Slide 1Slide 2Process CostingLearning Objective 1Process Costing BenefitsJob and Process Costing Differences?Job Order CostingJob and Process Costing DifferencesSlide 9Building Blocks of Process CostingLearning Objective 2The Building Blocks of Process CostingSlide 13Learning Objective 3How Does Process Costing Work?Step 1: Summarize the Flow of Physical UnitsS5-4: Determine the Physical Flow of Units (Process Costing Step 1)Step 2: Compute Output in Terms of Equivalent UnitsS5-6: Compute Equivalent UnitsStep 3: Summarize Total Costs to Account ForS5-7: Summarize Total Costs to Account ForStep 4: Compute the Cost per Equivalent UnitStep 5: Assign Total Costs to Units Completed and to Units in Ending Work in Process InventoryS5-10: Assign CostsS5-8: Compute the Cost per Equivalent UnitLearning Objective 4Journal Entries Used in a Process Costing SystemJournal Entries (continued)Slide 29T - AccountE5-29A: Record Journal EntriesE5-29A (continued)Slide 33Slide 34Learning Objective 5Process Costing in a Second or Later Processing DepartmentSlide 37Step 2: Compute Output in Terms of Equivalent UnitsSteps 3 and 4: Summarize Total Costs to Account For and Compute the Cost per Equivalent UnitSlide 40Slide 41Journal Entries in a Second Processing DepartmentAfter posting, the Key WIP Account Appears as FollowsEnd of Chapter 5Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 1Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.2Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process CostingChapter 53Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Learning Objective 1Distinguish between the flow of costs in process costing and job costing4Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process Costing Benefits•Benefits:–Cost trends–Budget to actual–Pricing–Financial statements5Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Job and Process Costing Differences? Job Order Cost Systems:•Individual job cost records•DM, DL, and MOH assigned to individual jobs•Cost of finished jobs flow into FG Inventory•Cost of sold jobs flow out of FG Inventory into COGS6Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Job Order CostingCost of GoodsSoldManufacturing WagesMaterials InventoryFinishedGoodsManufacturingOverhead Work in ProcessJob 90Job 91Job 927Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Job and Process Costing Differences Process Cost Systems:•Series of manufacturing processes•Cost per process is accumulated and moved from one process to another process•Costs transferred to FG Inventory only from the WIP Inventory of the LAST manufacturing process•When units are sold, cost is transferred out of FG Inventory into COGS8Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Process CostingCost of GoodsSoldManufacturing WagesFinishedGoods Work in Process,Centers Dept Work in Process,Shells Dept Work in Process,Packaging DeptManufacturingOverheadMaterials Inventory9Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Building Blocks of Process Costing•Conversion costs–DL + MOH•Equivalent units•Inventory flow assumptions–Weighted average–FIFO10Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Learning Objective 2Compute equivalent units11Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. The Building Blocks of Process Costing•Equivalent units –Amount of work done during a period in terms of fully complete units of output12Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. The Building Blocks of Process Costing•Inventory flow assumptions•Weighted average •FIFO•Cost-benefit standpoint13Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Learning Objective 3Use process costing in the first production department14Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. How Does Process Costing Work?Using weighted average assumption•5 steps to process costing:1. Summarize the flow of physical units2. Compute output in terms of equivalent units3. Summarize total costs to account for4. Compute the cost per equivalent unit5. Assign total costs to units completed and to units in ending WIP inventory 15Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Step 1: Summarize the Flow of Physical Units•Total physical units to account for? •How many individual (physical) units were worked on (completed or not)?•Total physical units accounted for? •What happened to those products ? (Finished or still in process)16Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. S5-4: Determine the Physical Flow of Units (Process Costing Step 1) Flow of ProductionStep 1Flow of Physical UnitsUnits to account for:Beginning work in processStarted in production during June 1Total physical units to account forUnits accounted for:Completed and transferred out during OctoberEnding work in process, June 31Total physical units accounted forTotal equivalent units20,000 110,000130,00030,000100,000130,00017Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Step 2: Compute Output in Terms of Equivalent Units18Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. S5-6: Compute Equivalent UnitsStep 2Equivalent UnitsDirect MaterialsConversion CostUnits to account for:Beginning work in process,Started in productionTotal physical units to account forUnits accounted for:Completed and transferred out1,200,000Ending work in process100,000Total physical units accounted for1,300,000Total equivalent units1,200,000 1,200,000100,000 60,0001,300,000 1,260,00019Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Step 3: Summarize Total Costs to Account For20Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. S5-7: Summarize Total Costs to Account ForDirect MaterialsConversionCostsTotalBeginning