Chapter 3 Process Costing

Front 1

Nature of Process Costing
Equivalent Units
Comprehensive Example of Process Costing

Back 1

Nature of Process Costing
*Uses
*Service Companies
*Similarities & Differences
*Process Cost Flow
*Assigning Manufacturing Costs.
Equivalent Units
*Weighted-Average Method
*Refinments
*Production Cost Report
Comprehensive Example of Process Costing
*Physical Units
*Equivalent Units of Production
*Unit Production Costs
*Cost Reconciliation Schedule
*Production Cost Report
*Costing Systems - Final Comments

Front 2

Uses

Back 2

Examples pictured
Process Cost Systems are used to apply costs to similar products that are mass-produced in a continuous fashion. As opposed to Job Order Cost Systems which assign costs to a specific job.

Front 3

Service Companies

Back 3

Service Companies that provide specific, non routine services will probably benefit from a Job Order Cost Systems. Those that perform routine, repetitive services will probably be better off with a Process Cost System.

Front 4

Similarities & Differences between Job Order & Process Cost Systems

Back 4

Similarities
*The manufacturing cost elements - Both systems track 3 manufacturing cost elements direct materials, direct labor, and manufacturing overhead.
*The accumulation of the costs of materials, labor, and overhead - Both systems debit raw materials to Raw Materials Inventory, factory labor to Factory Labor, and manufacturing overhead costs to Manufacturing Overhead.
*The flow of costs - Both systems accumulate all manufacturing costs, both systems then assign these costs to the same accounts in very different methods.
Differences
*The number of work in process accounts - Job Order Cost System uses only one work in process account, a Process Cost System uses multiple work in process accounts.
*Documents used to track costs - Job Order Cost System charges costs to individual jobs and summarizes in a Job Cost Sheet. Process Cost System summarizes costs in a Production Cost Report for each department.
*The point at which costs are totaled - Job Order Cost System totals costs when a job is completed, a Process Cost System totals costs after a predetermined period of time.
*Unit cost computations - Job Order Cost System unit cost = total cost per job / units produced. Process Cost System unit cost = total manufacturing costs for period / units produced during period.

Front 5

Process Cost Flow

Back 5

Assigning Manufacturing Costs - Process Cost System

Front 6

Equivalent Units

Back 6

Weighted-Average Method
Equivalent Units of Production = Units Completed & Transferred Out + Equivalent Units of ending work in Process(X*XX%complete)

Refinments on Weighted-Average Method
Equivalent Units of Production(materials) =units completed & transferred out(materials) + Equivalent Units of Ending Work in Process(materials)

Equivalent Units of Production(conversion costs) =units completed & transferred out(conversion costs) + Equivalent Units of Ending Work in Process(conversion costs)

Production Cost Report
1.Compute physical unit flow(account for total units)
2.Compute equivalent units of production
3.Compute unit production costs(unit cost = total cost / Equivalent Units)
4.Prepare a cost Reconciliation Schedule(Shows the total costs accounted for = total costs to be accounted for)

Front 7

Example of Process Costing

Back 7

Step 1. Compute physical unit flow
Step 2. Compute equivalent units of production
Step 3. Compute unit production costs
Step 4. Prepare a cost Reconciliation Schedule