Process Costing Systems - Pearson

Process Costing Systems - Pearson

Chapter 17 Process Costing Copyright 2003 Pearson Education Canada Inc. Slide 17-1 Process Costing Systems Process costing is a costing system in which the product or service cost is obtained by assigning costs to masses of like units Conversion costs are costs that are applied uniformly in a department Materials costs are assumed to be applied at discrete points in the production process Transferred costs are costs transferred from one department to another department Copyright 2003 Pearson Education Canada Inc. Pages 637 - 638 Slide 17-2

Process Costing System Diagram Material Costs Material Costs Assembly Department Transferred Costs Conversion Costs Copyright 2003 Pearson Education Canada Inc. Testing Department

Finished Goods Inventory Conversion Costs Pages 637 - 638 Slide 17-3 Process Costing Steps 1. 2. 3. 4. 5. Equivalent units is a measure of the output of a

process costing system 60 units 25% complete = 15 equivalent whole units Five Steps in Process Costing Track the physical units of output Determine the number of equivalent whole units Compute the cost per equivalent unit Measure total costs to account for Assign costs to units completed and transferred out of the department and units in ending inventory Copyright 2003 Pearson Education Canada Inc. Pages 640 - 642 Slide 17-4 Weighted Average and FIFO Methods Weighted Average Calculates the average equivalent unit cost of the work done to date regardless of when the work was done Smoothes out unit costs from month to month

FIFO Costs carried forward from the previous period are assigned directly to completed goods Assumes that work required to finish incomplete units (from the previous month) is done at the beginning of the month Copyright 2003 Pearson Education Canada Inc. Pages 643 - 650 Slide 17-5 Hybrid Costing Systems Job-costing Systems Hybrid-costing Systems Process-costing Systems

Hybrid-costing systems have a blend of jobcosting and process-costing characteristics Many car manufacturers account for the use of materials following job-costing but account for labour and overhead following a process-costing system Copyright 2003 Pearson Education Canada Inc. Pages 653 - 654 Slide 17-6 Operation Costing Batch B Batch C Copyright 2003 Pearson Education Canada Inc. Operation 3 Materials

Operation 2 Batch A Operation 1 Operation costing is a hybrid costing system applied to batches of similar products Each batch is often a variation on a single design and proceeds through a sequence of selected activities or operations Finished Goods Inventory Pages 661 - 664 Slide 17-7

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