Ch 18 Flashcards
What is the difference between Job-Costing and Process-Costing?
Job-Costing: Used for distinct, identifiable products (e.g., custom machines, houses). Costs are allocated to individual jobs.
Process-Costing: Used for homogeneous products (e.g., food, chemicals). Costs are averaged over all units produced.
What is the weighted-average method in process costing?
A method that averages costs from both the current and prior periods to calculate the cost per unit. Useful when beginning inventory is zero.
How does the weighted-average method handle beginning and ending WIP?
The method averages the cost of beginning WIP and new costs incurred during the period to compute a single cost per unit.
How are journal entries different when ending WIP inventory is present?
Debit Finished Goods Inventory
Credit Work-in-Process Inventory (for completed units)
Ending WIP remains in inventory.
How are journal entries different when no ending WIP inventory exists?
Debit Finished Goods Inventory
Credit Work-in-Process Inventory (for completed units)
No WIP balance remains.
What is the FIFO method in process costing?
FIFO (First-In, First-Out) assigns costs from the previous period’s WIP to the first units completed in the current period.
What are the steps to apply FIFO in process costing?
Assign costs from prior period WIP to first units completed.
Assign costs of new units started and completed.
Assign costs to units in ending WIP.
How does FIFO differ from weighted-average in cost allocation?
FIFO separates prior period costs from current period costs, while weighted-average combines all costs into a single average cost.
When is the weighted-average method most useful?
Ideal when production is consistent, and there are no significant changes in costs between periods.
How does FIFO provide more accurate cost allocation?
FIFO differentiates costs from prior and current periods, providing a more precise cost allocation, especially when costs fluctuate.
How does standard costing simplify inventory valuation?
Standard costing uses predetermined costs, reducing the complexity of cost calculations and improving efficiency.
How does standard costing account for variances?
The difference between actual and standard costs is tracked to evaluate performance and control costs
What is the role of hybrid costing systems?
Combine job-order and process costing methods to handle production systems that are both customized and mass-produced (e.g., Ford’s automobiles).
What are transferred-in costs?
Costs incurred in previous departments that are carried forward as products move through the production process.
How does the weighted-average method treat transferred-in costs?
Transferred-in costs are included as part of the total cost of units moving from one department to the next, treated like direct materials.
How does FIFO handle transferred-in costs?
Transferred-in costs from prior departments are treated separately and assigned to units based on the sequence they were processed.
What are the steps to calculate the cost of goods manufactured under the weighted-average method?
Calculate the total costs (beginning WIP + new costs).
Divide by the total equivalent units to find the cost per unit.
Multiply by the number of completed units to determine the cost of goods manufactured.
How do you calculate the cost of goods transferred out using the weighted-average method?
Multiply the equivalent units completed by the cost per equivalent unit calculated under the weighted-average method.
How do you handle ending WIP when calculating the cost of goods manufactured?
Ending WIP: The cost of ending WIP is calculated separately, considering the degree of completion for direct materials and conversion costs.
When should you use FIFO versus weighted-average method?
FIFO: Use when you need more accurate cost tracking for products and want to differentiate between prior and current period costs.
Weighted-Average: Use for simplicity and when the cost per unit doesn’t vary significantly between periods.
What is the main advantage of FIFO in process costing?
Advantage of FIFO: More precise cost allocation due to separating prior and current period costs, especially useful when there are significant changes in material or labor costs.
How does FIFO ensure that the oldest inventory is accounted for first?
FIFO Method: The oldest costs (from beginning WIP) are transferred out first, making FIFO ideal for industries with fluctuating costs.
How does standard costing help in controlling costs?
Control: By comparing actual costs to standard costs, managers can identify variances and take corrective actions to control costs.
What is the main limitation of using the weighted-average method?
Limitation: The weighted-average method may obscure cost fluctuations from period to period, which can reduce the accuracy of cost allocation.
Why is process costing used in mass production industries?
Reason: Process costing is ideal for industries where large volumes of identical products are produced, and costs are allocated uniformly to each unit.
Application: Assign costs using weighted-average when beginning WIP is zero
Scenario: A company produces 1,000 units during a period, and total production costs are $5,000. Apply the weighted-average method to calculate the cost per unit.
Application: Apply FIFO to process costing with beginning WIP
Scenario: A company has 500 units in beginning WIP and produces 1,000 units. Apply FIFO to assign costs to the units completed and transferred out.
Application: Use FIFO to handle transferred-in costs
Scenario: A company’s work moves from Department 1 to Department 2. Assign transferred-in costs from Department 1 to units in Department 2 using FIFO.
Application: Calculate the cost of goods transferred out using weighted-average
Scenario: A company has completed 1,200 units, with a total of $6,000 in production costs. Use the weighted-average method to calculate the cost of goods transferred out
Application: Compare FIFO and weighted-average methods for cost allocation
Scenario: A company faces rising costs. Compare how FIFO and weighted-average would allocate costs to finished goods and ending WIP inventory.
Application: Determine the impact of ending WIP on the cost of goods manufactured
Scenario: A company has 200 units in ending WIP, with partial completion for materials and labor. Calculate how this affects the cost of goods manufactured.
Application: Calculate and analyze variances using standard costing
Scenario: A company has set a standard cost of $50 per unit but incurred actual costs of $55. Calculate the variance and analyze its significance.
Application: Calculate transferred-in costs using the weighted-average method
A product moves from one department to another. The cost from the first department is transferred in. Apply the weighted-average method to allocate these costs to the next department.
Application: Apply hybrid costing for customized production
A company manufactures cars with standard components but customizes certain features (e.g., engine size, transmission). Use hybrid costing to allocate the costs of standard vs. customized parts.
