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Chapter 17
17 - 1
Introduction
17 - 2
Learning Objectives
17 - 3
Learning Objectives
17 - 4
Learning Objective 1
17 - 5
Process Costing
17 - 6
Process Costing
17 - 8
Process Costing
17 - 9
Learning Objective 2
17 - 10
Five Steps in Process Costing
17 - 11
Five Steps in Process Costing
17 - 12
Learning Objective 3
17 - 13
Equivalent Units
17 - 14
Equivalent Units
17 - 15
Physical Units (Step 1)
Physical
Flow of Production units
Work-in-process, beginning 0
Started during current period 35,000
To account for 35,000
Completed and transferred out
during current period 30,000
Work-in-process, ending (100%/20%) 5,000
Accounted for 35,000
17 - 16
Compute Equivalent
Units (Step 2)
Equivalent units
Direct Conversion
Flow of Production Materials Costs
Completed and
transferred out 30,000 30,000
Work-in-process,
ending 5,000 (100%) 1,000 (20%)
Current period work 35,000 31,000
17 - 17
Compute Equivalent
Unit Costs (Step 3)
Total production costs are $146,050.
Direct Conversion
Materials Costs
$84,050 $62,000
Equivalent units 35,000 31,000
Cost per equivalent unit $2.4014
$2.00
17 - 18
Summarize and Assign Total
Costs (Steps 4 and 5)
Step 4: Total costs to account for: $146,050
Step 5: Assign total costs:
Completed and transferred out
30,000 x $4.4014 = $132,043
Work-in-process ending (5,000 units)
Direct materials 5,000 x $2.4014 = 12,007
Conversion costs 1,000 x $2.00 = 2,000
Total $146,050
17 - 19
Learning Objective 4
17 - 20
Journal Entries
17 - 22
Journal Entries
17 - 23
Journal Entries
17 - 24
Flow of Costs
17 - 26
Weighted-Average Method
17 - 28
Weighted-Average Method
17 - 29
Physical Units (Step 1)
Work-in-process, beginning:
100% material
60% conversion costs 1,000
Units started in process 35,000 36,000
Units transferred out: 31,000
Units in ending inventory:
100% material
20% conversion costs 5,000 36,000
17 - 30
Compute Equivalent
Units (Step 2)
Partially completed units are converted into
equivalent units.
Ending inventory is only 20% complete for
conversion which equals 1,000 equivalent
units (5,000 x 20%).
17 - 31
Compute Equivalent
Units (Step 2)
Materials Conversion
Completed and
transferred 31,000
31,000 Ending
inventory 5,000 1,000 Equivalent units
36,000 32,000
100% 20%
17 - 32
Compute Equivalent
Unit Costs (Step 3)
Materials Conversion
Beginning
inventory $ 2,350 $ 5,200
Current costs 84,050 62,000
Total $86,400 $67,200
Equivalent units 36,000 32,000
Cost per unit $2.40 $2.10
17 - 33
Summarize and Assign Total
Costs (Steps 4 and 5)
Work-in-process beginning inventory:
Materials $ 2,350
Conversion 5,200
Total beginning inventory $ 7,550
+ Current costs in Assembly Department:
Materials $ 84,050 Conversion
62,000
= Costs to account for $153,600
17 - 34
Summarize and Assign Total
Costs (Steps 4 and 5)
This step distributes the department’s costs
to units transferred out:
31,000 units × $4.50 = $139,500
And to units in ending work-in-process
inventory: $12,000 + $2,100 = $14,100
17 - 35
Summarize and Assign Total
Costs (Steps 4 and 5)
Costs transferred out:
31,000 × ($2.40 + $2.10) $139,500
Costs in ending inventory:
Materials 5,000 × $2.40 12,000
Conversion 1,000 × $2.10
2,100
Total costs accounted for: $153,600
17 - 36
Journalizing: Weighted-Average
17 - 37
Journalizing: Weighted-Average
17 - 38
Key T-Account:
Weighted-Average
17 - 39
Learning Objective 6
17 - 40
First-In, First-Out Method
17 - 41
First-In, First-Out Method
17 - 43
First-In, First-Out Method
17 - 44
Compute Equivalent
Units (Step 2)
Materials Conversion
Completed
and transferred:
From beginning
inventory 0 400
Started and completed 30,000
30,000 Ending inventory
5,000 1,000 35,000
31,400
17 - 45
Compute Equivalent
Units (Step 2)
Materials Conversion
Completed and
transferred 31,000
31,000 Ending inventory
5,000 (100%) 1,000 (20%)
36,000 32,000 Beginning
inventory 1,000 (100%) 600
(60%) Equivalent units 35,000 31,400
17 - 46
Compute Equivalent
Unit Costs (Step 3)
Materials Conversion
Current costs $84,050 $62,000
Equivalent units 35,000 31,400
Cost per unit $2.40
$1.975
17 - 47
Summarize and Assign Total
Costs (Steps 4 and 5)
Work-in-process beg. inventory $ 7,550
Current costs:
Material 84,050
Conversion
62,000 Total
$153,600
Same as using weighted-average
17 - 48
Summarize and Assign Total
Costs (Steps 4 and 5)
Costs transferred out:
From beginning inventory: $7,550
Conversion costs added:
1,000 x 40% x $1.975 790 $ 8,340
From current production:
30,000 x $4.375 131,250
Total $139,590
17 - 49
Summarize and Assign Total
Costs (Steps 4 and 5)
Work-in-process ending inventory:
Materials: 5,000 × $2.40 $12,000
Conversion:
5,000 × 20% × $1.975 1,975
Total $13,975
17 - 50
Summarize and Assign Total
Costs (Steps 4 and 5)
Costs transferred out $139,590
+ Costs in ending inventory $13,975
= $153,565 ($35 rounding error)
An alternative approach:
Costs to account for $153,600
– Cost in ending inventory $13,975
= Costs transferred out $139,625
17 - 51
Key T-Account: FIFO
17 - 52
Comparison of Weighted-
Average and FIFO Methods
Weighted
Average FIFO Difference Costs
of units completed and
transferred out $139,500
$139,625 +$125 Work-in-process,
ending 14,100 13,975 -$125
Total costs accounted
for $153,600 $153,600 0
17 - 53
Comparison of Weighted-
Average and FIFO Methods
The weighted-average ending inventory is
higher than the FIFO ending inventory by
$125.
This results in a lower cost of goods sold and
hence higher operating income and higher
income taxes than does the FIFO method.
17 - 54
Comparison of Weighted-
Average and FIFO Methods
Differences in equivalent unit costs of
beginning inventory and work done during
the current period account for the differences
in weighted-average and FIFO costs.
W-A
FIFO
17 - 55
Learning Objective 7
17 - 56
Standard-Costing Method
of Process Costing
Setting standards for quantities of inputs
needed to produce output in companies that
use process-costing is often relatively
straightforward.
Standard costs per input unit may then be
assigned to these physical standards to develop
standard costs per output unit.
17 - 57
Standard-Costing Method
of Process Costing
Assume that Aspen Inc. uses the standard-
costing method of process costing.
Steps 1 and 2 are identical to the steps
described for the FIFO method.
Step 3 is easier than under weighted-average
and FIFO methods.
Why?
17 - 58
Standard-Costing Method
of Process Costing
Because the cost per equivalent unit does not
have to be computed, as was done for the
weighted-average and FIFO methods.
The cost per equivalent unit are the standard
costs.
The entries to the Work-in-Process account
are at standard costs rather than actual.
17 - 59
Standard-Costing Method
of Process Costing
Process-costing systems using standard costs
usually accumulate actual costs incurred
separately from the inventory accounts.
Assume that actual materials cost is $84,050
and standard materials cost is $84,250
What are the journal entries in the Assembly
Department?
17 - 60
Standard-Costing Method
of Process Costing
17 - 61
Learning Objective 8
17 - 62
Transferred-In Costs
Weighted Average
Assume that the Finishing Department of
Aspen Inc. had 4,000 units in beginning
work-in-process inventory and 2,000 in
ending work-in-process inventory.
31,000 units were transferred from the
Assembly Department to the Finishing
Department during this period.
17 - 63
Transferred-In Costs
Weighted Average
The beginning work-in-process inventory
was 60% complete for materials and 25%
for conversion.
The ending work-in-process inventory was
100% complete for materials and 40% for
conversion.
17 - 64
Transferred-In Costs
Weighted Average
There are three equivalent unit computations
for the Finishing Department.
1 Transferred-in
2 Direct materials
3 Conversion
17 - 65
Physical Units (Step 1)
17 - 66
Compute Equivalent
Units (Step 2)
Equivalent units for transferred-in costs:
Transferred to finished goods 33,000
Ending inventory 2,000
35,000
Inventory is 100% complete for the work
performed in the Assembly Department.
17 - 67
Compute Equivalent
Units (Step 2)
35,000
17 - 68
Compute Equivalent
Units (Step 2)
Equivalent units for conversion costs
(ending inventory 2,000):
Transferred to finished goods 33,000
Ending inventory (40%) 800
33,800
17 - 69
Compute Equivalent
Unit Costs (Step 3)
Assume the following costs in the Finishing
Department:
Work-in-process beginning inventory from:
Assembly Department $30,200
Direct materials
9,400 Conversion
costs 8,000
Total cost in beginning inventory $47,600
17 - 70
Compute Equivalent
Unit Costs (Step 3)
17 - 71
Compute Equivalent
Unit Costs (Step 3)
(Transferred-in costs $30,200 + Costs
transferred-in from the Assembly Department
$139,500) ÷ 35,000 units = $4.85
(Direct materials $9,400 + $9,780) ÷ 35,000 =
$0.55
(Conversion costs $8,000 + $42,640) ÷ 33,800 =
$1.50
Total unit cost = $6.90
17 - 72
Summarize and AssignTotal
Costs (Steps 4 and 5)
Total costs in beginning
inventory $ 47,600
Current costs in
Finishing Department 191,920
$239,520
Costs to account for:
$47,600 + $ 191,920 = $239,520
17 - 73
Summarize and AssignTotal
Costs (Steps 4 and 5)
Costs in work-in-process ending inventory:
Transferred-in costs:
2,000 × $4.85 $
9,700
Direct materials: 2,000 × $0.55 1,100
Conversion: 2,000 × 40% × $1.50 1,200
Total cost in ending inventory $12,000
17 - 74
Summarize and AssignTotal
Costs (Steps 4 and 5)
Costs to account for: $239,520
Costs transferred to
finished goods inventory:
33,000 × $6.90 $227,700
Costs in ending work-in- process
inventory: $12,000 – $180
rounding error 11,820
Total $239,520
17 - 75
T-Account Finishing Department
17 - 76
Transferred-In Costs
FIFO Method
The physical units (Step 1) is the same as in
weighted-average.
Beginning inventory 4,000
Units started in process 31,000 35,000
Units transferred to
finished goods 33,000
Ending inventory 2,000 35,000
17 - 77
Compute Equivalent Units
FIFO (Step 2)
Equivalent units for transferred-in costs:
From beginning work-in-process 0
Started and completed 29,000
Work-in-process, ending (100%) 2,000
Total equivalent units 31,000
17 - 78
Compute Equivalent Units
FIFO (Step 2)
Equivalent units for transferred-in costs:
Transferred to finished goods 33,000 Ending
work-in-process inventory 2,000 Total
35,000
Beg. work-in-process inventory 4,000
Equivalent units 31,000
Inventories are 100% complete for the work
performed in the Assembly Department.
17 - 79
Compute Equivalent Units
FIFO (Step 2)
17 - 80
Compute Equivalent Units
FIFO (Step 2)
Equivalent units for material costs
(beginning inventory 4,000):
Transferred to finished goods 33,000
Ending inventory (100%) 2,000
Total 35,000
Beginning inventory (60%) 2,400
Equivalent units 32,600
17 - 81
Compute Equivalent Units
FIFO (Step 2)
17 - 82
Compute Equivalent Units
FIFO (Step 2)
Equivalent units for conversion costs (beginning
inventory 4,000, ending inventory
2,000):
Transferred to finished goods 33,000
Ending inventory (40%) 800
Total 33,800
Beginning inventory (25%) 1,000
Equivalent units 32,800
17 - 83
Compute Equivalent Unit Costs
FIFO (Step 3)
Cost per equivalent unit:
Transferred-in: $139,590 ÷ 31,000 $4.50
Direct materials: $9,780 ÷ 32,600 0.30
Conversion: $42,640 ÷ 32,800 1.30
Total unit cost $6.10
17 - 84
Summarize and Assign Total
Costs FIFO (Steps 4 and 5)
Current costs in Finishing Department $192,010
Work-in-process beginning inventory 47,600
Costs to account for $239,610
Same as weighted-average
17 - 85
Summarize and Assign Total
Costs FIFO (Steps 4 and 5)
Work-in-process ending inventory:
Transferred-in: 2,000 × $4.50 $ 9,000
Direct materials: 2,000 × $0.30 600
Conversion: 800 × $1.30 1,040
Total $10,640
17 - 86
Summarize and Assign Total
Costs FIFO (Steps 4 and 5)
Costs transferred out:
From beginning inventory: $47,600
Direct materials added:
4,000 × 40% × $0.30 480
Conversion costs added:
4,000 × 75% × $1.30 3,900
Total $51,980
17 - 87
Summarize and Assign Total
Costs FIFO (Steps 4 and 5)
17 - 88
Summarize and Assign Total
Costs FIFO (Steps 4 and 5)
Total costs accounted for:
Transferred to finished goods:
$176,900 + $51,980
$228,880
Work-in-process ending inventory 10,640
Rounding 90
Total $239,610
17 - 89
Summarize and Assign Total
Costs FIFO (Steps 4 and 5)
Costs to account for $239,610
Work-in-process ending inventory -10,640
Transferred to finished goods $228,970
17 - 90
End of Chapter 17
17 - 91