Kế toán, kiểm toán - Chapter 5: Process costing and operation costing

Chapter 5Process costing and operation costing1Product costing systemsJob costing and process costing are two extremes of the continuum of conventional product costing systemsJob costing systems accumulate the costs of each jobProcess costing systems accumulate the cost of each process, then average these costs across all units producedMany businesses use a combination of job and process costing—hybrid costing2Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costingUsed by businesses that mass-produce one product or a small range of almost identical productsInvolves a number of processes that are performed repetitivelyUsed by oil refineries, food processors, manufactures of tobacco, chemicals and paperAlso used by producers of repetitive services— routine processing of cheques in banks and delivery of standard letters in Australia Postcontinued3Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costingTwo main stepsEstimate the cost of the production processCalculate the average cost per unit by dividing the cost of the process by the number of units producedProcess costing can be used in situations where there is no opening or closing WIP inventory (see Chapter 4)More complex process costing takes place where there is WIP inventory4Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing with WIPWIP inventoryProduct is not complete at the beginning or end of the monthProduction costs will relate toUnits started in the previous period and completed in current period (beginning WIP)Units started and completed in the periodUnits that are incomplete at the end of the period (ending WIP)continued5Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing with WIPPartially-completed goods at the beginning or end of the period change the way we allocate production costsEquivalent unitsThe amount of production inputs that have been applied to the physical units in productionPhysical units are all units currently in production whether complete or incompleteWIP inventory needs to be converted to equivalent unitscontinued6Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing with WIPLabour and overhead are incurred at different stages of the production processUnits in ending WIP are generally at different stages of completion in respect to material and labour7Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCalculation of equivalent units for ending WIPIf WIP is 50% complete for 10,000 litres on hand at the end of the month:100% complete for direct materials, which are added at the start of the process  10,000 equivalent units of material50% complete for conversion costs, assuming that conversion costs occur uniformly across the production process  5,000 equivalent units of conversion costEquivalent units are used to calculated unit costs when there is WIP8Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithThe effect of beginning and ending WIPFour steps in process costing1. Analyse the physical flow of units2. Calculate the equivalent units3. Calculate the unit costs4. Analyse the total costsProduct are costed using eitherWeighted average methodFirst in first out (FIFO) method9Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing using the weighted average methodStep one: analyse the physical flow of unitsPhysical units in beginning WIPPhysical units startedPhysical units completed and transferred outPhysical units in ending WIP=-+continued10Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing using the weighted average methodStep two: calculate the equivalent unitsThe equivalent units in beginning WIP are not identified separately, a key feature of weighted average cost methodEquivalent units completed and transferred outEquivalent units in ending WIPTotal equivalent units+=continued11Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing using the weighted average methodStep three: calculate the unit costsThe cost per equivalent unit for direct material is the total direct material (conversion costs) costs divided by the total equivalent unitsUnder the weighted average method the cost per equivalent unit is based on the total costs incurred, including the cost of beginning WIPStep four: analyse the costs12Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith13Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith14Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith15Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing using the FIFO methodIt is assumed that the oldest inventory is completed before new production commencesStep one: analyse the physical flow of unitsIdentical to the weighted average methodStep two: calculate the equivalent unitsUnder FIFO, equivalent units in opening WIP are subtracted from total equivalent units to give new units of productioncontinued16Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith17Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing using the FIFO methodStep three: calculate the unit costsCost per equivalent unit is calculated for direct material (or conversion cost) by dividing the direct material cost incurred during the current month only by the new equivalent units added during the current month only.Step four: analyse total costsAssumes that the units in beginning inventory are completed and transferred out firstCost of the beginning WIP are not mixed with those incurred during current month18Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith19Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith20Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith21Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithComparison of weighted average vs. FIFOKey difference is the treatment of the beginning WIPUnder weighted average costs, cost of beginning WIP and equivalent units of work done on it are included in the calculation of the cost per equivalent unitUnder FIFO, cost per equivalent unit is based only on costs incurred in the current monthWeighted average is more commonly usedSimpler and WIP inventory may be negligible22Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing and spoilageSpoilage cost: the cost of defective product and wasted resources that cannot be recovered by rework or recyclingWhen spoilage occurred there are three forms of outputUnits completed and transferred outSpoiled units, andUnfinished units remaining in WIPSpoiled units are costed using cost per equivalent unit along with other two outputscontinued23Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProcess costing and spoilageSpoilage is accounted for depending on whether it is normal or abnormalNormal spoilage: inherent in the production process and occurs even under efficient operating conditionsIncluded as part of the cost of good units completedAbnormal spoilage: should not occur under efficient operating conditionsCost of abnormal spoilage are expensed24Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithOperation costingSome businesses have repetitive production processes, but produce a narrow range of products that differ in some significant aspectsIn batch manufacturing processes, individual product lines are produced in large batches and require specific combinations of direct materials and a specific sequence of production processescontinued25Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith26Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithOperation costingHybrid costing has features of both job costing and process costingOperation costing is used to estimate product costs in a batch manufacturing environmentDirect costs are assigned to individual batches —a job costing approachConversion costs are accumulated by department—a process costing approach27Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithOther issues in process costingStandard costs are more likely to be used that actual costsProcess costing and operation costs are consistent with concepts of responsibility accountingProcesses or operations are usually performance in different departments, and Departmental managers may be held responsible for the department’s costs and output producedcontinued28Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithOther issues in process costingA pre-determined overhead rate may be used in process costing and a pre-determined conversion cost rate in operation costingProduction units are usually used as the cost driver in process costing and operation costingInputs may be used as cost drivers in operation costingcontinued29Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithOther issues in process costingThe percentage of completion is difficult to determine and is often only a rough estimateIn service firms, some routine repetitive or similar services can be costing using process or operation costing30Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith