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Cost Accounting

The document discusses process costing and job order costing. Process costing is appropriate for mass production while job order costing is for special orders. Process costing tracks costs by department and assigns overhead using predetermined rates. It also discusses how to account for work in process, calculate equivalent units, and value inventories under a process costing system.

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IIBRAHIM 245
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27 views20 pages

Cost Accounting

The document discusses process costing and job order costing. Process costing is appropriate for mass production while job order costing is for special orders. Process costing tracks costs by department and assigns overhead using predetermined rates. It also discusses how to account for work in process, calculate equivalent units, and value inventories under a process costing system.

Uploaded by

IIBRAHIM 245
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Process Costing

Lecture # 13
JOB ORDER VS. PROCESS COSTING

 Job order cost system is


appropriate when products
are manufactured on a
special order basis.
 Process cost system is
appropriate when similar
goods are manufactured in
a continuous or mass
production operation.
JOB AND PROCESS COSTING
The Work in Process account
consists of individual jobs in
Direct
job costing.
Materials

Direct Finished
Labor Jobs Goods

Factory Cost per unit


Overhead for each job
JOB AND PROCESS COSTING
The Work in Process account
consists of specific processes
Direct
in process costing.
Materials

Direct Finished
Labor Processes Goods

Factory Cost per unit


Overhead processed
MATERIALS AND LABOR COSTS
 In a process cost system, the costs of materials and labor
are charged directly to the department where they are
incurred.
 Indirect materials that cannot be directly associated with
a particular department are charged to factory overhead.
FACTORY OVERHEAD COSTS
 Overhead costs are accumulated from the various journals
in the same manner as in a job order cost system.
 The applicable factory overhead from a service department
is distributed to the production departments.
 The use of predetermined rates is common in a process
cost system, but overhead is applied to departments rather
than to jobs.
JOB AND PROCESS
COSTING SIMILARITIES

Same objective: to determine


the cost of products

Same inventory accounts: raw materials,


work in process, and finished goods

Same overhead assignment method:


predetermined rate times actual activity
PRODUCT COSTS IN A PROCESS COST SYSTEM

 The total cost of each item produced is the combined unit


costs from the individual departments.
 Costs are recorded by department according to the
following procedures:
 Service department costs are allocated to the production
departments.
 Costs from prior departments are carried over to successive
departments.
 Costs of materials and labor directly identifiable with a
department, as well as applied overhead, are charged to that
department.
PRODUCT FLOW
 Sequential Product Flow

 Parallel Product Flow

 Selective Product Flow


SEQUENTIAL PRODUCT FLOW
Materials
Direct
Indirect

Work in
Process
Assembly

Work in
Factory Process Finished
Overhead Applied Packaging Goods
Overhead
Indirect

Delivered
to
Customers
Labor Direct
PARALLEL PRODUCT FLOW
Materials
Direct
Work in
Indirect

Process
Work in Packaging
Process
Cutting

Work in
Factory Process Finished
Overhead Applied Assembly Goods
Overhead
Indirect

Delivered
to
Customers
Labor Direct
SELECTIVE PRODUCT FLOW
Materials
Direct
Indirect

Work in
Process
Assembly

Work in
Factory Process Finished
Overhead Applied Packaging Goods
Overhead
Indirect

Delivered
to
Customers
Labor Direct
COSTING INVENTORIES
 The primary problem in inventory costing is the
allocation of total costs between units finished during
the period and units still in process at the end of the
period.
 The calculation of the degree of completion of
unfinished work in process presents one of the most
important and difficult challenges in process costing.
WORK IN PROCESS INVENTORIES - STAGES OF COMPLETION

1. Units started in a prior period and completed


during the current period.
2. Units started and finished during the current
period.
3. Units started during the current period but not
finished by the end of the period.
ALLOCATING TOTAL COST
 Total cost must be allocated between:
 Units finished during the period
 Units still in process at the end of the period
 Procedures for assigning costs to inventories:
 Average cost method
 First-in, first-out (FIFO) method
INFORMATION NEEDED FOR INVENTORY VALUATION

 Accumulate costs for which the department is


accountable.
 Calculate the equivalent production for the
period.
 Compute the unit cost for the period.
 Summarize the disposition of the production
costs.
PRODUCTION REPORT
 At the end of the period, the department
manager submits a report showing the
following:
1. Number of units in the beginning work in process.
2. Number of units completed.
3. Number of units in the work in process and their
estimated stage of completion.
COST OF PRODUCTION SUMMARY-ONE DEPARTMENT

 The reporting of production and related


costs in each department involves the
following:
1. Accumulating costs for which the department is
accountable.
2. Calculating equivalent production for the period.
3. Computing the unit cost for the period.
4. Summarizing the disposition of the production
costs.
COST OF PRODUCTION SUMMARY
 Cost of Production for the Month
 Materials ……………………………………xx
 Labor ……………………………………….. xx
 Factory OverHead ……………………….. xx
Total Cost to be accounted for ………. xx
 Unit Output for the month
 Finished during the month ……………… xx
 Equivalent units of WIP, end of the month .. xx
Total Equivalent Production ………………. xx
 Unit Cost for the Month
 Materials ………………………………………. xx
 Labor …………………………………………… xx
 FOH ……………………………………………… xx
Total ………………………………………….. xx
 Inventory Costs
 Cost of goods finished during the month …..xx
 Cost of WIP
 Materials
 Labor
 FOH
 Total Production Costs accounted for……….. xx
JOURNAL ENTRIES FOR ONE DEPARTMENT

 Recording Factory Operations

 Work in Process xx
 Materials xx
 Work in Process xx
 Payroll xx
 Work in Process xx
 Factory Overhead xx
 Factory Overhead xx
 Various Accounts xx

 Recording Cost of Goods Completed

 Finished Goods xx
 Work in Process xx

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