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UGA ACCT 2102 - Process Costing, Part II
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ACCT 2102 1st Edition Lecture 15 Outline of Last LectureI. Conclusions Drawn from Lecture 13 Example IIII. Job Costing vs. Process CostingIII. Frito-Lay ExampleIV. Equivalent UnitsOutline of Current Lecture:V. Equivalent Units ContinuedVI. ExampleCurrent Lecture: Process Costing, Part II (Chapter 5)V. Equivalent Units ContinuedPizza example continued from last lecture: 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? 2What’s the formula for determining “equivalent units”(EU)? What does it mean?- Equivalent Units = Number of partially complete physical units x Percentage of process completedo Equivalent Units = Physical Units (PU) x Percent Complete- EUs show what you have partially which “could be” complete.What do we use the EU for? To express the amount of work done during a period in terms of fully completed units of outputThese 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.In process costing, we calculate EUs separately for Direct Materials and Conversion Costs. Why? Conversion costs are incurred evenly throughout production. DM are often added at a particular point in the processVI. Example: Department 1: Cutting and FryingThe department started January with 35,000 units in process and started working on another 385,000 units during the month. During January the department transferred out 400,000 units to the next department. According to the plant supervisor, the units in ending inventory were 60% of the way through the cutting and frying process on January 31. The department’s only DM, potatoes, is added at the very beginning of the process. Beginning WIP had a balance of $136,500 ($122,500 related to DM; $14,000 related to conversion costs). During the month we used $1,347,500 of DM, incurred $25,000 of DL, and allocated $290,600 of MOH.• STEP 1: Summarize the flow of physical units.How many physical units did we work on during the month? 420,000Where did they come from? 385,000 we began working on + 35,000 already in WIPWhere did they go? Completed and Transferred Out (C&TO) and Finished GoodsUnits in Beginning WIP 35,000Units completed during period 400,000Units in ending WIP (60% complete) 20,000Total manufacturing costs for the period ($122,500 related to DM)$136,500Units in Ending WIP calculated by: Beginning Inventory + Started Goods = Ending Inventory + Completed and Transferred Out35,000 + 385,000 = x + 400,000 x = 20,000STEP 2: Compute output in terms of equivalent units.400,000 (units completed) + (20,000 x .60) [units in ending WIP with percent complete] = 412,000 unitsWhat is the EU for DM?20,000 x 60% = 12,000 units400,000 x 100% = 400,000 unitsTotal EU = 412,000What is the EU for Conversion? 20,000 x 60% = 12,000 units400,000 x 100% = 400,000 unitsTotal EU = 412,000STEP 3: Calculate the cost per equivalent unit. (your textbook breaks this down into 2 separate steps)How much did it cost to produce one finished unit in this department? DM ConversionCosts in Beg. Inv 122,500 14,000Costs Added 1,347,500 315,600Total Cost 1,470,000 + 329,600 1,799,600Divided by: Total EU 412,000 412,000Cost/EU $3.57 $0.80 $4.37/unit*315,600 = 290,600 (MOH) + 25,000 (DL)• STEP 4: Assign costs to the units.What is the Ending WIP balance? How much cost is transferred to the next department?20,000 x .60 = 12,000 units in Ending WIP12,000 units x $4.37/unit =


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UGA ACCT 2102 - Process Costing, Part II

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