Lecture Fundamentals of cost accounting (4th edition): Chapter 8 - Lanen, Anderson, Maher

(BQ) Chapter 8: Process costing. We continue our discussion of the details of a product costing system in Chapter 8 by developing a process costing system. As we discussed in Chapter 6, the difference between job order and process costing is the level at which costs are aggregated before they are assigned to the individual units of product. Process costing assumes that all units are homogeneous and follow the same path through the production process.
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Lecture Fundamentals of cost accounting (4th edition): Chapter 8 - Lanen, Anderson, Maher© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in anymanner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. ProcessCosting Chapter8 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPAMcGrawHill/Irwin Copyright©2014byTheMcGrawHillCompanies,Inc.Allrightsreserved.LearningObjectivesLO 8-1 Explain the concept and purpose of equivalent units.LO 8-2 Assign costs to products using a five-step process.LO 8-3 Assign costs to products using weighted-average costing.LO 8-4 Prepare and analyze a production cost report.LO 8-5 Assign costs to products using first-in, first-out (FIFO) costing.LO 8-6 Analyze the accounting choice between FIFO and weighted-average costing.LO 8-7 Know when to use process or job costing.LO 8-8 Compare and contrast operation costing with job costing and process costing. 83 ComparisonofCostFlows Job CostingDirect materials, Job 121 Finished Cost ofdirect labor, and Job 122 goods goods soldfactory overhead Job 123 Process CostingDirect materials, Process A Finished Cost ofdirect labor, and Process B goods goods soldfactory overhead Process C 84LO8-1 DeterminingEquivalentUnits LO 8-1 Explaintheconceptandpurposeofequivalentunits. Number of complete physical units to which units in inventories are equal in terms of work done to date. 85LO8-1 DeterminingEquivalentUnits At month end, three cans of paint are filled as indicated. 30% 75% 90% (30% + 75% + 90%) ÷ 3 = 65% Therefore, ending work-in-process inventory is 65 percent complete, on average. 86 UsingProductCostingLO8-2 inaProcessIndustry LO 8-2 Assigncoststoproductsusingafivestepprocess. Step 1: Measure the physical flow of resources. Step 2: Compute the equivalent units of production. Step 3: Identify the product costs for which to account. Step 4: Compute the costs per equivalent unit. Step 5: Assign product cost to batches of work. 87 UsingProductCostingLO8-2 inaProcessIndustry Torrance Tape, Inc. (2T), manufactures adhesives and tapes. Production at 2T’s Valley Plant takes place in three steps. 3. 1. 2. Cutting and Compounding Coating Warehouse Packaging Department Department Department 88LO8-2 MeasurethePhysical FlowofResources(Step1) Gallons of Compound Work in process, March 1 20,000a + Gallons of adhesive started 92,000 Total gallons to account for 112,000 =Transferred out to Coating Department 96,000 + Work-in-process, March 31 16,000b Total units accounted for 112,000 a 25% complete with respect to conversion costs b 30% complete with respect to conversion costs 89LO8-2 ComputetheEquivalentUnits ofProduction(Step2) Compounding Department, March: Equivalent Units ...