Chapter 17-> Process costing ( job extent of averaging used to compute unit costs) As each unit is identical, we assume

all units receive the same amount of direct material costs and conversion costs. p/ unit cost = total costs incurred / total # unit DM DLC OH

CC

Equivalent units is a derived amount of output units that (1) takes the quantity of each input in units completed and in incomplete units of WiP and (2) converts the quantity of input into the amount of completed output units that could be produced with that quantity of input. output units adjusted for incomplete units

Conversion costs = DLCmanufacturing + OHmanufacturing 1st case: BWiP=0; EWiP=0 Average 2nd case: BWiP=0; EWiP0 Eq. # = physical units * degree of completion 3rd case: BWiP0; EWiP0 FIFO / WA ...more than 1 department -> transf-in costs Actual Costing or Normal Costing

FIFO

WA

WEIGHTED-AVERAGE METHOD - assigns costs based on total costs and equivalent units completed to date

vs.

FIFO METHOD - assigns costs based on costs and equivalent units of work done in the current period

Total costs accounted for FIFO = Total costs accounted for in WA

Weighted-Average method
Calculates cost p/ equivalent unit of all work done to date and assigns this cost to equivalent units completed & transferred out of the process & to equivalent units in ending WiP inventory

Weighted-average cost =

5-step of WA method: to assign total costs to units in WiP and completed STEP 1: physical units of output
Dfghj

WiP beg Started units total

WiP end Completed units

=
CC ...

total

STEP 2: equivalent units (physical units-> step 1 * degree of completion) DM WiP end Completed units ... ...

. . . linha diferente em FIFO e WA

Equivalent units

STEP 3: total costs to account for

FIFO=WA

Total BWiP Costs added this period Total costs to account for ... ...

DM ... ... ...

CC ... ... ...

...

STEP 4: cost per equivalent unit

DM Costs incurred to date Equivalent units Costs per Eq. # ... ... ...

CC ... ... ... = total step 3

STEP 5: cost assignment step2*step4 DM # equivalent units * cost per equivalent unit CC # equivalent units * cost per equivalent unit TOTAL ... Total costs to account for = total costs accounted for

...

...

Costs to Account for DM + CC WiP beg ... Costs added 1. + 2. Total

Costs Accounted for DM + CC Completed 3. WiP end ... Total = total step 3

1.

WiP - assembly Accounts payable control WiP assembly Various accounts

DM costs added in the current period WiP + completed! ... CC costs added in the current period WiP + completed! ... to record CC for the current period

to record DM purchased and used in production during the current period 2.

3.

WiP testing Total costs of completed & transferred out during period WiP - assembly to record COG completedand transferred from assembly to testing during period

...

T-account: WiP- assembly WiP beg DM CC Ending inventory

...
1. 2. ...

Completed & transferred out WiP- testing

3.

FIFO method
(1) assigns the cost of the previous accounting periods equivalent units in beginning WiP inventory to the first units completed and transferred out of the process, and (2) assigns the cost of equivalent units worked on during the current period first to complete beginning inventory, next to start and complete new unit, and finally to units in WiP and completed first. A distinctive feature of the FIFO porcess-costing method is that work done in the beginning inventory befor the current period is kept seperate from work done in the current period 5-step of FIFO method: to assign total costs to units in WiP and completed STEP 1: physical units of output WiP end
Dfghj

Completed units WiP beg Started units From WiP beg Started & completed

total

=
DM CC

total

STEP 2: equivalent units (physical units-> step 1 * degree of completion)

WiP end Completed units From WiP beg Started & completed

units* completion rate ->unfinished units

units*(100% - completion rate) -> came from the previous period units* completion rate -> completed this period
Equivalent units

STEP 3: total costs to account for

FIFO =WA

Total BWiP Costs added this period Total costs to account for ... ...

DM ... ... ...

CC ... ... ...

...

STEP 4: cost per equivalent unit

DM Costs incurred to date Equivalent units Costs per Eq. # ... ... ...

CC ... ... ... = costs added this period step 3

STEP 5: cost assignment DM # equivalent units * cost per equivalent unit CC # equivalent units * cost per equivalent unit TOTAL ...

...

...

Total costs to account for = total costs accounted for

Costs to Account for DM + CC WiP beg ... Costs added 1. + 2.

total

Costs Accounted for DM + CC WiP beg Used to complete WiP beg units * cost p/ eq. # Started & completed units * cost p/eq. # Completed & Trans. Out WiP end ... Total

WA vs. FIFO Difference in OI: (1) DM or CC per equivalent unit varies significantly from period to period (2) physical-inventory levels of WiP are large in relation to the transferred out REDUCING, differences in units costs form period to period & inventory levels lower diff. between WA and FIFO in cost of units completed FIFO provides information about changes in costs per unit from one period to the next meaning, is allows us to make a performance evaluation no matter what happened in the last period

Chapter 18-> Spoilage, Rework and Scrap Scrap is residual material that results from manufacturing a product. desperdcio | leftover material Rework is units of production, that do not meet the specifications required by customers but that are subsequently repaired and sold as finished units. Spoilage is units of production, whether fully or partially completed, that do not meet the specifications required by customers for good units and that are discarded or sold at reduced prices.

Normal

Abnormal

Normal Spoilage is inherent in a particular productions process. It arises even under efficient operating conditions. Typically, the costs of normal spoilage are included as a component of cost of good units manufactured. Management decides the spoilage rate it considers normal depending on the production process. Abnormal Spoilage is NOT inherent in a particular productions process. It DOES NOT arises even under efficient operating conditions. These costs are regarded as avoidable and

controllable. The costs of normal spoilage are recorded in a separate line item in the income statement, Loss form Abnormal Spoilage.

SPOILAGE IS ASSUMED TO OCCUR AT THE STAGE OF COMPLETION WHERE INSPECTION TAKES PLACE

Total spoilage = ( BWiP + Units Started ) ( Good units Completed & transf.out + EWiP ) = Normal Spoilage + Abnormal Spoilage
Chapter 15-> Allocation of support-department A support department, also called a service department, provides the services that assist other internal departments (such as the operating departments also known as production departments). These departments DO NOT add value to the product. However, they are fundamental to its production.

1 SUPPORT DEPARTMENT Single Rate makes no distinction between fixed and variable costs whereas Dual-Rate method partitions the cost of each support department into two pools, a variable-cost pool and a fixed-cost pool.

Budget Rate * Budget Usage Budget Rate * Actual Usage Actual Rate * Actual Usage SINGLE RATE METHOD

Var.C Budget Rate * Actual Usage Fix.C Budget Rate * Budget Usage

DUAL-RATE METHOD

2 OR + SUPPORT DEPARTMENTS 3 different methods

Support Departments

Operating Departments

B
DIRECT METHOD

IT DOES NOT RECOGNIZE THE RELATION BETWEEN SUPPORT DEPARTMENTS

STEP-DOWN

IT RECOGNIZES PARTIALLY THE RELATION BETWEEN SUPPORT DEPARTMENTS

Which one should I choose first?? 1. Ranking departments based on the services they do for other support departments highest % most independent support department result closer to RECIPROCAL 2. Ranking departments based on their costs 3. Ranking departments based on services made for other support departments % * cost

RECIPROCAL BEST METHOD, MOST ACCURATE!!!

IT RECOGNIZES THE RELATION BETWEEN ALL DEPARTMENTS

Chapter 16-> Joint Products e By Products