Lecture 14. Chapter Overview Types of Costing Systems Used to Determine Product Costs – Job-Order...

Lecture 14

Chapter Overview• Types of Costing Systems Used to Determine Product

Costs– Job-Order Costing– Process Costing

• Sequence of Events in a Job-Order Costing System• Application of Manufacturing Overhead• The Need for a Predetermined Manufacturing

Overhead Rate• Over/under-applied FOH• Job-Order Costing Document Flow Summary• Job-Order System Cost Flows• MCQs Test Questions

Systems Design:Process Costing

Chapter

4

Types of Costing Systems Used to Determine Product Costs

Job-orderCosting

ProcessCosting

Many units of a single, homogeneous product flow evenly through a continuous production process. One unit of product is indistinguishable from any other unit of product.. Each unit of product is assigned the same average cost.


Types of Costing Systems Used to Determine Product Costs

Job-orderCosting

ProcessCosting



Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill

Typical process cost applications: Petrochemical refinery Paint manufacturer Paper mill

Job order costing– Many jobs are worked

during the period.– Costs are accumulated by

individual jobs.– Job cost sheet is the key

document.– Unit cost computed by job.

Job order costing– Many jobs are worked

during the period.– Costs are accumulated by

individual jobs.– Job cost sheet is the key

document.– Unit cost computed by job.

Process costing– A single product is

produced for a long period of time.

– Costs are accumulated by departments.

– Department production report is key document.

– Unit costs are computed by department.

Process costing– A single product is

produced for a long period of time.

– Costs are accumulated by departments.

– Department production report is key document.

– Unit costs are computed by department.

Differences Between Job-Order and Process Costing

Sequential Processing Departments

Processing Department 1Processing

Department 1


Department 2


Department 3

Finished Goods

StartBasic raw materials

Processing costs

Partially completed goods


Processing costs

Completed goods

Processing costs

Parallel Processing Departments


Department 1


Department 2


Department 3

Finished Goods

StartBasic raw materials

Processing costs



Processing costs

Completed goods

Processing costs

Processing Department A

Flow of Materials, Labor and Overhead Costs

FinishedGoods

FinishedGoods

Cost of GoodsSold

Cost of GoodsSold

Direct LaborDirect Labor ProcessingDepartment

Direct MaterialDirect Material

ManufacturingOverhead

ManufacturingOverhead

Raw MaterialsPurchases Direct

Material

OtherOverhead

Manufacturing Overhead


Work in Process Finishing Department

Work in Process Mixing Department

Direct Material

Direct Material

Indirect Material

Indirect Material

Actual Applied

Wages PayableDirect

Material

Direct Material


Direct Labor Direct

Labor

Direct Labor

IndirectLabor

OtherOverhead


Indirect Material

Actual Applied

IndirectLabor



Wages PayableDirect

Material

Direct Material


Direct Labor Direct

Labor

Direct Labor

IndirectLabor

OverheadApplied to

Work inProcess

AppliedOverhead

AppliedOverhead

OtherOverhead


Indirect Material

Actual Applied

IndirectLabor




Now, let’s transfer the partially completed goods from

Mixing Departmentto

Finishing Department.

Now, let’s transfer the partially completed goods from

Mixing Departmentto

Finishing Department.


Direct Material

Direct LaborApplied

Overhead

Direct Material

Direct LaborApplied

Overhead

Transferred to Finishing

Transferred from Mixing




The goods have been completed in the Finishing Department and will be transferred to Finished Goods

Inventory when they are ready to be sold.

Finished Goods

Cost of Goods Sold


Direct Material

Direct LaborApplied

OverheadTransferred

from Dept. A

Cost of GoodsSold

Cost of GoodsSold

Cost of Goods

Manufactured

Cost of Goods

Manufactured


Materials, Labor, and Overhead Cost Entries

GENERAL JOURNAL Page 4

Date Description Debit Credit

Raw Materials XXXXX

Accounts Payable XXXXX

To record the purchase of material.

Work in Process - Mixing Department XXXXX

Work in Process - Finishing Department XXXXX

Raw Materials XXXXX

To record the use of direct material.




Work in Process - Mixing Deparment XXXXX


Salaries and Wages Payable XXXXX

To record direct labor costs.






Manufacturing Overhead XXXXX

To apply overhead to departments.






To record the transfer of goods from

Mixing to Finishing.




Finished Goods XXXXX


To record the completion of goods and their

transfer from the Finishing Department

to finished goods inventory.




Accounts Receivable XXXXX

Sales XXXXX

To record sales on account.

Cost of Goods Sold XXXXX

Finished Goods XXXXX

To record cost of goods sold.

Lecture Overview

• Types of Costing Systems Used to Determine Product Costs

• Differences Between Job-Order and Process Costing

• Sequential Processing Departments• Parallel Processing Departments• Flow of Materials, Labor and Overhead Costs• Materials, Labor, and Overhead Cost Entries

Equivalent Units of ProductionEquivalent units are partially complete and are part of

work in process inventory. It is the concept of expressing partially completed products as a smaller

number of fully completed units.

Equivalent units are partially complete and are part of work in process inventory. It is the concept of

expressing partially completed products as a smaller number of fully completed units.

+ =

Two one-half completed products are equivalent to one completed product. So, 10,000 units 70%

complete are equivalent to 7,000 complete units.

Two one-half completed products are equivalent to one completed product. So, 10,000 units 70%

complete are equivalent to 7,000 complete units.

For the current period, Matrix started 15,000 units and completed 10,000 units, leaving

5,000 units in process 30 percent complete. How many equivalent units of production did

Matrix have for the period?

a. 10,000

b. 11,500

c. 13,500

d. 15,000




a. 10,000

b. 11,500

c. 13,500

d. 15,000

MCQs Test




a. 10,000

b. 11,500

c. 13,500

d. 15,000




a. 10,000

b. 11,500

c. 13,500

d. 15,000

MCQs Test

10,000 units + (5,000 units × .30) = 11,500 equivalent units 10,000 units + (5,000 units × .30) = 11,500 equivalent units

Equivalent Units of Production

To calculate the cost perequivalent unit for the period:

To calculate the cost perequivalent unit for the period:

Cost perequivalent

unit

=Costs for the period

Equivalent units of productionfor the period

Now assume that Matrix incurred $27,600 in production costs for the 11,500

equivalent units of production. What was Matrix’s cost per equivalent unit for

the period?

a. $1.84

b. $2.40

c. $2.76

d. $2.90

MCQs Test

Now assume that Matrix incurred $27,600 in production costs for the 11,500

equivalent units of production. What was Matrix’s cost per equivalent unit for

the period?

a. $1.84

b. $2.40

c. $2.76

d. $2.90

MCQs Test

$27,600 ÷ 11,500 equivalent units

= $2.40 per equivalent unit

$27,600 ÷ 11,500 equivalent units

= $2.40 per equivalent unit

Lecture Overview

• Types of Costing Systems Used to Determine Product Costs

• Differences Between Job-Order and Process Costing

• Sequential Processing Departments• Parallel Processing Departments• Flow of Materials, Labor and Overhead Costs• Materials, Labor, and Overhead Cost Entries

End of Lecture 14

Lecture 14. Chapter Overview Types of Costing Systems Used to Determine Product Costs – Job-Order...

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