Chapter 4 Flashcards
Biggest difference between process costing system and job costing system
The use of average
Conversion costs
all manufacturing costs other than direct material costs (manufacturing labor, indirect materials, energy, plant depreciation)
equivalent units
This is a way to measure partially completed units in terms of how many fully completed units they would represent. For example, if you have 10 units that are 50% done, that’s equivalent to 5 fully completed units.
How to handle costs for partially assembled units versus fully assembled units:
- Summarize Physical Units: First, list how many units you have that are fully completed and how many are only partially completed.
- Convert to Equivalent Units: Convert the partially assembled units into “equivalent units.” This means figuring out how much of a fully completed unit those partially assembled units represent.
- Calculate Equivalent Unit Costs: Next, find out how much each equivalent unit costs. To do this, divide the total costs for materials and labor by the total number of equivalent units.
- Summarize Total Costs: Add up all the costs to account for, including both the costs of units that are completed and those still in process.
- Assign Costs: assign these total costs to the fully completed units and the units still in progress at the end of the month. This means calculating how much cost goes to each unit that’s finished and each unit that’s still being worked on.
What’s the difference between process-costing system
There are multiple WIP accounts each representing a different stage of production
Two methods for assigning costs, explain weighted-average method
Calculates how much each unit costs based on work done so far, regardless of when that work happened.
Two methods for assigning costs, explain FIFO method
It means that the costs of the oldest units (those from the previous period) are assigned to the first units that are finished in the current period.
Compare FIFO and weighted average
- cost fluctations
- large WIP levels
Where’s FIFO used for
Helps managers see if their costs are going up or down and evaluate their performance more precisely.
Where’s average weight used for
gives an average cost that can smooth out fluctuations in input prices.
when is standard costing method used
Useful for companies that make a lot of similar products but find it complicated to use FIFO or Weighted-Average due to varied product types.
how does standard costing method work?
Experts set “standard” costs for making each type of product. These are estimated costs for materials, labor, and overhead based on the production process.
Hybrid costing systems
Combines features from both job costing (costing each job separately) and process costing (costing mass production).
When is hybrid costing system useful
For companies where neither job costing nor process costing fits perfectly, such as those that produce a mix of customized and mass-produced products.
