ACCT 2102 1st Edition Lecture 14 Outline of Last Lecture I In Class Example 1 II In Class Example 2 Outline of Current Lecture III Conclusions Drawn from Lecture 13 Example II IV Job Costing vs Process Costing V Frito Lay Example VI Equivalent Units Current Lecture Process Costing Chapter 5 III Conclusions Drawn from Lecture 13 Example II The product lines are neither under nor overcosted by the traditional costing system because they yield the same MOH The same amount of overhead costs related to machine setups that are assigned to the product lines are equal under both systems The wooden line consumes 37 5 of the overhead resources 28 125 75 000 or 1 500 4 000 or 30 80 The metal line consumes 62 5 of the overhead resources 46 875 75 000 or 2 500 4 000 or 50 80 or 100 37 5 Both costing systems apply MOH using the consumption ratios Hint Try working this problem and coming to the same conclusions without using the 75 000 You will not be able to calculate the POHRs Look at cost drivers and come up with percentages don t need MOH Also try changing the data so that one product line is overcosted and the other undercosted How does this change your conclusions IV Job Costing vs Process Costing Similarities and Differences The ultimate goal of both job order costing and process costing is to determine unit cost These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Unit cost Costs Output Why is understanding process costing necessary Different manufacturing environment large batches mass production input is the same and output is the same Cost object used for cost accumulation o Manufacturing cost categories DM DL MOH collectively we call DL and MOH conversion cost o Flow of costs through the accounts RM Inv WIP Inv FG Inv COGS Draw a schematic overview of a typical process costing environment Sequential RM Inv WIP Dept 1 WIP Dept 2 FG Inventory COGS Beg TO Beg Beg COGS DM DM TI DL DL END MOH MOH END TI END TO Transfer Out TI Transfer In TO and TI occur during the period They are not beginning and ending balances RM Inv increased by Purchases decreased by usage V Frito Lay produces Ruffles potato chips in two sequential production departments 1 Cutting Frying Dept 2 Draining Packaging Dept For our purposes let s assume that a unit is one case 10 family size bags of potato chips During November the Cutting Frying Dept incurred 2 400 000 of manufacturing costs What is the cost per unit in the Cutting Frying Dept if the Dept had no beginning or ending WIP inventory and it completed and transferred out 500 000 cases worth of fried potatoes slices to the Draining Packaging Dept during the month 2 400 000 500 000 4 80 unit Let s say all of those fried potatoes also went through the Draining Packaging Dept in November where another 1 350 000 of manufacturing cost was incurred What is the cost per unit in the second dept What s the cost per unit of a totally completed case of Ruffles What is the average cost per bag VI 1 350 000 500 000 2 70 unit 4 80 2 70 7 50 10 75 bag The problem arises when you have units left in any ending WIP Let s that in addition to the 500 000 units completed and transferred out to the Draining Packaging Dept the company also has 30 000 cases worth of potatoes that are currently in process WIP in the Cutting Frying Dept Now how should that 2 400 000 manufacturing cost in the Cutting Frying Dept be split between the units worked on during the month What s wrong with assigning the total cost to just the 500 000 cases transferred to the Draining Packaging Dept Ignores the 30 000 What s wrong with assigning the total cost evenly across all 530 000 cases worked on in the Cutting Frying Dept during the month Ignores the fact that 30 000 cases in WIP are only partially complete Equivalent Units To deal with the issue of partially completed units left in ending WIP we use equivalent units Say you have some friends over one night You order the following pizzas 1 pepperoni 1 sausage 1 cheese and 1 anchovy After the evening is over you discover you have the following left 1 3 of the pepperoni pizza 1 3 of the sausage pizza 1 3 of the cheese pizza The whole anchovy pizza no one wanted anchovies on their pizza How many wholly intact pizzas do you have 1 How many partial pizzas do you have 3 How many equivalent units EU of pizza do you have 2 Equivalent units show what you have partially which could be complete