Process Cost System
- Large Volume of SIMILAR and MASS PRODUCED PRODUCTS are manufactured
- Costs are accumlated for a TIME PERIOD (week or month)
- Costs are assigned to DEPARTMENTS or Processes for a specified period of time
Vergleich: Job Order Cost System
- Cost are assigned to each job or batch
- Measures costs for each job completed - not for a set of time !!!
Job Order Cost System vs. Process Cost Flow
- Number of Work in Process accounts
- Documents used
- Determination of total manufacturing cost
- Unit-Cost Computations
Manufacturing Overhead Costs
in Process Cost System
- Objective of assigning overhead is to allocate overhead to production departmens on objective and equitable basis
- Use the activity that “DRIVES” or CAUSES THE COST
Weighted-Average Method
Basic Method
- Weighted Average Method considers the degree of completion of
- units completed and transferred out
- and units in ending work in process
- Beginning-WiP NOT part of the calculation of equivalent units
- Most widely used method
Conversion Cost
Labor Cost + Overhead Cost
Refiinements Weighted-Average Method
Production Cost Report
- Key Document used to UNDERSTAND activities
- Prepared for EACH DEPARTMENT
- Shows Production Quantity and Cost data
- Four Steps in Preparation:
- Step 1: Compute Physical unit flow
- Step 2: Compute equivalent units of prod
- Step 3: Compute unit production costs
- Step 4: Prepare a cost reconciliation schedule
Step 1: Compute the Physical Unit Flow
Physcial Units:
- actual Units to be accounted for during a period
- regardless of work performed
Total units TO BE accounted for:
WiP 01/01
+ Started into Production
=Total Units to Be Accounted for
- units started (or transferred) into production during the period + unit in production at the beginning of period
Total units accounted for:
Units Transferred out
+ WiP 31/12
= Total Units accounted for
- Units transferred out during the period + units in process at the end of period
Step 3: Compute Unit Production Costs
- Cost expressed in terms of equivalent units of production
- Three Unit costs are computed (when equivalent units of production are different for materials and for conversion costs)
- Materials
- Conversion
- Total Manufacturing
Step 4: Prepare a Cost Reconciliation Schedule
Equivalent Units Under FIFO
What is an equivalent unit?
We assume that the “beginning WiP” is completed BEFORE new work is started
Sum of the work performed to:
- Finish the unit of beginning WiP inventory
- Complete the units started into production during the period (“units started and completed”)
- The units in ending WiP inventory (-> started but only partially finished)
FIFO and Weighted Average
Similarities and Differences Between
Job Order Cost and
Process Cost System
