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UGA ACCT 2102 - Process Costing, Part III
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ACCT 2102 1st Edition Lecture 16 Outline of Last LectureI. Equivalent Units ContinuedII. Ruffle’s Department 1 ExampleOutline of Current Lecture:III. Ruffle’s Department 2 ExampleIV. Important NotesCurrent Lecture: Process Costing, Part III (Chapter 5)III. ExampleNow 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 ofthe 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 unitsTransferred-in from the previous department 400,000 unitsCompleted and Transferred-out to finished goods 450,000 unitsThe 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 $25,000Balance in Beg WIP $ 465,000Manufacturing costs incurred during the period: Transferred in from the previous department $1,748,000 Direct materials used $895,000 Conversion costs (DL and MOH) $217,500Total costs entered into production during the period $2,860,500*1,748,000 = 400,000 units complete x $4.37/unitIV. 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 departmentThere 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 activityo Units are valued by averaging costs from prior period and costs from the current periodo Easier, but less accurateo The sum of the cost divided by the output equals the unit cost- FIFO Methodo Beginning WIP is separated from the current period activityo Units in BWIP are valued by combining the unit cost from the prior period with the unit cost from the current periodo Units in EWIP are valued using the unit cost from the current periodo 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 aunit 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 % CompleteWe 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:- Unitso 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- Costso Costs to account for = Costs accounted foro 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 % CompletedConversion = DL +


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UGA ACCT 2102 - Process Costing, Part III

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