Chapter 4 - Process Costing教学教案.pptVIP

Chapter 4 - Process Costing Session 3 Process Costing Process costing is used when the product is a homogeneous commodity that is manufactured in long production runs or batches. Beer, soft drinks, wood flooring, computer chips Products usually go through various departments as part of the production process. Costs of the individual products are computed using the average cost of all of those produced in the process. Equivalent Units For example, suppose we spent $1200 on materials, labor, and overhead this month producing beer. In order to compute the cost per unit, we need to know how many units we made. We dont have individual jobs to track our costs (job order costing) We compute the amount of output by the equivalent unit method. Suppose at the start of the period, we have 1000 units that are 25 % complete. At the end of the period we have 2000 units finished and 500 units that are 10 % complete. How many equivalent units ? = 1000 units * 75% = 750 equiv. units (finished prior units) + 1000 units * 100 % = 1000 equiv. units (started and finished new ones) + 500 units * 10 % = 50 equiv. units (started – partially completed) = 1800 equivalent units Conversion Costs Conversion costs are manufacturing costs excluding the cost of materials. Thus they are the direct labor and overhead costs. In many processes, the materials are added at the beginning of the run and the labor and overhead are incurred later. We need to keep track of the percentage complete for materials and conversion costs separately. For example, we could be 100% complete for the materials but only 40 % complete on the conversion costs. Example problem – Part 1 On January 1, we have 50 units that are 100 % done with respect to materials and 40 % complete with conversion costs. The value of the WIP inventory is $ 4,000 ($1,000 DM, $2,400 DL, and $600 Overhead) On December 31, We have 2