Managerial Accounting Chapter 4 Notes PDF

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in class lecture notes about Chapter 4. Professor Richard A. Minot...

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Managerial Accounting Chapter 4 Notes 9/18/21 Process Costing ● Differences between Job-Order Costing and Process-Costing ● Process Costing 1. A single product is produced either on a continuous basis or prolonged period of time. All units of product are identical. 2. Costs are accumulated by the department. 3. Unit costs are computed by department. ● Process costing is used for products that are: similar and produced continuously. ● Process departments Any unit in an organization where materials, labor, or overhead are added to the product. Processes performed uniformly, homogeneous ● The Flow of Materials, Labor and Overhead Costs: ● Direct materials, direct labor, and manufacturing overhead -> Work in Process -> Finished Goods -> Cost of Goods Sold ● Processing department: costs are traced and applied to departments in a process cost system. ● Flow of Raw Materials Cost Journal Entry Work in process - Department A XXXX Work in process - Department B XXXX Raw materials XXXX ● The Flow of Labor Costs Journal Entry Work in process - Department A XXXX Work in process - Department B XXXX Salaries and Wages Payable XXXX ● The Flow of Manufacturing Overhead Costs Journal Entry Work in process - Department A XXXX Work in process - Department B XXXX Manufacturing Overhead XXXX ● Transfers from Work in Process Department A to Work in Process Department B Journal Entry Work in Process - Department B XXXX Work in Process - Department A XXXX ● Transfers from Work in Process Department B to Finished Goods Journal Entry Finished Goods XXXX Work in Process Department B XXXX ● Transfers from Finished Goods Inventory to Cost of Goods Sold Journal Entry Cost of Goods Sold XXXX

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Finished Goods XXXX Process Costing Computations 1. There are two methods for performing the computations, the weighted-average method and the FIFO method. The weighted-average method of process costing calculates unit costs by combining costs and outputs from the current and prior periods. The FIFO method of process costing calculates unit costs based solely on the costs and outputs from the current periods. Characteristics of the Weighted-Average Method The weighted average method makes no distinction between work done in the prior and current periods. It blends together units and costs from the prior and current periods. The equivalent units of production for a department are the number of units transferred to the next department (or finished goods) plus the equivalent units in the department's ending work in process inventory. Conversion Costs Direct labor costs are often small compared to the other product costs in process cost systems. Direct labor head and manufacturing overhead are often combined into one classification of product cost called conversion cost. Equivalent Units The product of the number of partially completed units and the percentage completion of those units. Need to be calculated because a department usually has some partially completed units in its beginning and ending inventories. Equivalent units = number of partially completed units x percentage completion The number of complete units that could have been obtained from the materials and effort that went into the partially complete units. Equivalent units of production will always equal: units completed and transferred + equivalent units remaining in work in process Weighted-Average Method: Cost per equivalent unit = (cost of beginning work in process inventory + cost added during the period) / equivalent units of production Prepare a Cost Reconciliation Report Costs to be Accounted For Operation Costing A hybrid of job-order and process costing because it possesses attributes of both approaches. Commonly used when batches of many different products pass through the same processing department...