Lecture Accounting principles (8th edition) – Chapter 21: Process cost accounting

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Lecture Accounting principles (8th edition) – Chapter 21: Process cost accounting

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In this chapter, the learning objectives are: Discuss the uses of a process cost system and how it compares to a job order system, explain the flow of costs in a process cost system and the journal entries to assign manufacturing costs, Compute equivalent units.

Chapter 21-1 CHAPTER  21 PROCESS COST ACCOUNTING Accounting Principles,  Eighth Edition Chapter 21-2 Study Objectives Study Objectives Understand who uses process cost systems Explain the similarities and differences between job order and  process cost systems Explain the flow of costs in a process cost system Make the journal entries to assign manufacturing costs in a  process cost system Chapter 21-3 Study Objectives Study Objectives Chapter 21-4 Compute equivalent units Explain the four steps necessary to prepare  a production cost report Prepare a production cost report Explain just­in­time (JIT) processing Explain activity­based costing (ABC) Preview of Chapter Preview of Chapter Process cost accounting focuses on  mass­production of products that  are identical or very similar in  nature In contrast, job order cost  accounting focuses on the  individual job Chapter 21-5 Process Cost Accounting Process Cost Accounting Nature Natureof of Process ProcessCost Cost Systems Systems Uses Similarities and Differences Process Cost Flow Assignment of Manufacturing Costs Equivalent Equivalent Units Units WeightedAverage Method Refinements Production Cost Report Comprehensive Comprehensive Example Exampleof of Process Process Costing Costing Physical Units Equivalent Units of Production Unit Production Costs Cost Reconciliation Schedule Production Cost Report Costing Systems – Final Comment Chapter 21-6 Contemporary Contemporary Developments Developments Just-in-Time Processing Activity-Based Costing Nature of Process Cost Systems Nature of Process Cost Systems Use to apply costs to similar products that are massed produced in a continuous fashion Examples include the production of Cereal, Paint, and Soft Drinks  Chapter 21-7 LO 1: Understand who uses process cost systems   Comparison of Products Produced  Comparison of Products Produced  Under Process and Job Order Cost Systems Under Process and Job Order Cost Systems Chapter 21-8 LO 1: Understand who uses process cost systems   Let’s Review Let’s Review Which of the following items is not a characteristic of a process cost  system: a Once production begins, it continues until the finished product  emerges emerges b.  The focus is on continually producing homogenous products.  c.  When the finished product emerges, all units have precisely the  same amount of materials, labor, and overhead d.  The products produced are heterogenous in nature.  Chapter 21-9 LO 1:  Understand who uses process cost systems Job Order Cost and Process Cost Flow Job Order Cost and Process Cost Flow Job Order Cost Systems Chapter 21-10 Process Cost Systems Costs are assigned to each job Costs are tracked through a series of  connected manufacturing processes or  departments Products have unique characteristics Products are uniform or relatively  homogeneous and produced in a large  volume LO 2: Explain the similarities and differences between job order cost  and process cost systems  Comprehensive Example Continued  Comprehensive Example Continued  Step 1:  Compute Physical Unit Flow ­continued Chapter 21-38 LO 6: Explain the four steps necessary to prepare a production cost  report Comprehensive Example Continued  Comprehensive Example Continued  Step 2:  Compute Equivalent Units of Production Measure of a department’s productivity Two computations required:  one for materials and one for conversion costs Beginning work in process ignored Chapter 21-39 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Example Continued  Comprehensive Example Continued  Step 3:  Compute Unit Production Costs Costs expressed in terms of equivalent units of production When equivalent units of production are different for materials and for  conversion costs, three unit costs are computed: Materials Conversion Total Manufacturing Chapter 21-40 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Example Continued  Comprehensive Example Continued  Step 3:  Compute Unit Production Cost ­ continued Total Materials Cost Computation: Direct Materials Cost in Beginning Work in Process $  50,000 Conversion Costs Added to Production During Month    400,000 Total Materials Costs         $450,000 The Computation of Unit Materials Costs: Chapter 21-41 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Example Continued  Comprehensive Example Continued  Step 3:  Compute Unit Production Cost ­ continued Conversion Cost Computation: Conversion Costs in Beginning Work in Process $  35,000 Conversion Costs Added to Production During Month     170,000 Total Conversion Costs $205,000 The Computation of Unit Conversion Costs:  Chapter 21-42 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Example Continued  Comprehensive Example Continued  Step 3:  Compute Unit Production Cost – continued Total Manufacturing Cost Per Unit    The computation of unit total manufacturing cost: Chapter 21-43 LO 6: Explain the four steps necessary to prepare a production cost report Comprehensive Example Continued  Comprehensive Example Continued  Step 4:  Prepare Cost Reconciliation Schedule Costs Charged to Mixing Department: Cost of Beginning Work in Process Costs Started into Production During Period Total Costs to be Accounted For Chapter 21-44  $   85,000     570,000 $ 655,000 LO 6: Explain the four steps necessary to prepare a production cost report Production Cost Report ­ Mixing Department  Production Cost Report ­ Mixing Department  Chapter 21-45 LO 7: Prepare a production cost report Let’s Review    Let’s Review    Largo Company has unit costs of $10 for materials and $30 for  conversion costs.  If there are 2,500 units in ending work in process,  40% complete as to conversion costs and fully complete as to  materials cost, the total cost assignable to the ending work in  process inventory is: Chapter 21-46 a $45,000 $45,000 b.  $55,000 c.  $75,000 d.  $100,000.  LO 6:  Explain the four steps necessary to preprae a production cost report Contemporary Developments  Contemporary Developments  Just­in­Time (JIT) Processing A processing system that is dedicated to having the right products or parts as they  are needed  Objective: To eliminate all manufacturing inventories to make funds and space  available for more productive purposes Elements of JIT:  Dependable suppliers; Multi­skilled workforce; Total quality  control system Benefits of JIT:  Reduced inventory; Enhanced product quality; Reduced rework  and storage costs; Savings from improved flow of goods Chapter 21-47 LO 8: Explain just­in­time (JIT) processing Contemporary Developments ­ JIT Chapter 21-48 LO8: Explain just­in­time (JIT) processing Contemporary Developments  Contemporary Developments  Activity­Based Costing (ABC) An overhead cost allocation system that focuses on activities performed in  producing a product.  Traditional Costing System: allocates overhead to products using predetermined  unit­based output rate ABC System:  allocates overhead to multiple activity cost pools and assigns cost  pools to products using cost drivers that represent activities used Assumptions of ABC: All overhead costs for an activity must have the same cost  driver and should respond proportionally to changes in the activity of the cost  driver Chapter 21-49 LO 9: Explain activity­based costing (ABC) Contemporary Developments  Contemporary Developments  Activity­Based Costing (ABC) ­ continued May be used with either a job order or a process costing  system.  Primary Benefit:  More accurate and meaningful  product costing Secondary Benefit:  Improved cost data regarding an  activity may lead to reduced costs for that activity ABC makes managers realize that activities not  products ultimately determine company profitability Chapter 21-50 LO 9: Explain activity­based costing (ABC) Chapter Review ­ Brief Exercise 21­8  Chapter Review ­ Brief Exercise 21­8  Production costs chargeable to the Finishing Department in June in Castilla Company  are materials $15,000, labor $29,500, overhead $18,000.  Equivalent units of  production are materials 20,000 and conversion costs 19,000.  Compute the unit  costs for materials and conversion costs Unit costs for Materials: $15,000  ÷  20,000 units  =  $.75 per unit Unit costs for Conversion Costs:            Conversion Costs  =  $29,500  +  18,000  =  $47,500            $47,500  ÷  19,000  =  $2.50 per unit Total Manufacturing Costs per Unit:          $.75  +  $2.50  =  $3.25 per unit Chapter 21-51 LO 6:  Explain the four steps necessary to prepare a cost production report Copyright Copyright Copyright © 2008 John Wiley & Sons, Inc. All rights reserved. Reproduction or  translation of this work beyond that permitted in Section 117 of the 1976 United  States Copyright Act without the express written permission of the copyright owner  is unlawful. Request for further information should be addressed to the Permissions  Department, John Wiley & Sons, Inc. The purchaser may make back­up copies for  his/her own use only and not for distribution or resale. The Publisher assumes no  responsibility for errors, omissions, or damages, caused by the use of these programs  or from the use of the information contained herein Chapter 21-52 ... The products produced are heterogenous in nature.  Chapter 21-9 LO 1:  Understand who uses? ?process? ?cost? ?systems Job Order? ?Cost? ?and? ?Process? ?Cost? ?Flow Job Order? ?Cost? ?and? ?Process? ?Cost? ?Flow Job Order? ?Cost? ?Systems Chapter 21-10 Process? ?Cost? ?Systems... In contrast, job order? ?cost? ? accounting? ?focuses on the  individual job Chapter 21-5 Process? ?Cost? ?Accounting Process? ?Cost? ?Accounting Nature Natureof of Process ProcessCost Cost Systems Systems Uses... LO 2: Explain the similarities and differences between job order? ?cost? ? and? ?process? ?cost? ?systems  Job Order? ?Cost? ?vs? ?Process? ?Cost? ?Flow Job Order? ?Cost? ?vs? ?Process? ?Cost? ?Flow Chapter 21-11 LO 2: Explain the similarities and differences between job order? ?cost? ?

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  • Slide 1

  • CHAPTER 21

  • Study Objectives

  • Slide 4

  • Preview of Chapter

  • Slide 6

  • Nature of Process Cost Systems

  • Comparison of Products Produced Under Process and Job Order Cost Systems

  • Let’s Review

  • Job Order Cost and Process Cost Flow

  • Job Order Cost vs Process Cost Flow

  • Similarities and Differences in Cost Systems

  • Slide 13

  • Slide 14

  • Major Differences Between Job Order and Process Cost Systems

  • Slide 16

  • Process Cost Flows Illustrated

  • Slide 18

  • Assignment of Manufacturing Costs

  • Slide 20

  • Slide 21

  • Assignment of Manufacturing Costs

  • Slide 23

  • Slide 24

  • Slide 25

  • Equivalent Units

  • Equivalent Units Example Continued

  • Equivalent Units – Weighted Average Method

  • Equivalent Units – Refinements Weighted Average Method

  • Slide 30

  • Slide 31

  • Slide 32

  • Slide 33

  • Production Cost Report

  • Flow of Costs in Making Eggo Waffles

  • Comprehensive Example of Process Costing

  • Comprehensive Example Continued

  • Slide 38

  • Slide 39

  • Slide 40

  • Slide 41

  • Slide 42

  • Slide 43

  • Slide 44

  • Production Cost Report - Mixing Department

  • Let’s Review

  • Contemporary Developments

  • Contemporary Developments - JIT

  • Slide 49

  • Slide 50

  • Chapter Review - Brief Exercise 21-8

  • Copyright

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