AC 310 Zhou - Chapter 4

Equivalent Units can be calculated two ways:

1.The Weighted-Average Method 2. The First-In, First-Out Method (less used)

Process Cost Flows: Transfers from Finished Goods to COGS JE

Dr: COGS Cr: Finished Goods

Process Cost Flows: Transfers from WIP - Dept B to Finished Goods JE

Dr: Finished Goods Cr: WiP - Department B

Process Cost Flows: The Flow of MOH Costs JE

Dr: WiP - Dept A Dr: WiP - Dept B Cr: MOH

Process Cost Flows: The Flow of Raw Materials JE

Dr: WiP - Dept A Dr: WiP - Dept. B Cr: RM

Process Cost Flows: Transfers from WIP - Dept A to WIP - Dept B JE

Dr: WiP - Dept B Cr: WiP - Dept A

Process Costing: The Flow of Labor Costs JE

Dr: Wip - Dept A Dr: WiP - Dept B Cr: Salaries and Wages Pay

Equivalent Units = ? x ?

# of partially completed units x % of completion of those units

Lucas Corporation uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in the Forming Department, which is the first of two stages in its production process. Information concerning operations in the Forming Department in October follows Accounts ------------------Units ---- Mat Cost WiP 10/1 ---------------------6k-----------$3k Units started in Oct---------50k----------$25,560 Units compl and transf to --44k next dept during Oct. What was the materials cost of WiP at 10/31?

$6,120 10/1 -------------------------------- Units ---- Amount in $ WiP -----------------------------------6k----------3k Units Proccessed during month ----50k---------25,560 Total processing Cost ---------------56k--------28,560 Weight Avg. Cost/unit, c -------56k/28,560=.51 per unit Units compl.and trans, a -------------44k-------22,440 10/31 WiP (a*c) -------------------------------12k---------6,120

Similarities between Job-Order and Process Costing (3)

1. Both systems assign material, labor, and OH costs to products and they provide a mechanism for computing unit product costs 2. Both systems use the same manufacturing accounts, including MOH, RM, WiP, and FG 3. The flow of costs through the manufacturing accounts is basically the same in both systems

Processing Departments

Any unit in an organization where materials, labor, or OH are added to the product.

Carrington Corporation produces canned vegetable soup. The company uses the weighted-average method in its process costing system. The company sold 300,000 units in January. Data concerning inventories follow: Inventory at 1/1: WiP ------------------------------None FG -------------------------------75k units Inventory at 1/31: Wip (75% complete with respect to conversion costs)-----------------------------24k units Finished Goods ------------------60k units What were the equivalent units for conversion costs for January?

303,000 100% complete for conversion cost the units that are complete Units that produced during the period = Units sold + Units of finished Ending - Beginning units of Finished =300,000+60,000-75,000=285,000 units And work in process at ending is 24,000 units but for conversion costs is 75% only. For conversion Equivalent units = 75% of Ending Work in process + Units that produced during the period =75% x 24,000 + 285,000 = 18,000+285,000=303,000 units

Computing the Cost of Units Transferred Out

Accounts ---------------------M C T Ending WiP Inventory Equivalent Units Cost per Equivalent Unit Cost of End WiP Inventory Units completed and transferred out Units transferred Cost per equivalent unit Cost of units transferred out

Physical units of production: ? + ? = ? + ?

Beginning Units + Units Transferred In = Units Completed and Transferred + Units remaining in WiP

Treatment of Direct Labor Direct Labor and MOH may be combined into one classification of product cost called

CONVERSION COSTS

Reconciling Costs

Costs to be accounted for: Cost of beginning WiP Inv Costs added to production during the period Total cost to be accounted for = Cost accounted for as follows: Cost of ending WiP Inv Cost of units transferred out Total Cost accounted for =

The Flow of Costs in a Processing Costing System

DM, DL, MOH ------> PD A ----------------------> PD B (costs are traced to departments in a process cost system) -----------------------> PD C -----> FG -----> COGS (PD A ---> PD B ---> PD C)

The flow of costs in a Job-Order Costing System

DM, DL, MOH -----> Jobs (costs are traced and applied to individual jobs in a job-order cost system) ------> Fin Goods -------> COGS

The flow of materials, labor, and OH costs

DM, DL, MOH -----> WiP --------> Finished Goods ------> COGS

Differences between Job-Order and Process Costing (3)

Process CostingL 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 rqmts. are worked on each period 2. systems accumulate costs by dept. - 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

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

b. 11,500

Jared Beverage Corporation uses a process costing system to collect costs related to the production of its celery flavored cola. The cola is first processed in a Mixing Department and is then transferred out and finished up in the Bottling Department. The finished cases of cola are then transferred to Finished Goods Inventory. The following information relates to the company's two departments for the month of January: -------------------------------Mixing ---- Bottling Cases of Coke in WiP 1/1-------10k-----------5k Cases of Coke comp/trans out in Jan 65k----? Cases of Coke in WiP 1/31--------4k----------7k How many cases of cola were completed and transferred to Finished Goods Inventory during January? A) 70,000 B) 63,000 C) 58,000 D) 77,000

b. 63,000

Darden Corporation uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 18,000 units in its beginning work in process inventory that were 10% complete with respect to conversion costs. The conversion cost in this beginning work in process inventory was $16,200. An additional 84,000 units were started into production during the month. There were 17,000 units in the ending work in process inventory of the Welding Department that were 70% complete with respect to conversion costs. A total of $836,880 in conversion costs were incurred in the department during the month. The cost per equivalent unit for conversion costs for the month is closest to: a. $8.286 b. $9.000 c. $8.804 d. $9.963

c. $8.804 Unit transfered out = Beginning wip+unit started-ending wip = 18,000+84,000-17,000 = 85,000 Equivalent unit = Units transfered out+Ending inventory*percent completion = 85,000(17,000*70%) = 96,900 units Cost per equivalent unit of conversion cost = Total cost/equivalent unit = (16,200+836,880)/96,900 = 8.804

The formula for computing the cost per equivalent unit is:

cost per equivalent unit = (Cost of beg WiP Inv + Cost added during the period) / Equivalent units of production

The FOUR Key Steps of Assigning Costs

1. Summarize the physical flow of units and compute the equivalent units for direct materials, direct labor, and overhead. 2. Summarize the costs to be accounted for (separated into direct materials, direct labor, and OH). 3. Calculate the cost per equivalent unit. 4. Use the cost per equivalent unit to assign costs to (1) completed units transferred out and (2) units in ending WiP inventory.

Equivalent Units of Production (Weighted-Average Method): 3 things

1. makes no distinction between work done in prior or current periods 2. blends together units and costs from prior and current periods 3. determines equivalent units of production for a department by adding together the number of units transferred out plus the equivalent units in ENDING WiP Inventory

The 3 activities performed in a processing department are:

1. performed uniformly on all units of production 2. the output of a processing department must be homogeneous (the same) 3. products typically flow in a sequence from one department to another