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Samenvatting Management Accounting: Cost accounting & decision makingCH3: Process costing (1 of the Cost Price calculation)
Overview of Process Cost Systems
Discuss the uses of a process cost system and how it compares to a job order system.
Companies use process cost systems to apply costs to similar products that are mass-
produced in a continuous fashion.
Individual products are indistinguishable from other products.
Cost price calculation
Measuring
Recording Product cost (total cost and unit cost)
Reporting
Cost price calculation
Process costing
• Used when a large volume of similar products are manufactured (mass production)
• Costs are accumulated for a time period
• Cost price= a average for the period
Job order costing
• Each job or batch has its own distinguishing characteristics
• Costs are assigned to each job or batch
• Objective is to compute the cost per job
Process Costing for Service Companies
Service companies that perform individualized non-routine services will probably benefit
from using benefit from using a job order cost system. Those that perform routine,
repetitive services will probably be better off with a process cost system.
Similarities and differences between Job Order Cost and Process Cost Systems
1. The manufacturing cost elements
2. The accumulation of the costs of materials, labor and overhead
3. The flow of costs; the methods of assigning costs, however, differ significantly.
Differences
1. The number of work in process accounts used
2. Documents used to track costs
3. The point at which costs are totaled
4. Unit cost computations
Feature Job order cost system Process cost system
Work in process account One work in proess acc Multiple work in process acc
Documents used Job cost sheets Production cost reports
Unit-cost computations Cost of each job / units Total manufacturing costs/
produced for the job Equivalent units produced
during the period
1
, Samenvatting Management Accounting: Cost accounting & decision making
Process Cost Flow
As the flow of costs indicates, the company can add materials, labor and manufacturing
overhead in both the Machining and Assembly Departments. When it finishes it work;
Machining Department è transfers the partially completed units è Assembly Department
è finishes & transfer the goodsè Finished goods inventory.
Explain the flow of cost in the process cost system and the journal entries to assign
manufacturing costs.
• (Raw) Material costs
o In large quantities
• Factory labor costs
o Labor cost is known for each department by the payroll department
• Manufacturing overhead costs
o Cost drivers
o Relates to production operation as whole
Goal?
= to calculate the cost price of a bottle of soda (for 2017)
=voorbeeld uit PowerPoint
3 departments:
• Blending
• Filling
• Packaging
2
, Samenvatting Management Accounting: Cost accounting & decision making
Equivalent units
suppose you have a work-study job in the office and your college asks you to compute the
cost of instruction per full-time equivalent student at your college.
Formula:
Full-time student+ equivalent units of part-time students= full-time equivalent students
equivalent units of production measure the work done during the period, expressed in fully
completed units. Companies use this measure to determine the cost per units of completed
product.
3
, Samenvatting Management Accounting: Cost accounting & decision making
Weighted-average method
units completed and transferred out + equivalent units of ending work in process= eq. units of production
To better understand this concept of equivalent units, consider the following 2 different
examples:
1. In a specific period, the entire output of Popov Blending Department consist of
ending work in process of 4 000 units which are 60% complete as to materials, labor
and overhead. The eq. units of prod. For the Blending Department are therefore
2 400 units. è 4 000* 60%
2. The output of K. Company Packaging Department during the period consists of 10
000 units completed and transferred out, and 5 000 units in ending work in process
which are 70% completed. The equivalent units of production are therefore 13 500.
=((10 000 + (5 000* 70%))
Refinement on the weighted-Average Method
At first they give an example of Kellogg Company (USA). It has 3 departments (look at the
illustration)
We can see that the beginning work in process is 100% complete as to materials cost and
70% complete as to conversion costs.
Conversion costs= labor costs+ overhead costs
In other words, Kellogg adds both materials at the beginning of the waffle-making process,
and the conversion costs (labor and overhead). 70% are complete. The ending work in
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