Process Costing and Hybrid Product-Costing Systems

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					                        Chapter 4:
                   Process Costing and
              Hybrid Product-Costing Systems
     • Job order costing: costs are accumulated and assigned to discrete
       products and jobs.
     • Process costing: cost are accumulated and averaged in departments
       and applied to batches/flow of products on equivalent units (assuming
       labor and overhead are uniformly applied).

                                      WIP Inv.
                               Production Department A

    Direct Material                          WIP Inv.
                                     Production Department B
     Direct Labor
Manufacturing Overhead                            Finished Goods Inv.


                                                               Cost of Goods Sold
      More Process Costing Definitions
• Equivalent Units: a measure of the amount or production effort
  applied to a physical unit of production. For example, if there are 100
  units that are 75% complete, there are 750 equivalent fully complete
  units.

• Transferred-in Costs: costs that are assigned to in-process parts that are
  transferred from one production department to another.

• Weighted -Average Method: method of process costing where the
  costs assigned to the beginning WIP inventory are added to the
  current period production costs. The cost per
  equivalent unit is a weighted average of the
  beginning WIP and the current cost.
     Process Costing at Bala’s Cookie Factory
                       Batter/Baking (0% Stage)          Cookie making is performed in
Direct Materials:      DM Input (80% of DM)              a single stage production
Flour                       Flour                        facility (Bala’s kitchen). DM
                                                         transferred in at 0% completion
Eggs                        Eggs                         for Batter/Baking
Sugar                       Sugar
Sprinkles                                                QC to remove burnt, broken,
                       QC (30% Stage)                    and malformed cookies is
                       Defect rate = 1%                  performed at 30% completion.
                                                         Taste samples are also taken
                                                         form this 30%
                       Icing (40% Stage)
                       DM Input (10% DM)                 Additional DM added at
Direct Labor and                                         40% complete to enhance
                             Sugar
MOHA are applied                                         taste and physical
uniformly throughout
cookie making
                                                         characteristics of cookie.
process.               Decoration (80% Stage)
                       DM Input (10% DM)                 Additional DM added at
                           Sprinkles                     80% complete for
                                                         decoration.
                                 COOKIES FOR D39, Section 69!
 Weighted Average Method of Process Costing
Steps to Prepare Departmental Production Report
 • Step 1:     Analysis of Physical Flow of Units
               (Physical units in beginning work in process)
             + (Physical units started)
             - (Physical units completed and transferred out)
               Physical units in ending work in process.

 • Step 2:     Calculation of Equivalent Units
               (Eq. units of activity in units completed/transferred out)
             + (Eq. Units of activity in ending work in process)
               Total equivalent units of activity
  Weighted Average Method of Process Costing
 Steps to Prepare Departmental Production Report
• Step 3:     Computation of Unit Costs
              Work in process
            + Costs incurred during March
              Total costs to account for

              Total costs to account for = Cost per equivalent unit
                 Equivalent Units

• Step 4:     Analysis of Total Costs
              Calculate cost of goods complete and transferred out of
              department.
              Calculate costs remaining in WIP and then the conversion.

				
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