Outline
•
Process costing
•
Process costing with WIP inventories
•
The effects of beginning and ending work in
process inventories
•
Process costing steps and calculations
•
Hybrid costing systems: operation costing for
batch manufacturing processes
•
Other issues in process costing
Job Costing and Process Costing
Job Costing and Process Costing
•
•Job costing and process costing are two Job costing and process costing are two extremes of the continuum of conventional extremes of the continuum of conventional product costing systemsproduct costing systems
•
•Job costing systems accumulate the costs of Job costing systems accumulate the costs of each jobeach job
•
•Process costing systems average the Process costing systems average the accumulated costs across all unitsaccumulated costs across all units
•
•Hybrid costing is Hybrid costing is a combination of job and a combination of job and process costingprocess costing
Process Costing (cont.)
Process Costing (cont.)
•
•Two main stepsTwo main steps
1.
1.Estimate the cost of the production processEstimate the cost of the production process
2.
2.Calculate the average cost per unit Calculate the average cost per unit
•
•Process costing can occur where there is no Process costing can occur where there is no opening or closing workopening or closing work–inin–process (WIP) process (WIP) inventory (see Chapter 4)inventory (see Chapter 4)
•
•More complex process costing takes account of More complex process costing takes account of WIP inventoryWIP inventory
Process Costing
Process Costing
Process Costing with Work in Process Inventories
Process Costing with Work in Process Inventories
•
•Production costs will be calculated after Production costs will be calculated after taking into account:taking into account:
-Units started in the previous period (beginning Units started in the previous period (beginning WIP) and completed in the current periodWIP) and completed in the current period
-Units started and completed during the periodUnits started and completed during the period
-Units that are incomplete at the end of the period Units that are incomplete at the end of the period (ending WIP)(ending WIP)
Process Costing with Work in Process Inventories
Process Costing with Work in Process Inventories (cont.)(cont.)
•
•Partially completed WIP units need to be Partially completed WIP units need to be converted to converted to equivalent unitsequivalent units
•
•Equivalent unitsEquivalent units
-The amount of production inputs (i.e. direct The amount of production inputs (i.e. direct materials, direct labour and manufacturing materials, direct labour and manufacturing overhead) that have been applied to the physical overhead) that have been applied to the physical units in productionunits in production
•
•Conversion of WIP inventory into equivalent Conversion of WIP inventory into equivalent units provides the basis for calculating units provides the basis for calculating product costproduct cost
Process Costing with Work in Process Inventories
Process Costing with Work in Process Inventories (cont.)(cont.)
•
•Direct materials are input into production at Direct materials are input into production at various stagesvarious stages
•
•Assume that labour and overhead Assume that labour and overhead (conversion costs) are used uniformly (conversion costs) are used uniformly throughout the production processthroughout the production process
•
•Units in ending WIP are generally at different Units in ending WIP are generally at different stages of completion with respect to material stages of completion with respect to material and conversion costand conversion cost
Equivalent Units
Equivalent Units
•
•If WIP is 50% complete for 10 000 litres on hand If WIP is 50% complete for 10 000 litres on hand at the end of the month, it is:at the end of the month, it is:
-100% complete for direct materials, which are added 100% complete for direct materials, which are added at the start of the processat the start of the process
10 000 equivalent units of material10 000 equivalent units of material
-50% complete for conversion costs, assuming that 50% complete for conversion costs, assuming that conversion costs occur uniformly across the production conversion costs occur uniformly across the production process process
55000000equivalentequivalentunitsunitsofofconversionconversion
Effects of Beginning and Ending Work in Process Inventories
Effects of Beginning and Ending Work in Process Inventories
•
•Four steps in process costingFour steps in process costing
1.
1.Analyse the physical flow of unitsAnalyse the physical flow of units
2.
2.Calculate the equivalent unitsCalculate the equivalent units
3.
3.Calculate the unit costsCalculate the unit costs
4.
4.Analyse the total costsAnalyse the total costs
Effects of Beginning and Ending Work in Process
Effects of Beginning and Ending Work in Process Inventories (cont.)Inventories (cont.)
•
•Products are costed using one of two Products are costed using one of two assumptions about the physical flow of assumptions about the physical flow of inventoryinventory
-Weighted average methodWeighted average method
-FirstFirst–in, firstin, first–out (FIFO) methodout (FIFO) method
The post Process costing and Operation costing appeared first on My Assignment Online.