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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.
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Quick Check
Process costing is used for products that are:
a. Different and produced continuously. b. Similar and produced continuously.
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Quick Check
Process costing is used for products that are:
a. Different and produced continuously. b. Similar and produced continuously.
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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.
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Work in Process
Finished Goods
Manufacturing Overhead
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Costs are traced and applied to individual jobs in a job-order cost system.
Finished Goods
Jobs
Manufacturing Overhead
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Direct Labor
Processing Department
Finished Goods
Manufacturing Overhead
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Process Cost Flows: The Flow of Raw Materials (in T-account form)
Raw Materials
Direct Materials
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Process Cost Flows: The Flow of Raw Materials (in journal entry form)
Work in Process - Department A Work in Process - Department B Raw Materials XXXXX XXXXX XXXXX
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Process Cost Flows: The Flow of Labor Costs (in T-account form)
Salaries and Wages Payable
Direct Labor
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Process Costing: The Flow of Labor Costs (in journal entry form)
Work in Process - Department A Work in Process - Department B Salaries and Wages Payable XXXXX XXXXX XXXXX
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Process Cost Flows: The Flow of Manufacturing Overhead Costs (in T-account form)
Work in Process Department A Manufacturing Overhead
Actual Overhead Overhead Applied to Work in Process Direct Materials Direct Labor Applied Overhead
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Process Cost Flows: The Flow of Manufacturing Overhead Costs (in journal entry form)
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Process Cost Flows: Transfers from WIPDept. A to WIP-Dept. B (in T-account form)
Work in Process Department A Direct Transferred Materials to Dept. B Direct Labor Applied Overhead Work in Process Department B Direct Materials Direct Labor Applied Overhead Transferred from Dept. A
Department A
Department B
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Process Cost Flows: Transfers from WIP-Dept. A to WIP-Dept. B (in journal entry form)
Work in Process - Department B Work in Process - Department A XXXXX XXXXX
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Process Cost Flows: Transfers from WIP-Dept. B to Finished Goods (in T-account form)
Work in Process Department B Finished Goods Cost of Goods Manufactured
Direct Cost of Materials Goods Direct Manufactured Labor Applied Overhead Transferred from Dept. A
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Process Cost Flows: Transfers from WIP-Dept. B to Finished Goods (in journal entry form)
Finished Goods Work in Process - Department B XXXXX XXXXX
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Process Cost Flows: Transfers from Finished Goods to COGS (in T-account form)
Work in Process Department B 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 Cost of Goods Sold
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Process Cost Flows: Transfers from Finished Goods to COGS (in journal entry form)
Cost of Goods Sold Finished Goods XXXXX XXXXX
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Exercise 4-1
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So, 10,000 units 70% complete are equivalent to 7,000 complete units.
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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
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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 10,000 units + (5,000 units 0.30) b. 11,500 = 11,500 equivalent units c. 13,500 d. 15,000
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Direct Labor
Direct labor costs may be small in comparison to other product costs in process cost systems.
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Direct Labor
Manufacturing Overhead
Direct labor and manufacturing overhead may be combined into one classification of product cost called conversion costs.
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Weighted-Average An Example
Smith Company reported the following activity in the Assembly Department for the month of June:
Percent Completed Units Work in process, June 1 Units started into production in June Units completed and transferred out of Department A during June Work in process, June 30 300 6,000 5,400 Materials Conversion 40% 20%
900
60%
30%
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Weighted-Average An Example
The first step in calculating the equivalent units is to identify the units completed and transferred out of Assembly Department in June (5,400 units)
Materials Units completed and transferred out of the Department in June 5,400 Conversion 5,400
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Weighted-Average An Example
The second step is to identify the equivalent units of production in ending work in process with respect to materials for the month (540 units) and adding this to the 5,400 units from step one.
Materials Units completed and transferred out of the Department in June Work in process, June 30: 900 units 60% 540 5,400 Conversion 5,400
5,940
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Weighted-Average An Example
The third step is to identify the equivalent units of production in ending work in process with respect to conversion for the month (270 units) and adding this to the 5,400 units from step one.
Materials Units completed and transferred out of the Department in June Work in process, June 30: 900 units 60% 900 units 30% Equivalent units of Production in the Department during June 5,940 540 270 5,670 5,400 Conversion 5,400
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Weighted-Average An Example
Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in process
Materials Units completed and transferred out of the Department in June Work in process, June 30: 900 units 60% 900 units 30% Equivalent units of Production in the Department during June 5,940 540 270 5,670 5,400 Conversion 5,400
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5,400 Units Completed 540 Equivalent Units 5,940 Equivalent units of production
900 60%
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5,400 Units Completed 270 Equivalent Units 5,670 Equivalent units of production
900 30%
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$ 124,740 5,940
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Cost to be accounted for: Work in process, June 1 Cost added in Assembly Total cost Equivalent units Cost per equivalent unit
$ $
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Applying Costs
Assembly Department Cost of Ending WIP Inventory and Units Transferred Out Materials Conversion Total Ending WIP inventory: Equivalent units 540 270
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Applying Costs
Assembly Department Cost of Ending WIP Inventory and Units Transferred Out Materials Conversion Total Ending WIP inventory: Equivalent units 540 270 Cost per equivalent unit $ 21.00 $ 15.00
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Applying Costs
Assembly Department Cost of Ending WIP Inventory and Units Transferred Out Materials Conversion Total Ending WIP inventory: Equivalent units 540 270 Cost per equivalent unit $ 21.00 $ 15.00 Cost of Ending WIP inventory $ 11,340 $ 4,050 $ 15,390
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Reconciling Costs
Assembly Department Cost Reconciliation Costs to be accounted for: Cost of beginning Work in Process Inventory Costs added to production during the period Total cost to be accounted for
$ $
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Reconciling Costs
Assembly Department Cost Reconciliation Costs to be accounted for: Cost of beginning Work in Process Inventory Costs added to production during the period Total cost to be accounted for Cost accounted for as follows: Cost of ending Work in Process Inventory Cost of units transferred out Total cost accounted for
$ $
$ $
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Operation Costing
Operation cost is a hybrid of job-order and process costing because it possesses attributes of both approaches. Operation costing is commonly used when batches of many different products pass through the same processing department.
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Exercises
Ex 4-9 Ex 4-10 Ex 4-11 Ex 4-12 Problem 4-16 p164 Problem 4-17 p164