Lecture 15

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

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

MCQs Test

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

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

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

Weighted Average Method

Units transferred to the next department or to finished goods 10,000 Equivalent units in ending work in process inventory + 4,200

Equivalent units of production = 14,200

Under the weighted-average method equivalent units will always be calculated as follows:

Weighted Average Method

Matrix, Inc. reported the following activity in Mixing Department for the month of June:

Percent Completed

Units Materials Conversion

Work in process, June 1 300 40% 20%

Units started into production in June 6,000

Units completed and transferred out 5,400 100% 100% of the Mixing Department during June

Work in process, June 30 900 60% 30%

Equivalent units are calculated as follows:

Weighted Average Method

Materials Conversion

Units completed and transferred out of Mixing in June 5,400 5,400

Equivalent units are calculated as follows:

Weighted Average Method

Materials Conversion

Units completed and transferred out of Mixing in June 5,400 5,400

Work in process June 30

(900 units x 60% complete) 540

Equivalent units are calculated as follows:

Weighted Average Method

Materials Conversion

Units completed and transferred out of Mixing in June 5,400 5,400

Work in process June 30

(900 units x 60% complete) 540

(900 units x 30% complete) 270

Equivalent units of production in the Mixing Deparment 5,940 5,670

Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in process

Equivalent units of production always equals: Units completed and transferred + Equivalent units remaining in work in process

BeginningWork in Process

300 Units40% Complete

EndingWork in Process

900 Units60% Complete

6,000 Units Started

5,400 Units Completed

5,100 Units Startedand Completed

Weighted Average MethodMaterialsMaterials

5,400 Units Completed 540 Equivalent Units

900 × 60%

5,940 Equivalent units of production

6,000 Units Started

5,400 Units Completed 270 Equivalent Units 900 × 30%

5,670 Equivalent units of production

Weighted Average MethodConversionConversion

BeginningWork in Process

300 Units40% Complete

EndingWork in Process

900 Units30% Complete

5,100 Units Startedand Completed

Production Report

Production Report

Section 1

Section 2

Section 3

A computation of cost per equivalent unit.

A computation of cost per equivalent unit.

Quantity schedule with computation of equivalent units.

Quantity schedule with computation of equivalent units.

A reconciliation of cost flows for the period. A reconciliation of cost flows for the period.

• Double Diamond Skis uses process costing to determine unit costs in its Shaping and Milling Department.

• Double Diamond uses the weighted average cost procedure.

• Using the following information for the month of May, let’s prepare a production report for Shaping and Milling.

• Double Diamond Skis uses process costing to determine unit costs in its Shaping and Milling Department.

• Double Diamond uses the weighted average cost procedure.

• Using the following information for the month of May, let’s prepare a production report for Shaping and Milling.

Production Report Example

Work in process, May 1: 200 units Materials: 50% complete. $ 3,000Conversion: 30% complete. 1,000

Units started into production in May: 5,000Units completed and transferred out in May: 4,800

Costs added to production in MayMaterials cost $ 74,000Conversion cost 70,000

Work in process, May 31: 400 unitsMaterials 40% complete.Conversion 25% complete.

Work in process, May 1: 200 units Materials: 50% complete. $ 3,000Conversion: 30% complete. 1,000

Units started into production in May: 5,000Units completed and transferred out in May: 4,800

Costs added to production in MayMaterials cost $ 74,000Conversion cost 70,000

Work in process, May 31: 400 unitsMaterials 40% complete.Conversion 25% complete.

Cost

Production Report Example

Step: Quantity Schedule with Equivalent Units

Production Report Example

Units to be accounted for: Work in process, May 1 200 Started into production 5,000 Total units 5,200

Equivalent unitsMaterials Conversion

Units accounted for as follows: Completed and transferred 4,800 4,800 4,800

Production Report Example

Units to be accounted for: Work in process, May 1 200 Started into production 5,000 Total units 5,200

Equivalent unitsMaterials Conversion

Units accounted for as follows: Completed and transferred 4,800 4,800 4,800 Work in process, May 31 400 Materials 40% complete 160 Conversion 25% complete 100

5,200 4,960 4,900

Step: Quantity Schedule with Equivalent Units

Section: Compute cost per equivalent unit

Production Report Example

TotalCost Materials Conversion

Cost to be accounted for: Work in process, May 1 4,000$ 3,000$ 1,000$ Costs added in the Shipping and Milling Department 144,000 74,000 70,000

Total cost 148,000$ 77,000$ 71,000$

Equivalent units 4,960 4,900

Production Report Example

TotalCost Materials Conversion

Cost to be accounted for: Work in process, May 1 4,000$ 3,000$ 1,000$ Costs added in the Shipping and Milling Department 144,000 74,000 70,000

Total cost 148,000$ 77,000$ 71,000$

Equivalent units 4,960 4,900

Cost per equivalent unit 15.524$

$77,000 ÷ 4,960 units = $15.524 (rounded)

Section: Compute cost per equivalent unit

TotalCost Materials Conversion

Cost to be accounted for: Work in process, May 1 4,000$ 3,000$ 1,000$ Costs added in the Shipping and Milling Department 144,000 74,000 70,000

Total cost 148,000$ 77,000$ 71,000$

Equivalent units 4,960 4,900

Cost per equivalent unit 15.524$ 14.490$ Total cost per equivalent unit = $15.524 + $14.490 = $30.014

Production Report Example

$71,000 ÷ 4,900 units = $14.490 (rounded)$71,000 ÷ 4,900 units = $14.490 (rounded)

Section: Compute cost per equivalent unit

Section : Cost Reconciliation

Production Report Example

Total Equivalent UnitsCost Materials Conversion

Cost accounted for as follows: Transferred out during May 4,800 4,800 Work in process, May 31: Materials 160 Conversion 100

Total work in process, May 31

Total cost accounted for

Total Equivalent UnitsCost Materials Conversion

Cost accounted for as follows: Transferred out during May 144,067$ 4,800 4,800 Work in process, May 31: Materials 160 Conversion 100

Total work in process, May 31

Total cost accounted for

4,800 units @ $30.0144,800 units @ $30.014

Production Report Example Section : Cost Reconciliation

Total Equivalent UnitsCost Materials Conversion

Cost accounted for as follows: Transferred out during May 144,067$ 4,800 4,800 Work in process, May 31: Materials 2,484 160 Conversion 1,449 100

Total work in process, May 31 3,933

Total cost accounted for 148,000$

160 units @ $15.524160 units @ $15.524

Production Report Example

100 units @ $14.49100 units @ $14.49

All costs accounted for

All costs accounted for

Section : Cost Reconciliation

Lecture Overview

• Equivalent Units of Production• MCQs Test• Weighted Average Method• Production Report• Production Report Example

End of Lecture 15