Chapter 3 Process Cost Accounting

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Process Cost Accounting
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Job Order Cost System
Cost are assigned to each job used where
finished products can be individually identified
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Process Cost Systems
Illustration 3-1

• An accounting system used to apply costs
• To similar products
• That are mass-produced
• In a continuous fashion

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Illustration 3-2
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Illustration 3-2
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In a process cost system, costs are tracked
through a series of connected manufacturing
processes or departments used for large volume
production of uniform products
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Illustration 3-3
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Illustration 3-4
Job Order versus Process Cost System
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Illustration 3-5
Job Order versus Process Cost System
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Accumulating Manufacturing Costs- Same As In Job
Order
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Assigning Material Costs

• Fewer requisition slips than in job order since
  materials are for a process rather than specific
  job.
• Materials usually added at beginning of first
  process - but sometimes added at other times.

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Assigning Direct Labor

• Labor cost per process obtained from payroll
  register or departmental payroll summaries.

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Assigning Manufacturing Overhead

• Objective in assigning manufacturing overhead to
  departments is to allocate on objective and
  equitable basis.

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Assigning Manufacturing Costs
Date
Account Titles and Explanation
Debit
Credit
xxxx
Jan. 31
Work in Process -Machining
xxxx
Work In Process - Assembly
xxxx
Raw Materials Inventory
(To record materials used)
Date
Account Titles and Explanation
Debit
Credit
xxxxxxxx
Jan. 31
Work in Process -Machining Work in
Process-Assembling
Factory Labor
xxxx
(To assign factory labor to job)
Date
Account Titles and Explanation
Debit
Credit
xxxx xxxx
Jan. 31
Work in Process-Assembly Work in Process
-Machining
xxxx
Manufacturing Overhead
(To assign overhead to production)
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Transfer to Next Department

• At the end of period an entry is needed to record
  the cost of goods transferred out of the
  department.

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Transfer to Next Department
Transfer to Finished Goods
Transfer to Cost of Goods Sold
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Equivalent Units of Production
Illustration 3-7

• A measure of the work done during the period,
  expressed in fully completed units.

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Weighted-average Method

• Method used to compute equivalent units of
  production which considers the degree of
  completion (weighting) of the units completed and
  transferred out and the ending work in process.

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Conversion Costs

• The sum of labor costs and overhead costs.

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Production Cost Report

• An internal report for management that shows both
  production quantity and cost data for a
  production department.

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Production Cost Report
Illustration 3-12
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Physical Units

• Actual units to be accounted for during a period,
  irrespective of any work performed.

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Total Units (Costs) to Be Accounted for

• The sum of the units (costs) started (or
  transferred) into production during the period
  plus the units (costs) in process at the
  beginning of the period.

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Total Units (costs) Accounted for

• The sum of the units (costs) transferred out
  during the period plus the units (costs) in
  process at the end of the period.

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Unit Production Costs

• Costs expressed in terms of equivalent units of
  production.

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Unit Materials Cost Computation
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Cost Reconciliation Schedule

• A schedule that shows that the total costs
  accounted for equal the total costs to be
  accounted for.

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Illustration 3-22
Mixing Department
Cost Reconciliation Schedule
June 30,19xx
Cost Accounted for Transferred
Out(700,000 x .75) 525,000 Work
in process June 30 Materials (200,000 x
.50) 100,000 Conversion
costs(120,000 x .25) 30,000 130,000 Total
Costs 655,000
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Mixing Department Production Cost Report For the
Month Ended June 30, 2002
Illustration 3-23
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Operations Costing

• A combination of a process cost and a job order
  cost system, in which products are manufactured
  primarily by standardized methods, with some
  customization.

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