Cost Accounting Pt. 2 Flashcards
What are cost accumulation systems?
they are used to assign costs to products; the system used is driven by the cost object involved
cost object is a custom order = job costing
cost object is a mass-produced, homogenous product = process costing
COGM & COGS Calculations
beginning WIP + DM + DL + MOH = total manufacturing costs available
total manufacturing costs available - ending WIP = COGM
beginning finished goods + COGM = cost of goods available for sale
cost of goods available for sale - ending finished goods = COGS
What is job costing?
the method of product costing that identifies the job as the cost objective and is used when relatively few units are produced and when each unit is unique or easily identifiable; a new job-cost record would be started every time a new job is started
What is process costing?
a method of product costing that averages costs and applies them to a large number of homogenous items; if DM are added at the very end of a process, it will not be included in ending WIP (if added at the beginning of the process, it’s considered 100% complete)
What are equivalent units?
costs must be attached to the completed units as well as to the units that are partially complete at the end of each period; this calculation is made by taking into account the partially completed units and by making use of equivalent units
Calculation using FIFO
the ending inventory is priced at the cost of the manufacturing during the period, assuming that the beginning inventory was completed during the period; current costs incurred during the period are allocated to the equivalent units produced during the period
equivalent units are composed of 3 elements:
1) beginning WIP * % to be completed
2) units completed less beginning WIP
3) ending WIP * % completed
Calculation using weighted average
averages the cost of production during the period with the costs in the beginning WIP inventory; total costs, including both the costs of the beginning inventory and current costs, are allocated to equivalent units to arrive at a weighted average unit cost
equivalent units are composed of 2 elements:
1) units completed during the month (beginning WIP + units started and completed during the month)
2) ending WIP * % completed
Comparing costs per equivalent unit between FIFO and weighted average
FIFO = current cost only / equivalent units
weighted average = (beginning cost + current cost) / equivalent units
What is spoilage/shrinkage?
it is generally taken care of automatically because the equivalent units added for the month are generally less than the actual units added during the month due to problems with the production process
What is normal spoilage?
occurs under regular operating conditions and is included in the standard cost of the manufactured product; per unit cost is automatically increased as a result of spoilage because actual costs are spread over fewer equivalent good units rather than actual units produced; it is capitalized as part of inventory cost, and if accounted for separately, it is allocated to good units produced
What is abnormal spoilage?
it should not occur under normal operating conditions and is excluded from the standard cost of a manufactured product; the per unit cost is based on actual units; equivalent units of production include spoiled units; it is normally expensed separately on the IS as a period expense
