Ch4: product costing systems Flashcards
What are product costing systems for and how might they differ for internal vs external purposes?
Product costing systems used to determine costs - can include upstream and downstream, manufacturing costs for decision making. For external reporting -> only manufacturing costs are included (eg. inventory valuation).
How should costing decisions by decided upon?
Costing systems should be chosen based on the organisational context and needs of management.
What are the requirements for external reporting in terms of costing systems?
External financial reporting - needs standardised system to compare across organisations.
Upstream and downstream costs are expensed as period costs.
Internally they may be included in product costs for decision making purposes.
What are the three types of costing systems? What are their characteristics?
Job costing - produced individually on in batches, unique products
process costing - repetitive, massed produced, identical or very similar
hybrid - combination of both
What are the steps of process costing?
- estimate cost of production processes
2. calculate the average cost per unit by dividing cost of processes by units produced
How are process costs transferred between other sequential processes or departments?
when there are sequential processes or departments, costs are transferred from one department to the next at an average unit cost for the department.
What material is recorded on a job costing sheet?
Direct labour
Direct materials
Manufacturing overhead - may be complex to allocate
What is the inventory flow with job costing?
DM/DL/OH -> WIP inventory -> finished goods inventory -> cost of goods sold.
What is journal entry for: purchasing materials
Dr Raw material inventory Cr accounts payable/cash
What is journal entry for: transferring direct material to jobs
Dr WIP inventory Cr Raw material inventory
What is journal entry for: charging direct labour to jobs
Dr WIP inventory Cr Cash/Wages Payable
What is journal entry for: completion of production job
Dr Finished goods inventory Cr WIP inventory
What is journal entry for: sales of goods
Dr COGS Cr Finished goods inventory
Dr Cash/Accounts Receivable Cr sales revenue
What is journal entry for: non manufacturing overheads
Dr sales and admin expenses
Cr prepaid rent, depreciation on sales equipment, wages payable etc.
What are the four steps to allocate manufacturing overheads?
- aggregate budgeted overhead costs into cost pools
- identify overhead cost driver (what causes cost to be incurred)
- calculate predetermined overhead rate per unit of cost driver (overhead budget/budgeted cost driver activity)
- Apply manufacturing overhead at predetermined rate multiple by actual cost driver consumption
