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The flow of costs through the manufacturing accounts is basically the same in both systems.
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Quick Check
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Quick Check
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Processing Departments
Any location in an organization where materials, labor, or overhead are added to the product. The activities performed in a processing department are performed uniformly on all units of production. Furthermore, the output of a processing department must be homogeneous.
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Learning Objective 1
Record the flow of materials, labor, and overhead through a process costing system.
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Manufacturing Overhead
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Jobs
Manufacturing Overhead
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Manufacturing Overhead
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Credit
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Credit
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Credit
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Credit
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Finished Goods
Cost of Goods Manufactured
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GENERAL JOURNAL
Date Description Finished Goods Work in Process - Department B To record the completion of goods and their transfer from Department B to finished goods inventory. Post. Ref. Debit XXXXX
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Credit XXXXX
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Direct Cost of Cost of Cost of Materials Goods Goods Goods Direct Manufactured Manufactured Sold Labor Applied Overhead Transferred from Dept. A Cost of Goods Sold
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Credit
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We need to calculate equivalent units because a department usually has some partially completed units in its beginning and ending inventory.
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So, 10,000 units 70% complete are equivalent to 7,000 complete units.
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Quick Check
For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process that are 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 b. 11,500 c. 13,500 d. 15,000
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Quick Check
For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process that are 30 percent complete. How many equivalent units of production did Jones have for the period? a. 10,000 10,000 units + (5,000 units 0.30) b. 11,500 = 11,500 equivalent units c. 13,500 d. 15,000
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Learning Objective 2
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Direct Labor
Direct labor costs may be small in comparison to Conversion other product costs in process costing systems.
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Direct labor costs may be small Conversion in comparison to other product costs in process costing systems.
Direct labor and manufacturing overhead may be combined into one product cost called conversion.
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Weighted-Average An Example
Smith Company reported the following activity in the Assembly Department for the month of June:
Percent Completed Units Work in Process, June 1 Units started into production in June Units completed and transferred out of Department A during June Work in Process, June 30 300 6,000 5,400 Materials Conversion 40% 20%
900
60%
30%
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Weighted-Average An Example
The first step in calculating the equivalent units is to identify the units completed and transferred out of Assembly Department in June (5,400 units)
Materials Units completed and transferred out of the Department in June 5,400 Conversion 5,400
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Weighted-Average An Example
The second step is to identify the equivalent units of production in ending work in process with respect to materials for the month (540 units) and adding this to the 5,400 units from step one.
Materials Units completed and transferred out of the Department in June Work in Process, June 30: 900 units 60% 540 5,400 Conversion 5,400
5,940
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Weighted-Average An Example
The third step is to identify the equivalent units of production in ending Work in Process with respect to conversion for the month (270 units) and adding this to the 5,400 units from step one.
Materials Units completed and transferred out of the Department in June Work in Process, June 30: 900 units 60% 900 units 30% Equivalent units of Production in the Department during June 5,940 540 270 5,670 5,400 Conversion 5,400
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Weighted-Average An Example
Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in Work in Process
Materials Units completed and transferred out of the Department in June Work in Process, June 30: 900 units 60% 900 units 30% Equivalent units of Production in the Department during June 5,940 540 270 5,670 5,400 Conversion 5,400
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5,400 Units Completed 540 Equivalent Units 5,940 Equivalent units of production
900 60%
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5,400 Units Completed 270 Equivalent Units 5,670 Equivalent units of production
900 30%
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Learning Objective 3
Compute the cost per equivalent unit using the weighted-average method.
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$ 124,740 5,940
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Learning Objective 4
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Applying Costs
Assembly Department Cost of Ending WIP Inventory and Units Transferred Out Materials Conversion Total Ending WIP inventory: Equivalent units 540 270
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Applying Costs
Assembly Department Cost of Ending WIP Inventory and Units Transferred Out Materials Conversion Total Ending WIP inventory: Equivalent units 540 270 Cost per equivalent unit $ 21.00 $ 15.00
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Applying Costs
Assembly Department Cost of Ending WIP Inventory and Units Transferred Out Materials Conversion Total Ending WIP inventory: Equivalent units 540 270 Cost per equivalent unit $ 21.00 $ 15.00 Cost of Ending WIP inventory $ 11,340 $ 4,050 $ 15,390
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Learning Objective 5
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Reconciling Costs
Assembly Department Cost Reconciliation Costs to be accounted for: Cost of beginning Work in Process Inventory Costs added to production during the period Total cost to be accounted for
$ $
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Reconciling Costs
Assembly Department Cost Reconciliation Costs to be accounted for: Cost of beginning Work in Process Inventory Costs added to production during the period Total cost to be accounted for Cost accounted for as follows: Cost of ending Work in Process Inventory Cost of units transferred out Total cost accounted for
$ $
$ $
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Appendix 4A
FIFO Method
PowerPoint Authors: Jon A. Booker, Ph.D., CPA, CIA Charles W. Caldwell, D.B.A., CMA Susan Coomer Galbreath, Ph.D., CPA
McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objective 6
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900
60%
30%
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300 60%
180 Equivalent Units 5,100 Units Completed 540 Equivalent Units 5,820 Equivalent units of production
900 60%
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300 80%
240 Equivalent Units 5,100 Units Completed 270 Equivalent Units 5,610 Equivalent units of production
900 30%
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Learning Objective 7
Compute the cost per equivalent unit using the FIFO method.
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Production started during June Production completed during June Costs added to production in June: Materials cost Conversion cost Ending Work in Process: Materials: 60% complete Conversion: 30% complete
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$ 14.4617
$118,600 5,820
$81,130 5,610
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Learning Objective 8
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Total
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Total
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Total
14,911
540 $20.3816
270 14.4617
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Total $ 10,039
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7,139
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7,139
177,701
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Total $ 10,039
7,139
177,701 $ 194,879
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Learning Objective 9
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Reconciling Costs
Assembly Department Cost Reconciliation for June Costs to be accounted for: Cost of beginning Work in Process Inventory Costs added to production during the period Total cost to be accounted for
$ $
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Reconciling Costs
Assembly Department Cost Reconciliation for June Costs to be accounted for: Cost of beginning Work in Process Inventory Costs added to production during the period Total cost to be accounted for Cost accounted for as follows: Cost of ending Work in Process Inventory Cost of units transferred out Total cost accounted for
$ $
$ $
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End of Chapter 4