Ch 4 - Process Costing

each department calculates the equivalent units of production for

each of its manufacturing cost categories (material and conversion)

the weighted average method is only concerned with the

equivalent units in ending inventory and the units transferred to the next department (not concerned with beginning work in process that was partially complete)

After processing has been finished in the bottling dep't, the costs of the completed units are transferred to the

finished goods inventory dep't

used in situations where products have some common characteristics and some individual characteristics (ie shoes)

operation costing

What method is used to finding the unit cost in each department and involves combining costs and outputs from the current and prior periods?

weighted-average method

what complicates finding each department's number of units produced during a period

most departments have some partially completed units on hand at the end of the period

an organizational unit where work is performed on a product and where materials, labor, or overhead costs are added to the product

processing department

What is the total cost per item for each unit transferred out of the shipping and milling department Using the amount of units transferred, what is the total cost assigned to those units

76.25 for materials + 72.75 for conversion = 149 per item 4800 total units * 149 per unit = 715,200 (cost of units transferred out)

What are the similarities between job order and process costing

1. Both have the same basic purpose (to assign material, labor, and manufacturing overhead costs to products and to provide a mechanism for computing unit product costs 2. Use the same basic manufacturing accounts (Manufacturing overhead, raw materials, WIP, Finished Goods) 3. Flow of costs through the manufacturing accounts is the same

What are three main differences between job-order and process costing

1. many different jobs are worked on during each period, with each job having unique production requirements 2. costs are accumulated by individual job 3. Unit costs are computed by job on the job cost sheet

2 essential features of the processing departments

1. the activity in the processing department is performed uniformly on all of the units passing through it 2. The output of the processing department is homogeneous; all of the units produced are identical

If dep't A has 500 units in ending WIP that are 60% complete, then it has

300 fully complete units (500 * 60% = 300) in ending WIP that are included within output for the period

What is the shipping and milling dep't cost reconciliation

Costs to be accounted for: Cost of beginning WIP inventory 15,175 Costs added to production during the period: 719 500 Total cost to be accounted for: 734 675 Costs accounted for as follows: Cost of ending WIP inventory: 19475 Cos of units transferred out: 715200 Total cost accounted for: 734 675

After processing has been completed in a department, the units are

transferred to the next department for further processing

the key to calculating the cost of ending WIP and the cost of the completed units that were transferred is finding the

unit costs within each department

For each department, units in beginning work in process inventory + units started into production or transferred in =

units in ending WIP inventory + units completed and transferred out

equivalent units of production = _______ + ________

units transferred to the next department or to finished goods + equivalent units in ending WIP inventory

Under the weighted-average method, the two completion percentages pertaining to the ENDING work in process inventory will be

used in the computation of equivalent units of production

in process costing, as in job costing, what are used to determine overhead

predetermined overhead rates according to the amount of allocation base that is incurred in the department

What is the Weighted-Average Method formula for cost per equivalent unit

(Cost of beginning work in process inventory + cost added during the period) / Equivalent units of production **a separate calculation is made for each cost category in each processing department

When a customer's order is filled and units are sold, the cost of the units is transferred to

COGS

What is the JE to transfer the sold units to COGS

Dr COGS Cr FG

What is the JE to transfer the completed units to FG from the bottling dep't (2nd dep't)?

Dr FG Cr WIP - Bottling

The materials (ie bottles, caps, packing materials) added in the bottling department are recorded by what journal entry

Dr WIP - Bottling Cr Raw Materials

What is the journal entry to transfer the finished product from the formulating dep't (first dep't) to the next dep't

Dr WIP - Bottling Cr WIP - Formulating

What is the journal entry to apply overhead cost in the Formulating Department

Dr WIP - Formulating Cr Manufacturing Overhead

What are the journal entries to record labor cost in the formulating department at Megan's Cream Soda

Dr WIP - Formulating Cr Salaries and Wages Payable (same entry for bottling dep't)

The materials (ie water, flavors, sugar, carbonated water) added in the formulating department are recorded by what journal entry

Dr work in process - formulating Cr Raw Materials

what is the formula to convert partially completed units into fully completed units when computing the department's output

Equivalent units = # of partially completed units * % completion

After further work in Department B, the completed units are transferred to

Finished Goods (if the company only has two processing departments)

What are the total costs for the ending WIP inventories for the shipping and milling dep't?

Materials: 76.25 * 160 = 12,200 Conversion: 100 * 72.75 = 7275 Total: 19,475 (cost of ending WIP)

What are the four steps of weighted-average method of process costing

Step 1: Compute the equivalent units of production Step 2: Compute the cost per equivalent unit Step 3: Assign costs to units Step 4: Prepare a cost reconciliation report

usually materials are only added in the

first processing department, and labor and overhead are added in later departments

When using the weighted-average method to compute the equivalent units of production, the completion percentages pertaining to the beginning WIP will be

ignored

the equivalent units of production computed using the weighted average method include work accomplished

in the prior period

the completed production of the first processing department is transferred to the

WIP account of the second processing department

materials, labor, and overhead costs can be added in

any processing department, not just the first (ie any material, labor, or overhead can be added to any process)

equivalent units is the number of

complete units that could have been obtained from the materials and effort that went into the partially completed units

direct labor + manufacturing overhead =

conversion cost

in process reporting, each dep't needs to calculate two numbers for financial reporting purposes:

cost of its ending WIP and the cost of its completed units that were transferred to the next stage of the production process

the 715,200 of costs of units transferred out will be accounted for in the next department as

costs transferred in will be treated as another process costing system like materials or conversion costs the costs transferred in will always be 100% complete costs are passed from one department to the next until they reach the last department, after which the costs are transferred to finished goods

the equivalent units of production is the name used for the

denominator in unit cost calculations

in process costing, labor costs are traced to

departments rather than individual jobs

Shaping and Milling Dep't Cost Data for May: Cost of beginning WIP inventory: Materials: 9600 Conversion: 5575 Conversion total: 15,175 Costs added during the period: Materials: 368,600 Conversion: 350,900 Conversion Total: 719,500 Total cost: Materials: 378,200 Conversion: 356,475 Conversion Total: 734675 How is the cost per equivalent unit calculated

Materials: Cost of beg WIP: 9600 + Costs added in the period: 368600 = Total cost: 378,200 / Equiv Units of Production: 4960 (from step 1) = 76.25 cost equivalent per unit Conversion: Cost of beg WIP: 5,575 + Costs added in the period: 350,900 = Total costs: 356,475 / Equiv Units of Production: 4900 = 72.75 cost equivalent per unit

in process costing, there is a separate WIP account for

each processing department

each department needs to calculate a separate unit cost for

each type of manufacturing cost that it incurs these two types of manufacturing costs are direct material costs and conversion costs

Shaping and Milling Dep't Production Data for May: Beginning WIP: 200 units; Materials 55% complete, Conversion 30% complete Units started into production during May: 5000 units United completed during May and transferred to the next department: 4800 units (100% complete for both materials and conversion Ending WIP: 400 units (40% for materials, 25% for conversion) What is the equivalent units of production for the shipping and materials department for the two categories of costs

Materials: Units transferred to the next department: 4800 + Equiv units in ending WIP: 400 units * 40% complete = 160 = Equivalent units of production: 4960 Materials conversion Units transferred to the next department: 4800 + Equiv units in ending WIP: 400 units * 25% complete = 100 = Equivalent units of production=4900