report
Equivalent units of production always equals:
Units completed and transferred
+ Equivalent units remaining in work in process
Materials
Units completed and transferred
out of Department A in June
5,400
Shows the flow
of units and costs
through work in
process
Provides cost
information for
financial
statements
Conversion
Production
Report
5,400
Work in process, June 30:
900 units × 60%
540
900 units × 30%
Equivalent units of Production in
Department A during June
270
5,940
5,670
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Becomes the
job cost sheet
in process
costing
Section 1
Section 2
nA __________schedule
Production Report
Production Report
showing the flow of units
and the computation of
equivalent units.
Section 1
oA computation of
_____ per equivalent unit.
Section 2
Section 3
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Production Report
Production Report
Helps managers
control their
departments
flows for the period,
including:
™Total cost for units
completed and
transferred from the
processing department.
™Total cost for partially
completed units
remaining in work in
process.
Section 3
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p A reconciliation of cost
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Process Costing
Process Costing
Typical Accounting Entries
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Raw Materials
Post.
Ref.
Page 4
Debit
Credit
XXXXX
Accounts Payable
XXXXX
To record the purchase of material.
Let’s look at the accounting
journal entries for a process
cost system. We’ll omit the
numbers so that we can focus
on concepts.
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W ork in Process - Department A
XXXXX
W ork in Process - Department B
XXXXX
Raw Materials
XXXXX
To record the use of direct material.
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4-6
Process Costing
Process Costing
Typical Accounting Entries
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Post.
Ref.
Page 4
Debit
W ork in Process - Department A
XXXXX
W ork in Process - Department B
XXXXX
Salaries and W ages Payable
Credit
GENERAL JOURNAL
Date
XXXXX
Page 4
Debit
W ork in Process - Department A
XXXXX
W ork in Process - Department B
XXXXX
Manufacturing Overhead
To record direct labor costs.
XXXXX
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Process Costing
Process Costing
Typical Accounting Entries
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Credit
To apply overhead to departments.
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Description
Post.
Ref.
Post.
Ref.
W ork in Process - Department B
GENERAL JOURNAL
Page 4
Debit
Credit
XXXXX
W ork in Process - Department A
Date
Description
Finished Goods
XXXXX
W ork in Process - Department B
To record the transfer of goods from
To record the completion of goods
Department A to Department B.
and their transfer from Department B
Post.
Ref.
Page 4
Debit
Credit
XXXXX
XXXXX
to finished goods inventory.
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Process Costing
Typical Accounting Entries
GENERAL JOURNAL
Date
Description
Accounts Receivable
Post.
Ref.
Page 4
Debit
Credit
XXXXX
Sales
XXXXX
To record sales on account.
Cost of Goods Sold
Finished Goods
XXXXX
XXXXX
To record cost of goods sold.
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