Chapter 17 - Cost Flashcards
Who Uses Process Costing
Companies producing large quantities of similar/identical units
Boxes of cereal
Credit card processing
Phone center
Opposite of Job Costing
It is not necessary to measure the cost of one item (as in job cost)
The cost of the various processes are measured
Multiple WIP accounts – each process has its own WIP account
Unit cost = Total process cost / # units
Average cost per unit
Cost Categories
- Direct materials
- Conversion costs
- Transferred in costs
Conversion costs
Direct labor and overhead (indirect) costs
Transferred in costs
- Costs from previous departments
- Treated as incurred as of the beginning of the period
Units
- physical units
- equivalent units
Physical units
Actual units of production
Complete or incomplete
Equivalent units
Equivalent units – Computes degree of completion of physical units
Physical units X % complete
Physical units X % completed this period
Process Costing Steps
- Compute physical flow of units for period
- Compute Equivalent units (EU)
- Compute Cost per EU
- Summarize total costs to account for
- Assign costs to
a. Units completed and transferred out (COGM)
b. Ending inventory (WIP)
Process Costing – Journal Entries
As one process is completed, the items are transferred to another process
Instead of Finished Goods
Direct materials – process 1 XXX Materials control XXX Conversion costs – process 1 XXX Wages/P, A/P, etc. XXX WIP – Process 2 XXX WIP – Process 1 XXX
Process Costing Inventory Valuation Methods
If you have Beginning or Ending inventory balances, the Co. must choose an inventory valuation method
- Weighted average
- FIFO – First in, First out
Weighted Average Method
Total average cost computed per EU
It doesn’t matter if units were in beginning inventory or started and completed this period
No % of completion for BI needed
Weighted Average Method
1) Summarize physical units
2) Compute EUs – no beginning inventory EU’s needed
3) Compute Cost / EU
4) Summarize total costs to account for
5) Assign $$ to COGM (units completed) and ending inventory
