Maliyet Muhasebesi Cost Allocation Corporate and Support Department Costs (2) 17 - 1 Process Costing Chapter 1717 - 2 Introduction In many industries, products are mass * produced, that is, relatively homogeneous products are processed in a very similar manner. Companies in these industries use process * costing. This chapter presents process costing. *17 - 3 Learning Objective 1 Determine when process-costing systems are appropriate17 - 4 Process Costing Used for production of small, • identical, low-cost items. Mass produced in automated • continuous production process. Costs cannot be directly traced • to each unit of product.17 - 5 Job Costing Custom orders * Heterogeneous products * Low production volume * High product flexibility * Low to medium * standardization Process Costing Repetitive production * Homogeneous products * High production volume * Low product flexibility * High standardization * Comparing Job and Process Costing17 - 6 Direct Materials Finished Goods Cost per unit for each job Direct Labor Factory Overhead Jobs The Work in Process account consists of individual jobs in job costing . Job and Process Costing17 - 7 Direct Materials Finished Goods Direct Labor Factory Overhead Processes The Work in Process account consists of specific processes in process costing. Cost per unit processed Job and Process Costing17 - 8 Process Costing Direct Materials Direct Labor Department Department Indirect Mfg. A B Costs Finished Goods Cost of Goods Sold17 - 9 Same objective: to determine the cost of products Same inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method: predetermined rate times actual activity Job and Process Costing Similarities 17 - 10 Unit cost is computed by dividing the accumulated costs by the number of units produced in the period. If partially complete units remain in process, we must use equivalent units as the divisor to obtain unit costs. Computing Unit Cost Costs are accumulated for a period of time by process or department. 17 - 11 Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units. Two one-half full cups are equivalent to one full cup. + = Computing and Using Equivalent Units of Production 117 - 12 Question For the current period, PencilCo 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 PencilCo have for the period? a. 10,000 b. 11,500 c. 1,500 d. 15,00017 - 13 For the current period, PencilCo 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 PencilCo have for the period? a. 10,000 b. 11,500 c. 1,500 d. 15,000 10,000 units + (5,000 units × .30) = 11,500 equivalent units Question17 - 14 Cost per equivalent unit = Product costs for the period Equivalent units for the period Cost Per Equivalent Unit17 - 15 Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90 Question17 - 16 Now assume that PencilCo incurred $27,600 in production costs. What was PencilCo’s cost per unit for the period? a. $1.84 b. $2.40 c. $2.76 d. $2.90 $ 27,600 ÷ 11,500 equivalent units = $2.40 per equivalent unit Question17 - 17 Equivalent units may be different for material and labor and overhead at different stages of a process. At completion of Stage 1 of the process, material is 40% complete, but labor and overhead are only 25% complete. Stage 1 40% of Material 25% of Labor and Overhead Equivalent Units17 - 18 Stage 2 25% of Labor and Overhead 60% of Material Stage 1 40% of Material 25% of Labor and Overhead + + = = 100% 50% Equivalent Units17 - 19 Stage 3 50% of Labor and Overhead The process is now complete. Stage 2 25% of Labor and Overhead 60% of Material Stage 1 40% of Material 25% of Labor and Overhead Equivalent Units17 - 20 Learning Objective 2 Describe five key steps in process costing17 - 21 Five Steps in Process Costing Step 1: Summarize the flow of physical units * of output. Step 2: Compute output in terms of equivalent * units. Step 3: Compute equivalent unit costs. *17 - 22 Five Steps in Process Costing Step 4: Summarize total costs to account for. * Step 5: Assign total costs to units completed * and to units in ending work-in-process inventory.17 - 23 Learning Objective 3 Process Costing without Beginning Work-in-Process17 - 24 Process Costing without Beg. WIP The following information relates to Aspen * Inc., a manufacturer of skiing accessories.17 - 25 Process Costing without Beg. WIP Work-in-process, beginning 0 Started during current period 35,000 Completed and transferred out during current period 30,000 Work-in-process, ending 5,000 Costs incurred in the period: Direct materials costs $$84,050 Conversion costs $62,000 Total $146,05017 - 26 Required Calculate; cost of units completed and transferred out a) ending work-in-process * b) *(Ending WIP inventory is 100% complete for materials and 20% complete for conversion)17 - 27 Physical Units (Step 1) Physical Flow of Production units Work-in-process, beginning 0 Started during current period 35,000 To account for 35,000 Completed and transferred out during current period 30,000 Work-in-process, ending (100%/20%) 5,000 Accounted for 35,00017 - 28 Compute Equivalent Units (Step 2) Equivalent units Direct Conversion Flow of Production Materials Costs Completed and transferred out 30,000 30,000 Work-in-process, ending 5,000 (100%) 1,000 (20%) Current period work 35,000 31,00017 - 29 Compute Equivalent Unit Costs (Step 3) Total production costs are $146,050 of which * $84,050 direct materials costs and $62,000 conversion costs. Direct Conversion Materials Costs $84,050 $62,000 Equivalent units 35,000 31,000 Cost per equivalent unit $2.4014 $2.0017 - 30 Summarize and Assign Total Costs (Steps 4 and 5) Step 4: Total costs to account for: $146,050 * Step 5: Assign total costs: * Completed and transferred out 30,000 x $4.4014 = $132,043 Work-in-process ending (5,000 units) Direct materials 5,000 x $2.4014 = 12,007 Conversion costs 1,000 x $2.00 = 2,000 Total $146,05017 - 31 Weighted-Average Method The weighted-average process-costing method * calculates the average equivalent unit cost of the work done to date (regardless of the period in which it was done). The weighted-average cost is the total of all costs * entering the Work-in-Process account (regardless of whether it is from beginning work in process or from work started during the period) divided by total equivalent units of work done to date.17 - 32 First-In, First-Out Method This method assumes that the earliest * equivalent units in the Work-in-Process are completed first. A distinctive feature of the FIFO process- * costing method is that work done on beginning inventory before the current period is kept separate from work done in the current period.17 - 33 Learning Objective 5 Demonstrate the weighted- average method of process costing17 - 34 Weighted-Average Method The weighted-average process-costing method * calculates the average equivalent unit cost of the work done to date (regardless of the period in which it was done). It assigns this cost to equivalent units * completed and transferred out and to equivalent units in ending work-in-process inventory.17 - 35 Weighted-Average Method The weighted-average cost is the total of all * costs entering the Work-in-Process account (regardless of whether it is from beginning work in process or from work started during the period) divided by total equivalent units of work done to date.17 - 36 Weighted-Average Method Assume that Aspen Inc. had 1,000 units in * the Assembly Department beginning work-in- process inventory. These units were 100% complete for materials * ($2,350) and 60% complete for conversion ($5,200). Ending work-in-process inventory consisted * of 5,000 units (100% materials) and (20% conversion).17 - 37 Work-in-process, beginning 1,000 Units started in process 35,000 Units transferred out 31,000 Units in ending inventory 5,000 Calculate cost of; units completed and transferred out a) ending work-in-process b)17 - 38 Physical Units (Step 1) Work-in-process, beginning: * 100% material 60% conversion costs 1,000 Units started in process 35,000 Units to account for 36,000 Units transferred out: 31,000 * Units in ending inventory: 100% material 20% conversion costs 5,000 Units accounted for 36,00017 - 39 Compute Equivalent Units (Step 2) Partially completed units are converted into * equivalent units. Ending inventory is only 20% complete for * conversion which equals 1,000 equivalent units (5,000 x 20%).17 - 40 Compute Equivalent Units (Step 2) Materials Conversion Completed and transferred 31,000 31,000 Ending inventory 5,000 1,000 Equivalent units 36,000 32,000 100% 20%17 - 41 Compute Equivalent Unit Costs (Step 3) Materials Conversion * Beginning inventory $ 2,350 $ 5,200 Current costs 84,050 62,000 * Total $86,400 $67,200 * Equivalent units 36,000 32,000 * Cost per unit $2.40 $2.10 *17 - 42 Summarize and Assign Total Costs (Steps 4 and 5) Work-in-process beginning inventory: * Materials $ 2,350 Conversion 5,200 Total beginning inventory $ 7,550 Current costs in Assembly Department: + Materials $ 84,050 Conversion 62,000 Costs to account for $153,600 =17 - 43 Summarize and Assign Total Costs (Steps 4 and 5) This step distributes the department ’ s costs * to units transferred out: 31,000 units × $4.50 = $139,500 And to units in ending work-in-process * inventory: $12,000 + $2,100 = $14,10017 - 44 Summarize and Assign Total Costs (Steps 4 and 5) Costs transferred out: * 31,000 × ($2.40 + $2.10) $139,500 Costs in ending inventory: * Materials 5,000 × $2.40 12,000 Conversion 1,000 × $2.10 2,100 Total costs accounted for: $153,600 *17 - 45 Key T-Account: Weighted- Average Work-in-Process Inventory, Assembly Beg. Inv. 7,550 Transferred to Materials 84,050 Finishing Conversion 62,000 139,500 Balance 14,10017 - 46 Learning Objective 6 Demonstrate the first-in, first-out (FIFO) method of process costing17 - 47 First-In, First-Out Method FIFO process-costing method assigns the cost * of the prior accounting period ’ s equivalent units in beginning work-in-process inventory to the first units completed and transferred out.17 - 48 First-In, First-Out Method FIFO assigns the cost of equivalent units * worked on during the current period first to complete beginning inventory, then to start and complete new units, and finally to units in ending work-in-process inventory. This method assumes that the earliest * equivalent units in the Work-in-Process, Assembly account are completed first.17 - 49 First-In, First-Out Method A distinctive feature of the FIFO process- * costing method is that work done on beginning inventory before the current period is kept separate from work done in the current period.17 - 50 First-In, First-Out Method Assume that Aspen Inc. uses FIFO. * How many units will be in the quantity * schedule (Step 1)? 36,000 (same as weighted-average method) * What are the equivalent units (Step 2)? *17 - 51 Compute Equivalent Units (Step 2) Materials Conversion Completed and transferred: From beginning inventory 0 400 Started and completed 30,000 30,000 Ending inventory 5,000 1,000 35,000 31,40017 - 52 Compute Equivalent Units (Step 2) Materials Conversion Completed and transferred 31,000 31,000 Ending inventory 5,000 (100%) 1,000 (20%) 36,000 32,000 Beginning inventory 1,000 (100%) 600 (60%) Equivalent units 35,000 31,40017 - 53 Compute Equivalent Unit Costs (Step 3) Materials Conversion Current costs $84,050 $62,000 Equivalent units 35,000 31,400 Cost per unit $2.40 $1.97517 - 54 Summarize and Assign Total Costs (Steps 4 and 5) Work-in-process beg. inventory $ 7,550 * Current costs: * Material 84,050 Conversion 62,000 Total $153,600 Same as using weighted-average *17 - 55 Summarize and Assign Total Costs (Steps 4 and 5) Costs transferred out: * From beginning inventory: $7,550 * Conversion costs added: 1,000 x 40% x $1.975 790 $ 8,340 From current production: * 30,000 x $4.375 131,250 Total $139,590 *17 - 56 Summarize and Assign Total Costs (Steps 4 and 5) Work-in-process ending inventory: * Materials: 5,000 × $2.40 $12,000 * Conversion: * 5,000 × 20% × $1.975 1,975 Total $13,97517 - 57 Summarize and Assign Total Costs (Steps 4 and 5) Costs transferred out $139,590 * Costs in ending inventory $13,975 + $153,565 ($35 rounding error) = An alternative approach: * Costs to account for $153,600 * Cost in ending inventory $13,975 – Costs transferred out $139,625 =17 - 58 Key T-Account: FIFO Work-in-Process Inventory, Assembly Beg. Inv. 7,550 Transferred to Materials 84,050 Finishing Conversion 62,000 139,625 Balance 13,97517 - 59 Comparison of Weighted- Average and FIFO Methods Weighted Average FIFO Difference Costs of units completed and transferred out $139,500 $139,625 +$125 Work-in-process, ending 14,100 13,975 -$125 Total costs accounted for $153,600 $153,600 017 - 60 Comparison of Weighted- Average and FIFO Methods The weighted-average ending inventory is * higher than the FIFO ending inventory by $125. This results in a lower cost of goods sold and * hence higher operating income and higher income taxes than does the FIFO method.17 - 61 Comparison of Weighted- Average and FIFO Methods Differences in equivalent unit costs of * beginning inventory and work done during the current period account for the differences in weighted-average and FIFO costs. W-A FIFO