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20-- The Purpose and Functioning of a Process Cost Accounting System - YouTube
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[Music]
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I'm Larry Walter this is principles of
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accounting dot-com chapter 20 in which
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we consider process costing and
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activity-based costing we'll begin by
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considering process costing recognize
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that the system we looked at in the
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previous chapter the job costing system
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that method does not work well in those
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situations where the production cycle
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involves the continuous flow of raw
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materials through various processing
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departments where the finished output is
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a homogeneous process or pool of output
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such as for example what refineries
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process crude oil into gasoline we don't
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really have discrete jobs or units or
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barrels instead we just have a pool of
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accumulated costs or accumulated
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products that are processed into a pool
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of finished output and so we need to
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revise our accounting system to
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accomplish the proper tracking of cost
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for production processes that occur in
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this fashion
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broadly speaking process costing
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accumulates the total cost of production
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and allocates it proportionately to
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output recognize that job costing and
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process costing while they're applied to
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different types of production the
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concepts are very similar that is we
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still have direct material direct labor
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and factory overhead cost that we must
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accumulate and assigned to output as
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production is completed amounts to
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remove from our working process accounts
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and transfer it into the finished goods
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inventory category however the cost
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capturing system is different recall
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under job costing costs were captured
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for each job using a job cost sheet
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whereas under process costing we're
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going to look more at the processes and
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cost are typically captured by process
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or department this will necessitate a
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separate working process account for
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each production activity or each process
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or major manufacturing activity as we
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will see now reviewing under a job
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costing system the job cost flows as we
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had raw materials that became direct
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materials in the production process we
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debited each of the respective job cost
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sheets job a for a portion of the
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materials used on job a
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similarly for job B&C likewise when we
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incur direct labor cost we credited wage
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payable and we debited the cost that was
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assigned to each particular job and then
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the factory overhead by some systematic
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and rational process we allocated to
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each of those jobs as jobs were
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completed such as for job a the working
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process account is credited and the
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finished goods inventory is debited as
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the job is completed now with process
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costing it actually looks somewhat
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similar in terms of the basic structure
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but notice for starters that the costs
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are not accumulated now by job but there
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instead accumulated by process so this
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reduction process wild a melting
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department and then adding a skimming
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and an alloy process and then finally a
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molding an extruding Department but the
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cost transfer is much the same for
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example for the materials as it's
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injected into production
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along the way we'll credit our raw
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materials inventory and debit the
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appropriate working process account the
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Department into which the material was
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injected if you will we would do the
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same thing for wages and overhead but as
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jobs are completed within each process
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the cost may be transferred to the
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subsequent activity and so I'm crediting
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ddddd the working process account for
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the cost that's being transferred to the
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skin alloy Department and similarly the
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EEE is transferred into the mold extrude
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and finally the finished goods coming
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out of the last production activity
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we're going to credit that last working
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process account and debit the finished
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goods inventory account as you can see
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in this illustration now the cost within
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each department is captured on a cost of
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production report we'll illustrate this
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over the next two modules but for now to
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summarize it provides a comprehensive
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information source about the material
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labor and overhead that's incurred or
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assigned to each department during a
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period whereas under job costing cost
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were tabulated on job cost sheets and
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we'll see how the cost of production
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report is built up over the next two
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modules
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