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    Ch06 Process Costing

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    Zaira Pangesfan
    This document discusses process costing, including calculating equivalent units of production using weighted average and FIFO methods. It also covers standard costing and hybrid costing systems. Equivalent units of production approximate the number of whole units that could have been produced from actual effort. The weighted average method combines beginning and current period production, while FIFO separates them. A company may use a hybrid system for product lines with different cost characteristics.

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    Ch06 Process Costing

    Uploaded by

    Zaira Pangesfan
    46 views19 pages
    This document discusses process costing, including calculating equivalent units of production using weighted average and FIFO methods. It also covers standard costing and hybrid costing systems. Equivalent units of production approximate the number of whole units that could have been produced from actual effort. The weighted average method combines beginning and current period production, while FIFO separates them. A company may use a hybrid system for product lines with different cost characteristics.

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    This document discusses process costing, including calculating equivalent units of production using weighted average and FIFO methods. It also covers standard costing and hybrid costing systems. Equivalent units of production approximate the number of whole units that could have been produced from actual effort. The weighted average method combines beginning and current period production, while FIFO separates them. A company may use a hybrid system for product lines with different cost characteristics.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    46 views19 pages

    Ch06 Process Costing

    Uploaded by

    Zaira Pangesfan
    This document discusses process costing, including calculating equivalent units of production using weighted average and FIFO methods. It also covers standard costing and hybrid costing systems. Equivalent units of production approximate the number of whole units that could have been produced from actual effort. The weighted average method combines beginning and current period production, while FIFO separates them. A company may use a hybrid system for product lines with different cost characteristics.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 19

    Cost Accounting

    Foundations and Evolutions


    Kinney, Prather, Raiborn

    Chapter 6
    Process Costing
    Learning Objectives (1 of 3)
    • Contrast process costing and job order costin
    g
    • Explain why equivalent units of production ar
    e used in process costing
    • Calculate equivalent units of production, unit
    costs, and inventory values using weighted av
    erage method of process costing
    Learning Objectives (2 of 3)
    • Compute equivalent units of production, unit
    costs, and inventory values using FIFO meth
    od of process costing
    • Explain how standard costs are used in a proc
    ess costing system
    • Explain why a company would use a hybrid c
    osting system
    Learning Objectives (3 of 3)
    • (Appendix 1) Explain the alternative metho
    ds used to calculate equivalent units of prod
    uction
    • (Appendix 2) Describe how normal and abn
    ormal spoilage losses are treated in an EUP
    schedule
    Job Order vs. Process Costing

    Job Order Process Costing


    • Assign costs to job an • Using an averaging tec
    d then to units within t hnique, assign costs di
    he job rectly to units produce
    d during the period
    Process Costing
    • The Numerator - Production Costs
    – Accumulate costs by department
    – Accumulate costs by product
    – Direct material from material requisitions
    – Direct labor from time sheets and wage rates
    – Overhead
    • Actual
    • Predetermined application rates
    Unit Cost = Production Costs
    Production Quantity
    Process Costing
    • Production Costs
    – Direct material from material requisitions
    – Direct labor from time sheets and wage rates
    – Overhead
    • Actual
    • Predetermined application rates
    Process Costing
    • The Denominator - Units Produced
    • Complicated by work in process
    – Units started last period and completed this peri
    od
    – Units started this period and not completed
    • Convert partially completed units to equival
    ent whole units

    Unit Cost = Production Costs


    Production Quantity
    Equivalent Units of Production (EUP)
    • Approximation of the number of whole unit
    s of output that could have been produced fr
    om the actual effort expended
    • Includes units
    – started last period and finished this period
    – started and finished this period
    – started this period and not finished
    • Assumes FIFO physical flow through the pr
    oduction department
    Two Process Costing Methods
    • Weighted Average Method
    – combines
    • beginning work in process
    • current period production
    • FIFO Method
    – separates
    • beginning work in process
    • current period production
    Process Costing Methods
    Weighted Average
    Beginning WIP 100%
    Started and finished 100%
    Ending WIP THE % completed
    DIFFERENCE
    FIFO
    Beginning WIP % completed
    Started and finished 100%
    Ending WIP % completed
    Process Costing
    • Direct material
    – added at the beginning, during, and/or at the en
    d of process
    • Direct labor
    – added throughout the process
    • Overhead
    – added throughout the process
    • based on direct labor
    • based on other, multiple cost drivers
    Process Costing Steps

    1 Units to account for


    2 Units accounted for Units
    3 Determine equivalent units
    4 Costs to account for
    5 Compute cost per equivalent unit Costs
    6 Assign costs to inventories
    Cost of Production Report
    Name of Department
    3
    for the period ---
    Production Data: 1 2
    Units to account for
    Units accounted for EUP for each cost
    Cost Data:
    Costs to account for 4
    Cost per EUP 5
    6
    Cost Assignment:
    Transferred Out
    Ending Work In Process Inventory
    Process Costing with Standard Costs
    • Simplify costing process
    • Eliminate periodic cost recomputations
    • Same as FIFO computations
    – emphasize current period costs and production
    • Inventories are stated at standard cost
    • Variances are calculated for material, labor,
    and overhead
    Process Costing with Standard Costs
    • Assigns a “normal” production cost to the e
    quivalent units of output each period
    • Allows managers to quickly recognize and i
    nvestigate significant deviations from expec
    ted production costs
    • Allows benchmarking with other firms
    Hybrid Costing Systems

    • Characteristics of job order and process cost


    ing systems
    • Various product lines
    – different direct material - job order costing
    – different direct labor – job order costing
    – same process - process costing
    • Hybrid costing used for furniture, clothing, j
    am
    Appendix 2 - Spoilage
    Normal Abnormal
    Spoilage Spoilage
    Loss in all ending i
    Continuous nventory and tran
    sferred out units Period expense
    Loss
    on an EUP basis in EUP

    Loss in all units pas


    Discrete t inspection point i
    n ending inventory Period expense
    Loss
    and transferred ou in EUP
    t on an EUP basis
    Questions

    • What is an equivalent unit of production?


    • What is the difference between the weighte
    d average and FIFO methods of calculating
    equivalent units?
    • Why would a company use a hybrid costing
    system?

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