# CA Ch.18-Process Costing-part 1-Nureni.pdf

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### CA Ch.18-Process Costing-part 1-Nureni.pdf

• 1. as per 2019/2020 # UPE Permanent Lecturers Academic Staff PROCESS COSTING Part 1 Nureni Wijayati Session 6 Chapter 18 1
• 2. 819 as per 2019/2020 85 Academic Staff Learning Objectives 2 1. Identify the situations in which process-costing systems are appropriate 2. Understand the basic concepts of process-costing and compute average unit costs 3. Describe the five steps in process-costing and calculate equivalent units 4. Use the weighted-average method and first-in, first-out (FIFO) method of process costing 5. Apply process-costing methods to situations with transferred-in costs
• 3. 819 Academic Staff 3 Academic Staff Process Costing • Process costing is a system where the unit cost of a product or service is obtained by assigning total costs to many identical or similar units of output. • Unit costs are calculated by dividing total costs incurred by the number of units of output from the production process. • Each unit receives the same or similar amounts of direct materials costs, direct manufacturing labor costs, and indirect manufacturing costs (manufacturing overhead).
• 4. 4 819 # UPA Permanent Lecturers Academic Staff 4 Academic Staff Process-Costing Cost Categories • Process-costing systems separate costs into cost categories according to when costs are introduced into the process. 1. Direct materials are usually added at the beginning of the production process, or at the start of work in a subsequent department down the assembly line. 2. Conversion costs are generally added equally along the production process.
• 5. 5 5 819 # UPA Permanent Lecturers Academic Staff 5 Academic Staff FIVE-STEP PROCESS-COSTING ALLOCATION 1. Summarize the flow of physical units of output. 2. Compute output in terms of equivalent units. 3. Summarize total costs to account for. 4. Compute cost per equivalent unit. 5. Assign total costs to units completed and to units in ending work-in-process.
• 6. Academic Staff 6 EQUIVALENT UNITS A derived amount of output units that: Takes the quantity of each input in units completed and in unfinished units of work in process and Converts the quantity of input into the amount of completed output units that could be produced with that quantity of input. Are calculated separately for each input. (direct materials and conversion cost). When calculating equivalent units in step 2, focus on quantities and disregard dollar amounts until after the equivalent units are computed.
• 7. Academic Staff 7 Weighted-Average Process-Costing Method • Process costing can be accomplished using 1) the weighted- average method or 2) the FIFO method. 1) Weighted-average method • Calculates cost per equivalent unit of all work done to date (regardless of the accounting period in which it was done). • Assigns this cost to equivalent units completed and transferred out of the process, and to equivalent units in ending work-in-process inventory.
• 8. Academic Staff 8 Weighted-Average Process-Costing Method • The Weighted-average cost is the total of all costs entering the work-in-process account divided by the total equivalent units of work done to date. • The beginning balance of the work-in-process account (work done in a prior period) is blended in with current period costs.
• 9. Academic Staff 9 Academic Staff 9 M2020 manufactures bottled turmeric beverages. The information for June is as follows: Illustration 1 – weighted-average Beginning work in process 10,000 units Units started 20,000 units Units completed 25,000 units Costs: Beginning work-in-process direct materials ₤6,000 Beginning work-in-process conversion ₤2,600 Direct materials added during month ₤30,000 Direct manufacturing labor during month ₤12,000 Factory overhead ₤5,000 Beginning work in process was half converted as to labor and overhead. Direct materials are added at the beginning of the process. All conversion costs are incurred evenly throughout the process. Ending work in process was 60% complete. Required: Prepare a production cost worksheet using the weighted-average method.
• 10. Academic Staff 10 Physical Units EU EU Flow of production Direct Materials Conversion Work- in process, beginning 10,000 Started during period 20,000 To account for 30,000 Units completed 25,000 25,000 25,000 Work- in process, ending 5,000 5,000 3,000 Accounted for 30,000 30,000 28,000 PRODUCTION COST WORKSHEET STEP 1: Summarize the flow of physical units of output STEP 2: Compute output in terms of equivalent units
• 11. Academic Staff 11 Costs Totals Direct Materials Conversion Costs Work in process, beginning ₤ 8,600 ₤ 6,000 ₤ 2,600 Costs added during period 47,000 30,000 17,000 Total costs to account for ₤55,600 ₤36,000 ₤19,600 Divided by equivalent units 30,000 28,000 Equivalent unit costs ₤ 1.90 ₤ 1.20 ₤ 0.70 STEP 3: Summarize total costs to account for STEP 4: Compute cost per equivalent unit
• 12. 12 Assignment of costs Costs transferred out (25,000 × ₤1.90) ₤47,500 Work in process, ending Direct materials (5,000 × ₤1.20) 6,000 Conversion (5,000 × ₤0.70 × 0.60) 2,100 Costs accounted for ₤55,600 STEP 5: Assign total costs to units completed and to units in ending work-in-process.
• 13. Academic Staff 13 Pet Products Company uses an automated process to manufacture its pet replica products. For September, the company had the following activities: Beginning work in process inventory 4,500 items, 1/4 complete with regards to conversion costs Units placed in production 15,000 units Units completed 17,500 units Ending work in process inventory 2,000 items, 3/4 complete with regards to conversion costs Cost of beginning work in process \$5,250 Direct material costs, current \$16,500 Conversion costs, current \$23,945 Direct materials are placed into production at the beginning of the process and conversion costs are incurred evenly throughout the process. Required: Prepare a production cost worksheet using the FIFO method. Illustration 2 – FIFO
• 14. Academic Staff 14 Physical Units EU EU Flow of production Direct Materials Conversion Work in process, beginning 4,500 Started during period 15,000 To account for 19,500 Units completed Work in process, beginning 4,500 3,375 Started and completed 13,000 13,000 13,000 Work in process, ending 2,000 2,000 1,500 19,500 15,000 17,875 PRODUCTION COST WORKSHEET STEP 1: Summarize the flow of physical units of output STEP 2: Compute output in terms of equivalent units
• 15. Academic Staff 15 Costs Totals Direct Materials Conversion Costs Work in process, beginning \$5,250 Costs added during period 40,445 \$16,500 \$23,945 Total costs to account for \$45,695 \$16,500 \$23,945 Divided by equivalent units 15,000 17,875 Equivalent unit costs \$2.44 \$1.10 \$1.34 STEP 3: Summarize total costs to account for STEP 4: Compute cost per equivalent unit
• 16. Academic Staff 16 Assignment of costs Work in process, beginning 5,250.00 Completion of beginning (3,375 × \$1.34) 4,522.50 Total beginning inventory 9,772.50 Started and Completed (13,000 × \$2.44) 31,720.00 Total costs transferred out \$41,492.50 Work in process, ending Direct materials (2,000 × \$1.10) \$2,200.00 Conversion (2,000 × \$1.34 × 0.75) 2,010.00 4,210.00 Costs accounted for \$45,702.50 STEP 5: Assign total costs to units completed and to units in ending work-in-process.
• 17. Academic Staff 17 Transferred-in Costs • Are costs incurred in previous departments that are carried forward as the product’s cost when it moves to a subsequent process in the production cycle. • Are also called previous department costs. • Journal entries are made to mirror the progress in production from department to department. • Transferred-in costs are treated as if they are a separate type of direct material added at the beginning of the process.
• 18. Academic Staff 18 Illustration 3 – weighted-average
• 20. 20 20
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