管理会计英文讲义 管理会计Session 8 Process costing

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1、管理会计英文讲义 管理会计Session 8 Process costingSession 8 Process costingMain contents 1. Process costing2. Losses in process costing3. Losses with scrap value4. Loss with a disposal cost5. Valuing closing work in process6. Valuing opening in progress: FIFO & Weighted average cost method8.1 Process costin

2、g:Process costing is a costing method used when it is not possible to identify separate units of production, or job, usually because of the continuous nature of the production processes involved.Conversion cost = direct labour + production overheadsFeatures of process costing The output of one proce

3、ss becomes the input to the next until the finished product is made in the final process The closing work in process must be valued. There is often a loss in process due to spoilage, wastage, evaporation and so on Output from production may be a single product, by-product or joint productProcess 1 a

4、ccount Unit$ Unit$Direct materials100050000Output to process 2100090000Direct labour20000Production overhead20000100090000100090000Process 2 accountUnit$ Unit$Materials from process 1100090000Output to finished goods1000150000Added materials30000Direct labour15000Production overhead15000100015000010

5、001500008.2 Losses in process costingNormal loss is the amount of loss expected from the operation of a process. This expectation is based on past experience, and this loss is considered to be unavoidable.Abnormal loss is then extra loss resulting when actual loss is greater than normal or expected

6、loss, and it is given a cost.Abnormal gain is the gain resulting when actual loss is less than the normal or expected loss, and its is given a “negative cost”.Example 1Input to a process is 1000 units at a cost of $4500Normal loss is 10%There is no opening or closing stocks（1）output = 860 units（2）ou

7、tput = 920 unitsSolution:（1）output = 860 unitsStep 1: determine output and lossesunitsActual Loss 1000 units-860 units 140Normal Loss 1000 units x 10% 100 Abnormal loss 40Step 2: calculate cost per unit of output and lossesCost incurred = $4,500 = $5 per unitExpected output 1000 units x 90%The cost

8、per unit of output and the cost per units of abnormal loss are based on expected output.Step 3: calculate total cost of output and lossesCalculate total cost of output and losses; normal loss is not assigned any cost.Simply, total cost of output = total cost of input$Cost of output 860 units x $5 4,

9、300Normal loss 0Abnormal loss 40 units x $5 200Total cost 4500Step 4: complete accountsProcess account Unit$ Unit$Cost incurred10004500Normal loss1000 Output（finished goods a/c）860 x $54300 Abnormal loss40 x $5200 10004500Abnormal loss account Unit$ Unit$Process account40200Profit/loss account40200

10、40200 40200（2）output = 920 unitsStep 1: determine output and losses$Actual loss 1000 units 920 units 80Normal loss 1000 units x 10% 100 Abnormal gain 20 Step 2: calculate cost per unit of output and lossesCosts incurred = $4,500 = $5 per unitExpected output 900 unitsStep 3: calculate total cost of o

11、utput and losses$Cost of output 920 units x $5 4600Normal loss 0Less: abnormal gain 20 units x $5（100）Total cost 4500Step 4: complete accountsProcess accountUnit$ Unit$Cost incurred10004500Normal loss100Abnormal gain20 x $5100Output（finished goods a/c）920 x $546001000460010004600Abnormal gain accoun

12、t Unit$ Unit$Profit/loss account20100Process account201002010020100Example 2:Period 1: costs of input to a process = $29070Inputs = 1000 unitsOutputs = 850 unitsNormal loss = 10%Period 2: costs of input = $29070Inputs = 1000 unitsOutput = 950 unitsThere are no units of opening or closing inventorySo

13、lution:Step 1: determine output and lossesPeriod 1: UnitsInput 1000Actual output850 Actual loss150Normal loss100 1000 units x 10%Abnormal loss 50Period 2:UnitsInput 1000Actual output950 Actual loss 50Normal loss100 1000 units x 10%Abnormal gain 50 Step 2: calculate cost per unit of output and losses

14、Cost incurred = $29,070 = $32.30 per unitExpected output 900 unitsStep 3: calculate total cost of output and lossesPeriod 1:$Cost of output 850 units x $32.50 27455Normal loss 0Abnormal loss 50 units x $32.30 1615 Total cost 29070Period 2:$Cost of output 950 units x $32.30 30685Normal loss 0Less: Ab

15、normal gain 50 units x $32.30 （1615） Total cost 29070Process accountUnit$ Unit$Period 1Normal loss1000Cost of input100029070Output（finished goods a/c）850 x $32.3027455Abnormal loss50 x $32.301615100029070100029070Unit$Unit$Period 2Normal loss1000Cost of input100029070Output（finished goods a/c）950 x

16、$32.3030685Abnormal gain50 x $32.301615105030685105030685Abnormal loss or gain accountUnit$ Unit$Abnormal loss1615Abnormal gain1615161516158.3 Losses with scrap valueSolution procedure:1. Calculate the outputs and losse2. Calculate the cost per unit （using the total cost over expected output units）3

17、. Total the process costs4. Write up the process account and normal loss accountExample 3:Inputs = 3000 unitsMaterial = $11700Conversion cost = $6300Output = 2000 unitsNormal loss = 20%The units of loss could be sold for $1 eachSolution:1. Calculate the outputs and lossesUnitsInput 3000Normal loss 6

18、00 3000 units x 20%Expected units 2400Actual output2000 Abnormal loss 4002. Calculate the cost per unit$Scrap value of normal loss 600Scrap value of abnormal loss 400 1000Costs incurred = $（11700 600 + 6300） = $7.25 per unitExpected output 2400 unitsNotes: the scrap value of normal loss （$600） is us

19、ually deducted from the cost of materials3. Total the process costs$Output 2000 x $7.25 14,500Normal loss600 x $1600Abnormal loss 400 x $7.25 2900 18,0004. Write up the process account and normal loss accountProcess account Unit$ Unit$Material300011700Output200014500Conversion costs 6300Normal loss6

20、00600 Abnormal loss4002900 300018000 300018000Abnormal loss account $ $Process a/c2900Scrap value400 P & L2500 2900 2900Scrap value $ $Normal loss600Cash1000Abnormal loss400 1000 1000Example 4There are two production processes: cutting pastingNormal loss: 10% in each processScrapped units out of

21、 the cutting process sells for $3 per unit, whereas scrapped units out of the pasting process sell for $5 per unit.Cutting process Pasting processUnit $ Unit $Input materials 18000 54000Transferred to pasting process16000Materials from cutting process 16000Added materials14000 70000Labour and overhe

22、ads 32400135000Output to finish goods 28000Solution:（1） cutting process1. Calculate the outputs and lossesUnitsInput 18000Normal loss （1800） 18000 x 10%Expected units 16200Actual output （16000）Abnormal loss 2002. Calculate the cost per unit$Normal loss 188 units x $3 5400Abnormal loss 200 units x $3

23、600 Total scrap 2000 units x $36000Total cost Cost per expected$ unit of outputMaterials 54000Less: normal loss scrap value （5400） 48600 /16200 units 3Labour and overhead 32400 /16200 units 2 Total 81000 / 16200 units53. Total the process costs$Output 16000 x $5 80000Normal loss 1800 x $3 5400Abnorm

24、al loss200 x $5 1000 864004. Write up the process account and normal loss accountProcess 1 account Unit$ Unit$Materials 1800054000Output to pasting process16000 x $580000Conversion costs 32400Normal loss1800 x$35400 Abnormal loss200 x $51000 1800086400 1800086400（2） Pasting process1. Calculate the o

25、utputs and lossesUnitsInput 30000 16000 + 14000Normal loss3000 30000 x 10% Expected units27000Actual output 28000Abnormal gain10002. Calculate the cost per unit$Normal loss 3000 units x $5 15,000Abnormal loss 1000 units x $ 5 （5,000）Total scrap 2000 units x $5 100003. Total the process costs$Output

26、28000 x $10 280000Normal loss 3000 x $5 15000Abnormal gain 1000 x $10 （10,000）285,0004. Write up the process account and normal loss accountProcess 2 accountUnit$Unit$Materials from cutting process1600080000Finished output28000 x $10280000Added materials1400070000Normal loss300015000Direct labour135

27、000Abnormal gain1000 x $10100003100029500031000295000Abnormal loss accountUnit$Cutting process2001000Output600P & L40010001000Abnormal gain account$ Unit$Scrap value5000CashP & L 5000Pasting process1000100001000010000Scrap valueUnit$ Unit$Normal lossCashCutting process 1800 x $35400Sale of c

28、utting process（1800 + 200） x $36000Pasting process3000 x $515000Sale of pasting process（3000- 1000） x $510000Abnormal loss600Abnormal gain50002100021000Conclusion: In the first process, total cost of output = total cost of input, though there are losses in process and those loss with certain scrap v

29、alue The unit cost of abnormal loss and gain = the unit cost of good unit produced The scrap value of abnormal loss/gain is not accounted to the process account8.4 Loss with a disposal costExample 5Inputs = 1000 units, at a cost of $4,500Normal loss = 10%There are no opening and closing inventoriesO

30、utputs = 860 units, at disposal cost = $0.9 per unitSolution:UnitsInput 1000Normal loss 100 1000 units x 10%Expected units 900Actual output860Abnormal loss 40Cost incurred = $4500 +100 units x $0.9 = $5.1 per unitExpected output 900 unitsProcess accountUnit$ Unit$Cost of input10004500Normal loss1000

31、Disposal cost90Output （finished goods a/c）860 x $5.14386Abnormal loss40 x $5.12041000459010004590Abnormal loss accountUnit$ Unit$Process a/c 204 Disposal cost40 x 0.936P & L 240 240 240Notes: Increase the process costs by the cost of disposing of the units of normal loss and use the resulting co

32、st per unit to value good output and abnormal loss/gain. Only the disposal costs of normal loss includes into process account The disposal costs of abnormal loss includes into abnormal loss account.8.5 Valuing closing work in progressWIP equivalent units （EUS）Equivalent unitThe output for a period C

33、ompleted product Work-in-process productEquivalent unitsOnce processing has started on a unit of output, to the extent that it remains in an uncompleted state it can be expressed as a proportion of a completed unit.Extension of the equivalent units approachIt is unlikely that all inputs to productio

34、n will take place at the same time.Materials are frequently added at the beginning of a process, and so any closing WIP will have 100% of their direct material content. For other cases, materials might be added gradually throughout the process, in which case closing inventory will only be a certain

35、percentage complete as to material content.Direct labour and production overheads are assumed to be incurred at an even rate throughout the process. When we refer to a unit that is 50% complete, we mean that it is half complete for labour and overhead, although it might be 100% complete for material

36、s.Example 6Inputs = 1000 units at the total material cost of $6200, labour and overhead of $2850Finished goods = 800 unitsClosing WIP = 200 units, with 100% complete for materials and 25% complete for labour and overhead.Solution:Step 1: calculate the equivalent units Materials Labour and overheadTo

37、tal Degree of Equivalent Degree Of equivalent Units Completion units completion units Finished 800 100% 800 100% 800OutputClosing WIP 200 100% 200 25% 50 1000 1000850Step 2: calculate the average cost per equivalent unitsMaterials Labour and overheadCosts incurred in the period $6,200 $2,850Equivale

38、nt units of work done 1000 850Cost per equivalent units（approx） $6.20$3.3529Step 3: statement of evaluationMaterials Labour and overheadEquivalent Cost per Cost Equivalent Cost Per Cost TotalUnits equivalent unit Units equivalent CostFinished 800 $6.20 4960 800 $3.3529 2682 7642OutputClosing 200$6.2

39、0 1240 50 $3.3529168 1408WIP100062008509050Process account （WIP）Unit$ Unit$Materials10006200Finished goods8007642Labour overhead2850Closing WIP20014081000905010009050Example 7Process accountUnit$ Unit$Input 10000kg59150Finished goods8000kg52000Closing WIP2000kg715010000kg5915010000kg59150How many eq

40、uivalent units were there for closing WIP?A. 1000B. 1100C. 2000Solution:Cost per unit = Cost of finished goods = 52000 = $6.50Number of kg 8000If 2000kg （Closing WIP figure） were fully complete total cost would be 2000 x $6.5 = $13000. Actual cost of closing WIP = $7150Degree of completion = $7150/

41、$13000 = 55%Therefore, equivalent units = 55% * 2000 kg = 1100 kgFurther materials may be added gradually during the process, so that closing inventory is only partially complete in respect of these added materials.Example 8:Materials input from process 1： 4000 units at a cost of $6000Added material

42、s in process 2 cost $1080, conversion costs in progress are $1720.Closing WIP in progess 2 are 800 units, complete as to:Process 1 material 100%Add materials 50%Conversion costs 30%Required to prepare the account for process 2Solution:（1）Statement of equivalent unitsProcess 1 Added materials Labour

43、and overheadInputunits Output Total units Units % Units % Units %4000 Completed 3200 32001003200 1003200 100Production Closing 800 800 100 400 50 240 304000 Inventory 4000 40003600 3440（2） Statement of cost per equivalent units:Cost Equivalent production in units Cost per unit $Process 1 material 60

44、00 4000 1.5Add materials 1080 3600 0.3Conversion costs 1720 3440 0.5 88002.3（3） Statement of evaluation of finished work and costing inventoriesCost element Units Cost per equivalent unit Total CostCompleted production 3200 $2.3$7360Closing inventoryProcess 1material 800$1.5$1200Added material400 $0

45、.3 $120Labour and overhead 240$0.5 $120$1440 $8800（4）Process accountUnit$ Unit$Process 1 material40006000Finished goods32007360Add materials1080Closing WIP8001440Conversion costs172040008800400088008.6 Valuing opening in progress: FIFO & Weighted average cost methodAccounting for the changes in

46、the level of WIPThe FIFO methodThis method distinguish between units completed in the period that from the opening work in progress and those new items started and completed in the period.Procedure:1. Equivalent units:Total equivalent units consist of The completion of opening WIP Units started and

47、completed in the period The work done on closing WIP2. Costs to be accounted forCurrent cost added3. Costs per equivalent units4. Cost of finished gproduction Cost from opening WIP （value at the beginning of the period add conversion cost added in this period） Cost of the finished goods which started and completed in this period Value of closing WIP5. Complete the process accountExample 9Opening inventory 500 units. Degree with completion: 60%Cost to date: $2800Cost incurred: Direct materials （ 2500 units introduced） $13,200Direct labour $6600Production overhead $6600Closing inventory 30