ACCT 312 CH 6

Operational Process System

• Characterized by a large number of homogeneous products passing through a series of processes

• May require materials, labor, and overhead inputs

• Upon completion of a particular process, the partially completed goods are transferred to another process

Process-costing system

• Accumulates production costs by process

• Transferred-in cost: Cost transferred from a prior process to a subsequent process

• Has a work-in-process (WIP) account for every process

Job-order costing system

• Accumulates production costs by job

• Uses a single WIP account

Production Report

• Traces the flow of units through a department and identifies the costs charged

• Shows the computation of unit costs and reveals the disposition of the department’s costs for the reporting period

• Divided into unit information and cost information sections

• Unit information section:

• Units to account for

• Units accounted for

Unit Costs

• Key input to the cost of production report

• Presence of significant work-in-process inventories complicates cost and output definitions needed for unit cost calculation

JIT Manufacturing Firms

• Emphasize continuous improvement and the elimination of waste

• Strive to minimize inventories

• Objective - Simplification

• Create work cells that produce a product or subassembly from start to finish

• Unit costs are computed by dividing the costs of the period by output of the period

Equivalent Units of Output

• Complete units that could have been produced given the total amount of productive effort expended for the period under consideration

• Every transferred-out unit is an equivalent unit

Physical flow schedule

• Provides an analysis of the physical flow units

• Calculation of the period’s equivalent units

• Unit cost calculation

• Valuation of inventories

Cost reconciliation

Costs in beginning WIP and costs incurred during the current period should equal the total costs assigned to goods transferred out and to goods in ending WIP

FIFO Costing Method

• Equivalent units and manufacturing costs in beginning work in process are excluded from the current period unit cost calculation

• Recognizes that the work and costs carried over from the prior period legitimately belong to that period

Categories of completed units

• Beginning work-in-process units

• Units started and completed during the current period

Weighted Average Costing Method

• Treats beginning inventory costs and accompanying equivalent output as if they belong to the current period

• Merges prior period output and manufacturing costs found in beginning work in process with the current period output and manufacturing costs

Weighted Average Method VS FIFO

• The output is calculated

• What costs are used for calculating the period’s unit cost

Advantage of WAM- simplicity

Disadvantage - May impair accuracy and performance measurement

Treatment of Treansferred-In Goods

• Cost of this material is the cost of the goods transferred out computed in the prior department

• Units started in the subsequent department correspond to the units transferred out from the prior department

• Units of the transferring department may be measured differently than the units of the receiving department

• Goods transferred in must be converted to the units of measure used by the second department

Operation Costing

• Blend of job-order and process-costing procedures applied to batches of homogeneous products

• Uses job-order procedures to assign direct materials costs to batches

• Uses process procedures to assign conversion costs

Work orders

Are used to collect production costs for each batch and initiate production