lecture 14. chapter overview types of costing systems used to determine product costs – job-order...
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Lecture 14
Chapter Overview• Types of Costing Systems Used to Determine Product
Costs– Job-Order Costing– Process Costing
• Sequence of Events in a Job-Order Costing System• Application of Manufacturing Overhead• The Need for a Predetermined Manufacturing
Overhead Rate• Over/under-applied FOH• Job-Order Costing Document Flow Summary• Job-Order System Cost Flows• MCQs Test Questions
Systems Design:Process Costing
Chapter
4
Types of Costing Systems Used to Determine Product Costs
Job-orderCosting
ProcessCosting
Many units of a single, homogeneous product flow evenly through a continuous production process. One unit of product is indistinguishable from any other unit of product.. Each unit of product is assigned the same average cost.
Many units of a single, homogeneous product flow evenly through a continuous production process. One unit of product is indistinguishable from any other unit of product.. Each unit of product is assigned the same average cost.
Types of Costing Systems Used to Determine Product Costs
Job-orderCosting
ProcessCosting
Many units of a single, homogeneous product flow evenly through a continuous production process. One unit of product is indistinguishable from any other unit of product.. Each unit of product is assigned the same average cost.
Many units of a single, homogeneous product flow evenly through a continuous production process. One unit of product is indistinguishable from any other unit of product.. Each unit of product is assigned the same average cost.
Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill
Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill
Job order costing– Many jobs are worked
during the period.– Costs are accumulated by
individual jobs.– Job cost sheet is the key
document.– Unit cost computed by job.
Job order costing– Many jobs are worked
during the period.– Costs are accumulated by
individual jobs.– Job cost sheet is the key
document.– Unit cost computed by job.
Process costing– A single product is
produced for a long period of time.
– Costs are accumulated by departments.
– Department production report is key document.
– Unit costs are computed by department.
Process costing– A single product is
produced for a long period of time.
– Costs are accumulated by departments.
– Department production report is key document.
– Unit costs are computed by department.
Differences Between Job-Order and Process Costing
Sequential Processing Departments
Processing Department 1Processing
Department 1
Processing Department 2Processing
Department 2
Processing Department 3Processing
Department 3
Finished Goods
StartBasic raw materials
Processing costs
Partially completed goods
Partially completed goods
Processing costs
Completed goods
Processing costs
Parallel Processing Departments
Processing Department 1Processing
Department 1
Processing Department 2Processing
Department 2
Processing Department 3Processing
Department 3
Finished Goods
StartBasic raw materials
Processing costs
Partially completed goods
Partially completed goods
Processing costs
Completed goods
Processing costs
Processing Department A
Flow of Materials, Labor and Overhead Costs
FinishedGoods
FinishedGoods
Cost of GoodsSold
Cost of GoodsSold
Direct LaborDirect Labor ProcessingDepartment
Direct MaterialDirect Material
ManufacturingOverhead
ManufacturingOverhead
Raw MaterialsPurchases Direct
Material
OtherOverhead
Manufacturing Overhead
Flow of Materials, Labor and Overhead Costs
Work in Process Finishing Department
Work in Process Mixing Department
Direct Material
Direct Material
Indirect Material
Indirect Material
Actual Applied
Wages PayableDirect
Material
Direct Material
Flow of Materials, Labor and Overhead Costs
Direct Labor Direct
Labor
Direct Labor
IndirectLabor
OtherOverhead
Manufacturing Overhead
Indirect Material
Actual Applied
IndirectLabor
Work in Process Finishing Department
Work in Process Mixing Department
Wages PayableDirect
Material
Direct Material
Flow of Materials, Labor and Overhead Costs
Direct Labor Direct
Labor
Direct Labor
IndirectLabor
OverheadApplied to
Work inProcess
AppliedOverhead
AppliedOverhead
OtherOverhead
Manufacturing Overhead
Indirect Material
Actual Applied
IndirectLabor
Work in Process Finishing Department
Work in Process Mixing Department
Flow of Materials, Labor and Overhead Costs
Now, let’s transfer the partially completed goods from
Mixing Departmentto
Finishing Department.
Now, let’s transfer the partially completed goods from
Mixing Departmentto
Finishing Department.
Flow of Materials, Labor and Overhead Costs
Direct Material
Direct LaborApplied
Overhead
Direct Material
Direct LaborApplied
Overhead
Transferred to Finishing
Transferred from Mixing
Work in Process Finishing Department
Work in Process Mixing Department
Flow of Materials, Labor and Overhead Costs
The goods have been completed in the Finishing Department and will be transferred to Finished Goods
Inventory when they are ready to be sold.
Finished Goods
Cost of Goods Sold
Flow of Materials, Labor and Overhead Costs
Direct Material
Direct LaborApplied
OverheadTransferred
from Dept. A
Cost of GoodsSold
Cost of GoodsSold
Cost of Goods
Manufactured
Cost of Goods
Manufactured
Work in Process Finishing Department
Materials, Labor, and Overhead Cost Entries
GENERAL JOURNAL Page 4
Date Description Debit Credit
Raw Materials XXXXX
Accounts Payable XXXXX
To record the purchase of material.
Work in Process - Mixing Department XXXXX
Work in Process - Finishing Department XXXXX
Raw Materials XXXXX
To record the use of direct material.
Flow of Materials, Labor and Overhead Costs
GENERAL JOURNAL Page 4
Date Description Debit Credit
Work in Process - Mixing Deparment XXXXX
Work in Process - Finishing Department XXXXX
Salaries and Wages Payable XXXXX
To record direct labor costs.
Flow of Materials, Labor and Overhead Costs
GENERAL JOURNAL Page 4
Date Description Debit Credit
Work in Process - Mixing Department XXXXX
Work in Process - Finishing Department XXXXX
Manufacturing Overhead XXXXX
To apply overhead to departments.
Flow of Materials, Labor and Overhead Costs
GENERAL JOURNAL Page 4
Date Description Debit Credit
Work in Process - Finishing Department XXXXX
Work in Process - Mixing Department XXXXX
To record the transfer of goods from
Mixing to Finishing.
Flow of Materials, Labor and Overhead Costs
GENERAL JOURNAL Page 4
Date Description Debit Credit
Finished Goods XXXXX
Work in Process - Finishing Department XXXXX
To record the completion of goods and their
transfer from the Finishing Department
to finished goods inventory.
Flow of Materials, Labor and Overhead Costs
GENERAL JOURNAL Page 4
Date Description Debit Credit
Accounts Receivable XXXXX
Sales XXXXX
To record sales on account.
Cost of Goods Sold XXXXX
Finished Goods XXXXX
To record cost of goods sold.
Lecture Overview
• Types of Costing Systems Used to Determine Product Costs
• Differences Between Job-Order and Process Costing
• Sequential Processing Departments• Parallel Processing Departments• Flow of Materials, Labor and Overhead Costs• Materials, Labor, and Overhead Cost Entries
Equivalent Units of ProductionEquivalent units are partially complete and are part of
work in process inventory. It is the concept of expressing partially completed products as a smaller
number of fully completed units.
Equivalent units are partially complete and are part of work in process inventory. It is the concept of
expressing partially completed products as a smaller number of fully completed units.
+ =
Two one-half completed products are equivalent to one completed product. So, 10,000 units 70%
complete are equivalent to 7,000 complete units.
Two one-half completed products are equivalent to one completed product. So, 10,000 units 70%
complete are equivalent to 7,000 complete units.
For the current period, Matrix 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
Matrix have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
For the current period, Matrix 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
Matrix have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
MCQs Test
For the current period, Matrix 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
Matrix have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
For the current period, Matrix 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
Matrix have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
MCQs Test
10,000 units + (5,000 units × .30) = 11,500 equivalent units 10,000 units + (5,000 units × .30) = 11,500 equivalent units
Equivalent Units of Production
To calculate the cost perequivalent unit for the period:
To calculate the cost perequivalent unit for the period:
Cost perequivalent
unit
=Costs for the period
Equivalent units of productionfor the period
Now assume that Matrix incurred $27,600 in production costs for the 11,500
equivalent units of production. What was Matrix’s cost per equivalent unit for
the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
MCQs Test
Now assume that Matrix incurred $27,600 in production costs for the 11,500
equivalent units of production. What was Matrix’s cost per equivalent unit for
the period?
a. $1.84
b. $2.40
c. $2.76
d. $2.90
MCQs Test
$27,600 ÷ 11,500 equivalent units
= $2.40 per equivalent unit
$27,600 ÷ 11,500 equivalent units
= $2.40 per equivalent unit
Lecture Overview
• Types of Costing Systems Used to Determine Product Costs
• Differences Between Job-Order and Process Costing
• Sequential Processing Departments• Parallel Processing Departments• Flow of Materials, Labor and Overhead Costs• Materials, Labor, and Overhead Cost Entries
End of Lecture 14