Process Costing Flashcards
When would you use process costing?
Process costing is used to accumulate costs of mass-produced, continuous, homogenous items that are often small and inexpensive
it comes down to tracking number of units being moved into FG and allocating costs on a rationale basis
Why is cost allocation process complicated?
1) Partially completed items in beginning and ending inventories
2) . The three factors of production may be a t different levels of completion
4) The choice of inventory evaluation methods affects the flow of costs.
What are the steps to processing costing? Thee step approach
1) Determine equivalent Units (EU)
2) Compute cost per EU
3) Determine (a) cost of goods transferred out of WIP and (b) ending WIP inventory
How do you calculate the equivalent unit (step 1)?
Equivalent units are both direct materials and for conversation
Equivalent units are ONLY on the BASIS OF COST!!
Assume that conversion costs are incurred evenly throughout production and that direct materials are not incurred evenly. Not always the case.
How do you calculate the cost per equivalent units (step 2)?
Divide the cost for direct materials and conversion by the equivalent units
This provides a cost per equivalent unit for both DM and conversion costs
How do you calculate Cost of Goods Transferred out (cost of good manufactured) and Ending WIP?
Use the cost per equivalent unit to value the WIP and cost of goods transferred out
What is the cost flow assumption?
The cost flow assumption determines which equivalent units figure to use
FIFO- Assumes that prior period costs and current period costs are treated separately
What is the difference between weighted average vs FIFO?
With FIFO, the beginning inventory value is treated as a lump sum and is added to the current period costs.
Weighted average, the beginning inventory cost are averaged with the current period
