ACCT CH20

Here are detailed and comprehensive notes based on the contents of Chapter 20: Process Costing from the provided presentation:

Chapter 20: Process Costing

1. Process Operations Overview

Definition: Process operations involve the mass production of similar or identical items.
Characteristics:
- Continuous flow of sequential production processes.
- Standardized procedures to ensure efficiency and uniformity.
- Designed for large volume production.

2. Organization of Process Operations

Each process is treated as a separate production department.
Each department applies:
- Direct materials
- Direct labor
- Factory overhead
The final process in the sequence completes and transfers finished goods for sale.

3. Comparison: Process Costing vs. Job Order Costing

Criteria	Process Costing	Job Order Costing
Type of Products	Mass-produced, identical	Customized, unique
Production Flow	Continuous	Specific to job orders
Cost Accumulation	By process/department	By individual job
Cost Calculation	Per equivalent unit	Per job

4. Process Costing Steps (Weighted Average Method)

Step 1: Determine Physical Flow of Units

Identify units started, completed, and still in process (WIP).
Prepare a physical unit flow reconciliation.

Step 2: Compute Equivalent Units of Production (EUP)

EUP represents the number of complete units that could be produced with the costs incurred.
Conversion costs = Direct Labor + Overhead
EUP calculated separately for:
- Direct Materials
- Conversion Costs

Exercise Example:

Units started: 56,000
Units completed: 58,000
Ending WIP: 6,000 units (80% DM, 70% CC)
EUP for Direct Materials = 58,000 + (6,000 × 0.80) = 62,800
EUP for Conversion Costs = 58,000 + (6,000 × 0.70) = 62,200

Step 3: Compute Cost per Equivalent Unit

Formula:
Cost per Equivalent Unit=Total CostsEquivalent Units\text{Cost per Equivalent Unit} = \frac{\text{Total Costs}}{\text{Equivalent Units}}Cost per Equivalent Unit=Equivalent UnitsTotal Costs
Separate calculations for direct materials and conversion costs.

Step 4: Assign and Reconcile Costs

Assign costs to:
- Completed and transferred units
- Ending WIP inventory
Verify cost reconciliation between total costs and assigned costs.

5. Process Cost Report (Production Cost Summary)

Summarizes the entire four-step process.
Provides information for cost control and financial reporting.

6. Accounting for Process Costing

Materials Costs: Tracked per department.
Labor Costs: Allocated based on departmental labor used.
Factory Overhead: Applied using predetermined overhead rates.

Transfers Between Departments

Each department records the cost transfer to the next as a journal entry.
Example Entry:
- Dr. Finished Goods Inventory
- Cr. Work in Process Inventory – Shaping
- (To record transfer of completed goods)

Accounting for Cost of Goods Sold (COGS)

Journal entries reflect the movement from Finished Goods to COGS when sold.

7. Financial Statement Reporting

Includes:
- Raw materials inventory movement.
- Work in process balances per department.
Example calculation:
Beginning Raw Materials+Purchases−Requisitions=Ending Balance\text{Beginning Raw Materials} + \text{Purchases} - \text{Requisitions} = \text{Ending Balance}Beginning Raw Materials+Purchases−Requisitions=Ending Balance

8. Hybrid Costing System

Definition: Combines elements of process and job order costing.
Purpose:
- Standardize processes while accommodating customization.
- Improve cost control and accuracy.
Used in industries requiring mass customization.

Yield

Yield = Output ÷ Input
Measures efficiency of a production process.

9. Exercises Summary

Exercise 1 & 2: Compare job order vs. process costing; classify product types.
Exercise 3: Prepare physical unit flow reconciliation.
Exercise 4: Compute EUP using weighted average method.
Exercise 5: Journal entry for transferring finished goods.
Exercise 6: Cost per equivalent unit; assign costs to completed and WIP units.