chapter 4 from the book: process costing Flashcards
why do companies use the process cost system?
to apply costs to similar products that are mass produced in a continuous way
used when there is a large volume of uniform, relatively homogenous product to produce
in the process cost system, is there the same amount of of overhead, material and labor for the entire run?
ye bruv
how are costs assigned in the process cost system?
they are tracked through a series of connected manufacturing processes or departments
no by individual jobs
what is the process cost flow?
DM + DL + MOH –> WIP department A
WIP department A –> WIP department B
WIP department B –> finished goods inventory
finished goods inventory –> COGS
what are the three ways that the job order costing and process costing are similar?
- the manufacturing cost elements (MOH, DL, DM)
- the accumulation of costs of material, labour, and overhead
- the flow of costs
explain the accumulation of costs of material, labour, and overhead that unites job order and process systems
raw materials are debited to raw material inventory
factory labour is debited to Factory Labor
manufacturing overhead costs are debited to Manufacturing Overhead
explain how the flow of costs are similar for the job order cost and process cost system
all raw material, factory labour, and overhead costs are assigned to the same accounts
what is mad different, are the methods of assigning costs
what are the main differences between job order costing and process costing?
the number of WIP accounts used
documents used to track costs
the point at which costs are controlled
unit cost calculations
how is the number of WIP different for job order costing and process costing?
In a job order cost system, only one WIP account is used
in the process costing system, several WIP accounts are used
how are the documents used to track costs different for job order costing and process costing?
In a job order cost system, costs are charged to individual costs and summarized in a job costs sheet
In the process cost system, costs are summarized in a production cost report for each department
how is the point at which costs are controlled different for job order costing and process costing?
In a job order cost system, the total cost is determined when the job is completed
in the process cost system, the total cost is determined at the end of a period time
how are unit cost calculations different for job order costing and process costing?
In a job order cost system, unit cost = total cost per job divided units produced for that job
in the process cost system, total manufacturing cost for the period divided by units produced in that period
operation costing
hybrid of process cost and job order cost system
the methods of manufacturing product remains the same
product could also be customized needing the job order cost system
journalize a purchase of raw materials
raw materials be debited to raw material inventory
journalize labour costs being incurred
debit to Factory Labour
journalize manufacturing overhead costs being incurred
debit to Manufacturing Overhead
can material requisition slips be used too in process cost system? to what extent and why?
yeee boyyy
used much less tho
used only for process instead of each job
so requisitions are for large quantities instead of large amounts of material
how do you journalize materials used?
WIP department A (debit)
WIP department B (etc) (debit)
raw materials inventory (credit)
how do you journalize factory labour costs when they are assigned to production?
WIP department A (debit)
WIP department B (etc)(debit)
Factory Labor (credit)
how do you journalize overhead costs when they are assigned to production?
WIP department A (debit)
WIP department B (etc) (debit)
manufacturing overhead (credit)
what is a major difference with job order costing when allocating overhead and with finding a predetermined overhead rate?
in job order costing, mostly assigned to direct labor costs
in process costing, mostly assigned to machine hours
how do you journalize a transfer to the next department?
WIP department B (debit)
WIP department A (credit)
how do you journalize a transfer to the finished goods?
Finished goods inventory (debit)
WIP department B (credit)
how do you journalize a sale?
COGS (debit)
Finished goods inventory (credit)
what do equivalent units of production measure?
measure the work done during the period
expressed fully in completed units
why use equivalent units of production?
to determine the cost per unit of completed product
weighted average method of calculating equivalent units of production
considers the degree of completion (weighing ) of the units completed and transferred out of ending WIP
conversation costs
sum of labor costs and overhead costs
refined equivalent units of production - materials formula
units completed and transferred out (materials) + equivalent units of ending work in process (materials)
refined equivalent units of production - conversion costs formula
units completed and transferred out (conversion costs) + equivalent units of ending work in process (conversion costs)
how many production cost reports are reported under the process cost system?
one for each department
a production cost report
the key document that management uses to understand the activities in a department
shows production quantity and cost data for that department
what are the 4 steps to BE READY to complete a production cost report?
- calculate the physical unit flow
- calculate the equivalent units of production
- calculate the unit production costs
- prepare cost reconciliation schedule
physical units
the actual units accounted for during the period, regardless of any work performed
to keep track of the physical units during a period ¡, what is absolutely necessary?
to add the units started (or transferred) into production to the units in process at the beginning of the period
this amount is called units to be accounted for
total units TO BE accounted for
adding the units started (or transferred) into production to the units in process at the beginning of the period
total units accounted for
units transferred out during the period and and units in production at the end of the period
what must be done after the physical flow is determined?
it is necessary to measure the equivalent units of the same department
(this is a maybe)
what are the two calculations of equivalent units required?
for materials and for conversion costs
what is ignored when calculation the equivalent units of. production using the weighted average method?
the beginning work in process
what must be done after calculating the equivalent units production?
we can calculate the unit production costs
unit production costs
cost expressed in form of equivalent units of production
what are the unit costs calculated when equivalent units of production are different for materials and conversion costs?
three unit costs are calculated
- material costs
- conversion costs
- total manufacturing costs
unit material cost calculation (weighted average)
(total material costs) / (equivalent units of material)
= Unit material costs
unit conversion cost calculation (weighted average)
(total conversion costs) / (equivalent units of conversion)
= Unit conversion cost
total manufacturing cost per unit (weighted average)
Unit material costs + Unit conversion cost
= total manufacturing cost per unit
what is shown in the cost reconciliation schedule?
you plug in the total manufacturing cost per unit for the amount of units in the total costs accounted for
you will then see that the ending amount is the same as the total costs TO BE accounted for
what are the 4 steps to complete a production cost report?
- prepare the physical unit schedule
- calculate the equivalent units
- calculate the unit costs
- prepare a cost reconciliation report
how do production cost reports help managers evaluate overall profitability?
because you compare it to previous periods
compare it with competitors
compare it with expected selling price
sequential processing facilities
goods are transferred from one department to another in sequence
requires an additional cost component called “transferred in”
what is the completion factor of the transferred in cost component?
completion factor of always 100%
how is the transferred-in cost component treated?
treated the same way as any other cost component in the calculations of the equivalent units of production and the cost per equivalent unit of production
why do some companies prefer the fifo method of calculating equivalent units?
the fifo cost assumption usually matches the actual physical flow of goods
it is assumed that the beginning work in process is completed before new work is started
under the fifo method, what is the sum of the equivalent units?
- work done to finish the units from the beginning work in process inventory
- work done to complete the units started into production during the period (units started and completed)
- work done, but only partially complete, in the units ending in work in process inventory
how do you find the units started and completed under fifo?
units transferred out during the period - units in the beginning workmen process
how do you find the work that needs to be done in order to finish the beginning work in process inventory?
you look at how many units have yet to be completed and that is the equivalent units of the beginning work in process
how do you find the equivalent units of the ending work in process?
you find the equivalent units by looking at the percentage of units completed in the ending work in process
are materials always added at the beginning of the production process?
nah boy
what are the there unit costs calculated under the fifo method to find the unit production costs?
material costs
conversion costs
total manufacturing costs
under the fifo method, the unit costs of production are based entirely on what?
on the production costs incurred in the month
this makes the costs at the beginning work in process not relevant
why are the costs at the beginning work in process not relevant under fifo?
the unit costs of production are based entirely on the production costs incurred in the month
unit material cost calculation (fifo)
(total material costs) / (equivalent units of materials)
= unit material costs
unit conversion cost calculation (fifo)
(total conversion costs) / (equivalent units of conversion costs)
= unit conversion costs
total manufacturing cost per unit (fifo)
unit material costs + unit conversion costs
why is, conceptually, the fifo method better than the wighted average one?
because you can measure performances with that shit
provides current cost information
can establish more accurate pricing strategies
