MANAGERIAL ACCOUNTING

Dr. Oanh (Helen) Nguyen - VNU_IS

oanhntk@isvnu.vn
CHAPTER 4:Process Costing and Hybrid
Product-Costing Systems
 Comparison of Job-Order Costing
and Process Costing
Job-order costing
◦ Costs accumulated by the
job.
◦ Work in process has a job-
cost sheet for each job.
◦ Many unique, high cost jobs.
◦ Jobs built to customer
order.
Process costing
◦ Costs accumulated by
department or process.
◦ Work in process has a
production report for each
batch of products.
◦ A few identical, low cost
products.
◦ Units continuously
produced for inventory in
automated process.
4-3
 Process Cost Flows
One Production Department
Work-in-Process Finished Goods
Inventory Inventory Cost of Goods Sold
Direct material
Cost of goods completed Cost of goods sold
Direct labor
Applied manufacturing and transferred to during current
overhead finished goods period

4-4
 Process Cost Flows
Two Sequential Production Departments
Work-in-Process Inventory Work-in-Process Inventory
Production Department A Production Department B
Direct material Cost of goods completed
Direct labor in department A and Cost of goods completed
Applied manufacturing transferred to and transferred to
overhead department B finished goods

Direct material
Direct labor
Applied manufacturing
overhead

Finished Goods Inventory Cost of Goods Sold

Cost of goods sold
during current period

4-5
Equivalent Units: A Key Concept

 Costs are accumulated for a period of time for

products in work-in-process inventory.
 Products in work-in-process inventory at the
beginning and end of the period are only partially
complete.
 Equivalent units is a concept expressing these
partially completed products as a smaller number
of fully completed products.

4-6
Equivalent Units Example

Two half completed products are

equivalent to one completed product.

+ = l

So, 10,000 units that are 70% complete

are equivalent to 7,000 complete units.

4-7
Equivalent units = incomplete
units x % completion
2 incomplete x 50% = 1 (equivalent unit to finished
good)
10,000 incomplete x 70% = 7,000 (equivalent units to
finished goods)
20,000 incomplete units x 30% = 6,000 (equivalent
units to finished goods)

4-8
 Departmental Production Report

1. Analysis of 2. Calculation
physical flow of equivalent
of units. units.

Production
Report

3. Computation 4. Analysis of
of unit costs. total costs.

4-11
Step 1: Analysis of Physical Flow
of Units
 BB + MC – CGOM = CB
Calculating and Using Equivalent Units
of Production
To calculate the direct materials and conversion
costs per equivalent unit for the period:

Materials
cost per Materials cost for the period
= Materials equivalent units for
equivalent
unit the period

Conversion
cost per Conversion cost for the period
equivalent = Conversion equivalent units for
unit the period
4-16
Calculating EU for Ending WIP
 Direct materials: % of completion for direct
material is 100%
◦ Equivalent units for direct materials = 10,000 x
100% = 10,000 (equivalent units to finished
goods)

 Direct labour + MOC = conversion cost: % of

completion for conversion cost is 50%
◦ Equivalent units for conversion = 10,000 x 50% =
5,000 (equivalent units to finished goods)
Calculating EU for units completed
and transferred out
 % of completion for both DM and
Conversion cost is 100% because all these
units are completed.
Step 2: Calculation of Equivalent Units—Cutting
Department (weighted-average method)
Step 3: Computation of Unit Costs
Step 4: Analysis of Total Costs
Production Report Example
Computation of unit costs

Direct
Material Conversion Total
Work in Process, March 1 $ 50,000 $ 7,200 $ 57,200
Costs incurred during March 90,000 193,500 283,500
Total costs to account for $ 140,000 $ 200,700 $ 340,700
Equivalent units 50,000 45,000
Cost per equivalent unit $ 2.80 $ 4.46 $ 7.26

$140,000 ÷ 50,000 equivalent units

$2.80 + $4.46
$200,700 ÷ 45,000 equivalent units
4-28
 Production Report Example
Analysis of total costs
Cost of goods completed and transferred during March
40,000 units x $7.26 per equivalent unit $ 290,400

Costs remaining in work-in-process on March 31

Direct Material:
10,000 equivalent units x $2.80 per equivalent unit $ 28,000
Convserion:
5,000 equivalent units x $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for $ 340,700

4-29
 Production Report Example
Analysis of total costs
Cost of goods completed and transferred during March
40,000 units x $7.26 per equivalent unit $ 290,400

Costs remaining in work-in-process on March 31

Direct Material:
10,000 equivalent units x $2.80 per equivalent unit $ 28,000
Convserion:
5,000 equivalent units x $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
Total costs accounted for $ 340,700

4-30
 Production Report Example
Analysis of total costs
Cost of goods completed and transferred during March
40,000 units x $7.26 per equivalent unit $ 290,400

Costs remaining in work-in-process on March 31

Direct Material:
10,000 equivalent units x $2.80 per equivalent unit $ 28,000
Convserion:
5,000 equivalent units x $4.46 per equivalent unit 22,300
Total cost of March 31 work-in-process 50,300
All costs
Total costs accounted for accounted for $ 340,700

4-31
 MVP SPORTS EQUIPMENT COMPANY
Production Report: Cutting Department
Percentage of
Completion Equivalent Units
Physical with Respect to Direct
Units Conversion Material Conversion

Work in process, March 1 20,000 10%

Units started during March 30,000
Total units to account for 50,000

Units completed and transferred 40,000 100% 40,000 40,000

Work in process, March 31 10,000 50% 10,000 5,000
Total units accounted for 50,000
Total equivalent units 50,000 45,000

Direct
Material Conversion Total

Work in Process, March 1 $ 50,000 $ 7,200 $ 57,200

Costs incurred during March 90,000 193,500 283,500
Total costs to account for $ 140,000 $ 200,700 $ 340,700

Equivalent units 50,000 45,000

Cost per equivalent unit $ 2.80 $ 4.46 $ 7.26

Cost of goods completed and transferred during March

40,000 units x $7.26 per equivalent unit $ 290,400

Costs remaining in work-in-process on March 31

Direct Material:
10,000 equivalent units x $2.80 per equivalent unit $ 28,000

Conversion:
5,000 equivalent units x $4.46 per equivalent unit 22,300

Total cost of March 31 work-in-process 50,300

Total costs accounted for $ 340,700

4-32
 Departmental Production Report
Analysis of
physical flow
of units.
Calculation
of equivalent
units.
Computation
of unit costs.

Analysis of
total costs.

4-33
 Operation Costing
Operation costing employs some aspects
of both job-order and process costing.

Job-order Operation Costing Process

Costing (Products produced in batches) Costing

4-34
 Operation Costing
Operation costing employs some aspects
of both job-order and process costing.

Job-order Operation Costing Process

Costing (Products produced in batches) Costing

Material costs are charged Conversion costs

to batches as in are assigned to batches
job-order costing. as in process costing.

4-35