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Lecture Advanced management accounting - Chapter 12

After completing this unit, you should be able to: Decentralisation and responsibility accounting, responsibility centres, new developments in organisational structuring, financial performance reports, transfer pricing. | Lecture 12: Process Costing (Equivalent Unit of Production) Learning Objectives Record the flow of materials, labor, and overhead through a process cost system. Compute the equivalent units of production using the weighted-average method. Compute the cost per equivalent unit using the weighted-average method. Assign costs to units using the weighted-average method. Compute the equivalent units of production using the FIFO method. Compute the cost per equivalent unit using the FIFO method. Assign costs to units using the FIFO method Allocate service department costs to operating departments using the direct method. To allocate service department costs to operating departments using the step-down method. 2 Equivalent Units of Production Equivalent units are the product of the number of partially completed units and the percentage completion of those units. We need to calculate equivalent units because a department usually has some partially completed units in its beginning and ending inventory. 3 4-3 3 Partially completed units complicate the determination of a department’s output for a given period and the unit cost that should be assigned to that output. Equivalent units need to be calculated because a department usually has some partially completed units in its beginning and ending inventory. These partially completed units complicate the determination of a department’s output for a given period and the unit cost that should be assigned to that output. Equivalent Units – The Basic Idea Two half completed products are equivalent to one completed product. So, 10,000 units 70% complete are equivalent to 7,000 complete units. + = 1 4 4-4 4 The basic idea behind equivalent units is quite easy to understand, but the computation of equivalent can become complex. Here we can say the two half- completed units of production are equal to one completed unit. Using this logic, we can say that 10,000 units that are 70% complete are equivalent, or the same as, 7,000 complete . | Lecture 12: Process Costing (Equivalent Unit of Production) Learning Objectives Record the flow of materials, labor, and overhead through a process cost system. Compute the equivalent units of production using the weighted-average method. Compute the cost per equivalent unit using the weighted-average method. Assign costs to units using the weighted-average method. Compute the equivalent units of production using the FIFO method. Compute the cost per equivalent unit using the FIFO method. Assign costs to units using the FIFO method Allocate service department costs to operating departments using the direct method. To allocate service department costs to operating departments using the step-down method. 2 Equivalent Units of Production Equivalent units are the product of the number of partially completed units and the percentage completion of those units. We need to calculate equivalent units because a department usually has some partially completed units in its beginning and ending