DOC PREVIEW
UGA ACCT 2102 - Process Costing
Type Lecture Note
Pages 4

This preview shows page 1 out of 4 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 4 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 4 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

ACCT 2102 1st Edition Lecture 14 Outline of Last Lecture:I. In Class Example # 1II. In Class Example # 2Outline of Current Lecture:III. Conclusions Drawn from Lecture 13 Example IIIV. Job Costing vs. Process CostingV. Frito-Lay ExampleVI. Equivalent UnitsCurrent 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 costo Flow of costs through the accounts: RM Inv.WIP Inv.FG Inv.COGSDraw 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 ENDTO: Transfer OutTI: 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.? • $1,350,000/500,000 = $2.70/unit• What’s the cost per unit of a totally completed case of Ruffles? What is the average cost per bag?• $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 theCutting & 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 casesworked on in the Cutting & Frying Dept. during the month? Ignores the fact that 30,000 cases in WIP are only partially complete.VI. Equivalent UnitsTo 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? 1How many partial pizzas do you have? 3How many “equivalent units” (EU) of pizza do you have? 2*Equivalent units show what you have partially which “could be”


View Full Document

UGA ACCT 2102 - Process Costing

Type: Lecture Note
Pages: 4
Documents in this Course
Load more
Download Process Costing
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Process Costing and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Process Costing 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?