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1、Chapter 6,Chapter 6Process Costing,Key Topics:Cost flows in mass productionSteps in preparing process cost reports(FIFO and weighted average)Equivalent unitsApplying costsSpoilage in process costing Uses,Uncertainties,and limitations,Chapter 6,Process Costing,Process product-costing systems are used
2、 for costing inventories or services when they are mass-produced,identical units.These products differ from the custom-made or unique goods that are assigned costs under a job costing system,Chapter 6,Mass Production,Many goods are produced using a continuous process.Examples:,Chapter 6,Overview of
3、Process Costing Systems,Chapter 6,Steps for Preparing a Process Costing Report:,1.Summarize total costs to account for.2.Summarize total physical and equivalent units.3.Compute cost per equivalent unit.4.Account for cost of units completed and cost of ending WIP.,Chapter 6,What Are Equivalent Units,
4、and How Do They Relate to the Production Process?,Equivalent Units:Measure the resources used in partially completed units relative to the resources needed to complete the units.Equivalent Units Depend on the Pattern of Cost Flow:Direct Materials:*Added at the beginning of the process*Added during t
5、he processConversion Costs:*Incurred uniformly throughout the process*Incurred non-uniformly,Chapter 6,How Is the Weighted Average Method Used in Process Costing?,Weighted Average Method:Costs from beginning WIP(performed last period)are averaged with costs incurred during the current period and the
6、n allocated to all units completed and ending WIP.,Chapter 6,Summaries of Physical Units and Total Costs for Weighted Average Calculations(Assuming direct materials are added at the beginning of the process),Chapter 6,Calculation of Equivalent Units Under the Weighted Average Method,Chapter 6,Calcul
7、ation of Cost Per Equivalent Unit Under the Weighted Average Method,Beg.WIP Costs+Costs Added This PeriodWeighted Average Equivalent Units,Chapter 6,Equivalent Unit Costs,Weighted Average:Direct materials=$6,000+$30,500=$3.0417 12,000Conversion costs=$4,200+$76,680=$7.0947 11,400Total cost per equiv
8、alent unit=$10.1364,Chapter 6,Weighted Average Process Cost Report,Chapter 6,Summaries of Physical Units and Total Costs for FIFO Calculations(Assuming direct materials are added at the beginning of the process),Chapter 6,Calculation of Equivalent Units Under the FIFO Method,Chapter 6,First-in,First
9、-out(FIFO)Method,The current periods costs are used to allocate cost to work performed this period,Chapter 6,Calculation of Cost Per Equivalent Unit,Current Period CostEquivalent Units for Work Performed this Period,Chapter 6,Equivalent Units Costs,FIFO:Direct materials=$30,500=$3.05 10,000Conversio
10、n costs=76,680=$7.10 10,800Total cost per equivalent unit=$10.15,Chapter 6,FIFO Process Cost Report,Chapter 6,How Is Process Costing Performed for Multiple Production Departments,Transferred-in Costs:Costs of processing performed in a previous departmentTransferred-in costs are pooled separately fro
11、m other costs,Chapter 6,Chapter 6,How Are Spoilage Costs Handled in Process Costing?,Normal Spoilage:Defective units that arise as part of regular operationsAbnormal Spoilage:Spoilage that is not part of everyday operations,Chapter 6,Chapter 6,Use Process Cost Information to:,Measure costs of produc
12、ts mass-produced productsAssign costs to inventory and cost of goods sold for financial statements and income tax returnsMonitor operations and costsDevelop estimates of future costs for decision makingAnalyze the costs and benefits of quality improvementsIdentify potential areas for process improvements,Chapter 6,Uncertainties and Measurement Errors in Process Costing,Actual cost flows might not be known:*When are direct materials added?*When are conversion costs incurred?*How complete are the units in ending work in process?*What amount of spoilage is normal?,
