ACCT 2102 1st Edition Lecture 16 Outline of Last Lecture I Equivalent Units Continued II Ruffle s Department 1 Example Outline of Current Lecture III Ruffle s Department 2 Example IV Important Notes Current Lecture Process Costing Part III Chapter 5 III Example Now let s move on to Ruffle s second processing department Draining and Packaging In this department salt is added to the draining chips towards the beginning of the process and then the chips are put into individual packages and cased at the very end of the process The transferred in costs are treated as if they were a material added at the beginning of the process all units are 100 complete with respect to the transferred in cost We do everything the same as in the first processing department except we add one more cost category on the production cost report for transferred in EU and costs The units were as follows Beg WIP Department 2 100 000 units Transferred in from the previous department 400 000 units Completed and Transferred out to finished goods 450 000 units The costs were as follows Beg WIP Draining Packaging Dept 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 Transferred in cost in beginning balance 430 000 DM cost in beginning balance 10 000 Conversion cost in beginning balance 25 000 Balance in Beg WIP 465 000 Manufacturing costs incurred during the period Transferred in from the previous department 1 748 000 Direct materials used 895 000 Conversion costs DL and MOH 217 500 Total costs entered into production during the period 2 860 500 1 748 000 400 000 units complete x 4 37 unit IV Important Notes to Remember A company can choose to do job order costing or process costing Job order costing is indicated by customization and the cost object if the job MOH in this process can be actual or normal Normal indicates that there is an applied MOH and you will have to calculate the POHR for the whole company With applied MOH you record costs sooner than later but they can be less accurate thus you need to reconcile them Process costing can be done with actual or normal costing Why choose process costing It is determined by the operating environment No customization for process costing Homogeneous products that pass through a series of processes where they receive similar amounts of costs A process is an activity that brings the product closer to completion The cost object in this case is the processing department There are issues we need to address before moving on WIP holds units that aren t finished Presence of WIP presents two issues 1 How much cost has already been incurred on the units in beginning WIP Weighted average or FIFO 2 How much cost should be assigned to the units in ending WIP Equivalent Units Addressing beginning WIP Weighted Average which we will use o Beginning WIP is pooled with current period activity o Units are valued by averaging costs from prior period and costs from the current period o Easier but less accurate o The sum of the cost divided by the output equals the unit cost FIFO Method o Beginning WIP is separated from the current period activity o Units in BWIP are valued by combining the unit cost from the prior period with the unit cost from the current period o Units in EWIP are valued using the unit cost from the current period o Harder but more accurate There is no difference if costs do not vary from period to period Addressing EWIP A unit Completed and Transferred Out C TO during the period is NOT EQUIVALENT to a unit in EWIP so the cost attached to these two units should not be the same We need a way to measure a department s output to properly reflect the resources expended on both completed and partially completed units o EU PU x Complete We have two goals as a manufacturer 1 Determine cost assigned to units in EWIP reported on the Balance Sheet 2 Determine cost assigned to units C TO recorded in a journal entry To accomplish these goals we will use a production cost report to reconcile Units o Units to account for PU aka where they came from Units accounted for PU aka where they went o Beginning Inventory Started Goods Ending Inventory C TO Costs o Costs to account for Costs accounted for o Costs in BWIP Costs Added During the Period Total Manufacturing Cost and possibly Transferred In costs Costs in Ending Inventory Costs C TO COGM Production Cost Report The report has four parts o Physical Unit Reconciliation PU o Equivalent Unit Calculation EU o Cost per EU Calculation cost EU o Assignment of Costs to EWIP and C TO EU x cost EU EU PU x Completed Conversion DL MOH