Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed
Download 1.72 Mb. View original pdf
|
| 3 See the answer to 1 42 © Pearson Education Limited 2012 C HAP TE R 4 Process-costing systems Teaching tips and points to stress Illustrating process costing Before discussing process costing, it is helpful to review the mechanics of WA and first-in, first- out (FIFO) cost flow assumptions in a simple financial accounting context Opening stock 200 units @ €1 Purchases 100 units @ €3 What is the cost/unit of 250 units sold Weighted average 200 @ €1 = €200 100 @ €3 = €300 300 €500 → €500/300 = unit FIFO We first sell the 200 units of opening stock which are costed at €1 each. The next 50 units are from current purchases, costed at €3 each. WA mingles the opening stock with the current cost layers while FIFO keeps the layers distinct. These cost flow assumptions work the same way in process costing. Case 1 Without WIP, process costing is quite straightforward because the cost/unit simply equals total costs/total units. When there are no partially complete units, no EU calculations are needed. Ask students what kinds of firms would be likely to fit Case 1 (process costing with no WIP stock firms with highly perishable stock (e.g. many food processors, milk processors, newspaper publishers, etc, financial service firms that must process transactions daily (e.g. bank deposits or withdrawals, firms that have adopted virtually no WIP stock. What kinds of firms would not meet the criteria for Case 1? Those for whom the nature of the business dictates large WIP stock (e.g. wineries, textiles. Case 2 The second case adds the complication of closing WIP. Remind students that the overall goal is to calculate manufacturing cost/unit: Total manufacturing cost number of units Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 Partially completed closing WIP complicates this calculation. The four-step procedure shows how to use EU to adjust for incomplete units. Suggest that students draw timelines of the production processes for process-costing problems to clarify what costs will have to be added to this period to complete the units. The February timeline for defence is Download 1.72 Mb. Share with your friends:
|