Presentation on theme: "CHAPTER 17 Process Costing Spoilage, Rework, and Scrap."— Presentation transcript: 1 CHAPTER 17 Process Costing Spoilage, Rework, and Scrap
2 Job versus Process Costing 3 Process Costing Process costing is a system where the unit cost of a product or service is obtained by assigning total costs to many identical or similar units.
Each unit receives the same or similar amounts of direct materials costs, direct labor costs, and manufacturing overhead. Unit costs are computed by dividing total costs incurred by the number of units of output from the production process. 3 4 General
Ledger Cost Flows Illustrated 5 Process-Costing Assumptions 6 Five-Step Process-Costing Allocation 7 Equivalent Units A derived amount of output units that:
8 Steps 1 and 2 Illustrated 9 Steps 3, 4, and 5, Illustrated
10 Weighted-Average Process-Costing Method 11 Weighted-Average Process-Costing Method 12 Steps 1 and 2 Illustrated 13 Steps 3, 4,
and 5 Illustrated 14 Result of the Process Two critical figures arise out of step 5 of the cost allocation process: The amount of the journal entry
transferring the allocated cost of units completed and sent from work-in-process inventory to finished goods inventory The ending balance of the work-in-process inventory account that will appear on the balance sheet 15 First-in, First-Out Process-Costing
Method
16 First-in, First-Out Process-Costing Method
17 Steps 1 and 2, Illustrated 18 Steps 3, 4, and 5, Illustrated
19 Result of the Process (As Before) 20 Transferred-In Costs Are costs incurred in previous departments that are carried forward as the products cost when it moves to a subsequent process in the production cycle. Also called previous department
costs. Journal entries are made to mirror the progress in production from department to department. Transferred-in costs are treated as if they are a separate type of direct material added at the beginning of the process. 21 Steps 1 and 2, Illustrated
22 Steps 3, 4, and 5, Illustrated 23 Steps 1 and 2, Illustrated
24 Steps 3, 4, and 5, Illustrated 25 Hybrid Costing Systems 26 Spoilage, Rework, and Scrap 27 Basic Terminology Spoilage—units of production, either fully or partially completed, that do not meet the specifications required by customers for good units and that are discarded or sold for reduced prices
28 Basic Terminology Rework—units of production that do not meet the specifications required by customers but which are subsequently repaired and sold as good finished goods. Scrap—residual material that results from manufacturing a product. Scrap has low total sales value compared with the total sales value of the
product. 29 Accounting for Spoilage 30 Types of Spoilage Normal spoilage is spoilage inherent in a
particular production process that arises under efficient operating conditions. Costs of normal spoilage are typically included as a component of the costs of good units manufactured because good units cannot be made without also making some units that are spoiled. Management makes a conscious decision about the production rate per hour which will generate a certain level of normal spoilage.
31 Types of Spoilage Abnormal spoilage is spoilage that is not inherent in a particular production process and would not arise under normal operating conditions. Abnormal spoilage is considered avoidable and controllable. Units of abnormal spoilage are calculated and recorded in the loss from abnormal spoilage
account, which appears as a separate line item no the income statement. 32 Process Costing and Spoilage 33 Inspection Points and Spoilage 34 The Five-Step Procedure for Process Costing with Spoilage 35 The Five-Step Procedure for Process Costing with Spoilage 36 Steps 1 and 2 Illustrated
37 Steps 3, 4, and 5 Illustrated 38 Steps 1 and 2, Illustrated
39 Steps 3, 4, and 5, Illustrated
40 Number of Units of Normal and Abnormal Spoilage Changes, Depending on When Inspection Occurs |