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Chapter 18
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
McGraw-Hill/Irwin Copyright 2012 The McGraw-Hill Companies, Inc.
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Process Costing
Used for production of small, identical, low-cost items. Mass produced in automated continuous production process. Costs cannot be directly traced to each unit of product.
Paper mill
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Direct Labor
Factory Overhead
Same inventory accounts: raw materials, work in process, and finished goods
Labor
Factory Overhead
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d. 15,000
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d. 15,000
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Equivalent units may be different for material and conversion at different stages of a process.
100%
25% of Conversion
50%
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Process Costing
Owl Inc. uses FIFO process costing in its Fabrication Department where a product called Strata is made.
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Process Costing
Owl Inc Fabrication Department Data For April
Beginning Inventory: Units of product Percentage of completion - direct material Percentage of completion - conversion Units started in April Units transferred from fabrication to mixing Ending Inventory: Units of product Percentage of completion - direct material Percentage of completion - conversion 20,000 100% 25% 30,000 100% 40% 90,000 100,000
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} 100,000
0%
100% 100%
20,000 120,000
20,000
5,000
90,000
93,000
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90,000
93,000
= $
0.50 = $
0.60
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$ 22,380
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$ 22,380 $ 0 10,800
10,800
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$ 22,380 $ 0 10,800
Started and completed (70,000 $1.10) Total completed and transferred (100,000 units)
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Tracking Costs Using a Process Costing Production ReportFabrication Department Work in Process
Cost Summary for April Cost of completed units From beginning work in process April 1 balance Costs to complete April 1 inventory Direct material Conversion (18,000 $0.60) $ 22,380 $ 0 10,800
Started and completed (70,000 $1.10) Total completed and transferred (100,000 units) Cost of ending work in process Direct material (20,000 $0.50) Conversion Total cost accounted for $ 10,000
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Tracking Costs Using a Process Costing Production ReportFabrication Department Work in Process
Cost Summary for April Cost of completed units From beginning work in process April 1 balance Costs to complete April 1 inventory Direct material Conversion (18,000 $0.60) $ 22,380 $ 0 10,800
Started and completed (70,000 $1.10) Total completed and transferred (100,000 units) Cost of ending work in process Direct material (20,000 $0.50) Conversion (5,000 $0.60) Total cost accounted for $ 10,000 3,000
13,000 $ 123,180
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Overstating the number of equivalent units in ending inventory understates cost of goods sold and overstates income.
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End of Chapter 18
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