Garrison Lecture Chapter 4
Garrison Lecture Chapter 4
Chapter 4
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., CPA
Copyright2015McGrawHillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGrawHillEducation.
4-2
4-3
4-4
Quick Check
Process costing is used for products
that are:
a. Different and produced continuously.
b. Similar and produced continuously.
c. Individual units produced to customer
specifications.
d. Purchased from vendors.
4-5
Quick Check
Process costing is used for products
that are:
a. Different and produced continuously.
b. Similar and produced continuously.
c. Individual units produced to customer
specifications.
d. Purchased from vendors.
4-6
Processing Departments
Any unit in an organization where materials, labor,
or overhead are added to the product.
The activities performed in a processing
department are performed uniformly on all
units of production. Furthermore, the output of
a processing department must be homogeneous.
Products in a process costing environment typically
flow in a sequence from one department to another.
4-7
Learning Objective 1
Record the flow of
materials, labor, and
overhead through a
process costing system.
4-8
Manufacturing
Overhead
Work in
Process
Finished
Goods
Cost of
Goods
Sold
4-9
Direct
Materials
Direct Labor
Manufacturing
Overhead
Jobs
Jobs
Finished
Goods
Cost of
Goods
Sold
4-10
Direct Labor
Manufacturing
Overhead
Processing
Department
Finished
Goods
Cost of
Goods
Sold
4-11
4-12
Work in Process
Department A
Direct
Materials
Work in Process
Department B
Direct
Materials
4-13
4-14
Work in Process
Department A
Direct
Materials
Direct
Labor
Work in Process
Department B
Direct
Materials
Direct
Labor
4-15
4-16
Overhead
Applied to
Work in
Process
Direct
Materials
Direct
Labor
Applied
Overhead
Work in Process
Department B
Direct
Materials
Direct
Labor
Applied
Overhead
4-17
4-18
Process Cost Flows: Transfers from WIPDept. A to WIP-Dept. B (in T-account form)
Work in Process
Department A
Direct
Transferred
Materials
to Dept. B
Direct
Labor
Applied
Overhead
Department
Department
A
A
Work in Process
Department B
Direct
Materials
Direct
Labor
Applied
Overhead
Transferred
from Dept. A
Department
Department
B
B
4-19
4-20
Process Cost Flows: Transfers from WIPDept. B to Finished Goods (in T-account form)
Work in Process
Department B
Direct
Cost of
Materials
Goods
Direct
Manufactured
Labor
Applied
Overhead
Transferred
from Dept. A
Finished Goods
Cost of
Goods
Manufactured
4-21
4-22
Finished Goods
Direct
Cost of
Cost of
Cost of
Materials
Goods
Goods
Goods
Direct
Manufactured
Manufactured
Sold
Labor
Applied
Overhead
Transferred
Cost of Goods Sold
from Dept. A
Cost of
Goods
Sold
4-23
4-24
4-25
So,
So, 10,000
10,000 units
units 70%
70% complete
complete
are
are equivalent
equivalent to
to 7,000
7,000 complete
complete units.
units.
4-26
Quick Check
For the current period, Jones 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 Jones
have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
4-27
Quick Check
For the current period, Jones 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 Jones
have for the period?
a. 10,000
10,000 units + (5,000 units 0.30)
b. 11,500
= 11,500 equivalent units
c. 13,500
d. 15,000
4-28
4-29
Learning Objective 2
Compute the equivalent
units of production
using the weightedaverage method.
4-30
4-31
Dollar Amount
Direct
Materials
Manufacturing
Overhead
Direct
Labor
Type of Product Cost
4-32
Dollar Amount
Direct
Materials
Conversion
Direct
Labor
Direct
Labor
Type of Product Cost
Manufacturing
Overhead
4-33
Weighted-Average An Example
Smith Company reported the following activity in
the Assembly Department for the month of June:
Percent Completed
Units
Work in process, June 1
300
6,000
5,400
900
Materials Conversion
40%
20%
60%
30%
4-34
Weighted-Average An Example
The first step in calculating the equivalent units is to identify
the units completed and transferred out of Assembly
Department in June (5,400 units)
4-35
Weighted-Average An Example
The second step is to identify the equivalent units of production in
ending work in process with respect to materials for the month
(540 units) and adding this to the 5,400 units from step one.
4-36
Weighted-Average An Example
The third step is to identify the equivalent units of production in
ending work in process with respect to conversion for the month
(270 units) and adding this to the 5,400 units from step one.
4-37
Weighted-Average An Example
Equivalent units of production always equals:
Units completed and transferred
+ Equivalent units remaining in work in process
4-38
Weighted-Average An Example
Materials
Beginning
Work in Process
300 Units
40% Complete
Ending
Work in Process
900 Units
60% Complete
900 60%
4-39
Weighted-Average An Example
Conversion
Beginning
Work in Process
300 Units
20% Complete
Ending
Work in Process
900 Units
30% Complete
900 30%
4-40
Learning Objective 3
Compute the cost per
equivalent unit using the
weighted-average
method.
4-41
900 units
4-42
Cost of beginning
Work in Process + Cost added during
Inventory
the period
Equivalent units of production
4-43
4-44
4-45
Learning Objective 4
Assign costs to units
using the weightedaverage method.
4-46
Applying Costs
4-47
Applying Costs
4-48
Applying Costs
4-49
4-50
4-51
4-52
Learning Objective 5
Prepare a cost
reconciliation report.
4-53
Reconciling Costs
4-54
Reconciling Costs
4-55
Operation Costing
Operation cost is a hybrid of job-order and
process costing because it possesses
attributes of both approaches.
Operation
Operation costing
costing is
is
commonly
commonly used
used when
when
batches
batches of
of many
many
different
different products
products pass
pass
through
through the
the same
same
processing
processing department.
department.
4-56
End of Chapter 4
FIFO Method
Appendix 4A
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., CPA
Copyright2015McGrawHillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGrawHillEducation.
4-58
4-59
Learning Objective 6
Compute the equivalent
units of production
using the FIFO method.
4-60
300
6,000
5,400
900
Materials Conversion
40%
20%
60%
30%
4-61
4-62
4-63
4-64
FIFO Example
Materials
Beginning
Work in Process
300 Units
40% Complete
300 60%
Ending
Work in Process
900 Units
60% Complete
900 60%
4-65
FIFO Example
Conversion
Beginning
Work in Process
300 Units
20% Complete
300 80%
Ending
Work in Process
900 Units
30% Complete
900 30%
4-66
Equivalent Units:
Weighted-Average vs. FIFO
As shown below, the equivalent units in beginning inventory are
subtracted from the equivalent units of production per the
weighted-average method to obtain the equivalent units of
production under the FIFO method.
4-67
Learning Objective 7
Compute the cost per
equivalent unit using the
FIFO method.
4-68
400 units
6,119
3,920
6,000 units
5,400 units
4-69
4-70
$118,621 5,820
$81,130 5,610
Total cost
cost per equivalent unit = $20.3816 + $14.4617 = $34.8433
$34.8433
4-71
Learning Objective 8
Assign costs to units
using the FIFO method.
4-72
900
900 units
units 60%
60%
900
900 units
units 30%
30%
4-73
4-74
540
540 $20.3816
$20.3816
270
270 14.4617
14.4617
4-75
4-76
4-77
4-78
4-79
Learning Objective 9
Prepare a cost
Prepare a cost
reconciliation report
reconciliation report
using the FIFO method.
4-80
Reconciling Costs
4-81
Reconciling Costs
* $1 rounding error.
4-82
4-83
End of Appendix 4A