Slide Set 3

Question 1

Uses of Process Cost Systems

Answer 1

Use to apply costs to similar products that are mass- produced in a continuous fashion.

Question 2

Process Cost for Service Companies

Answer 2

Service companies that provide individualized, nonroutine services will probably benefit from using a job order cost system.
Those that perform routine, repetitive services will probably be better off with a process cost system.

Question 3

Similarities and Differences Between Job Order Cost and Process Cost Systems

Answer 3

Similarities

1. Manufacturing cost elements
2. Accumulation of the costs of materials, labor, and overhead
3. Flow of costs

Differences

1. Number of work in process accounts used(one/multiple)
2. Documents used to track costs(Job cost sheet/Production cost reports)
3. Point at which costs are totaled(each job/each period)
4. Unit cost computations(cost of each job/units produced for the job_Total manufacturing costs/equivalent units produced during the period)

Question 4

Assigning Manufacturing Costs

Answer 4

Accumulation of the cost of materials, labor, and overhead is the same as in job order costing.

► Debit Raw Materials Inventory for purchases of raw materials.
► Debit Factory Labor for factory labor incurred.
► Debit Manufacturing Overhead for overhead cost
incurred.

Assignment of the three manufacturing cost elements to Work in Process in a process cost system is different from a job order cost system.

Question 5

Assigning Manufacturing Costs (Material Costs)

Difference between process cost system and job order cost system

Answer 5

1. A process cost system requires fewer material requisition slips than a job order cost system.
2. Materials are used for processes and not specific jobs.
3. Requisitions are for larger quantities of materials.

Question 6

Weighted-Average Method

Answer 6

• Weighted-Average Method considers the degree of completion (weighting) of units completed and transferred out and units in ending work in process.
• Most widely used method.
• Beginning work in process not part of computation of
  equivalent units.

Units completed and transferred out + Equivalent units of Ending WIP = Equivalent units of production

Question 7

What is included in conversion costs?

Answer 7

Conversion costs are labor costs plus overhead costs.

Question 8

What is a production cost report?

Answer 8

• Key document used to understand activities

- Prepared for each department and shows Production Quantity and Cost data

Question 9

What are the four steps of the production cost report?

Answer 9

Step 1: Compute physical unit flow
Step 2: Compute equivalent units of production
Step 3: Compute unit production costs
Step 4: Prepare a cost reconciliation schedule

Question 10

What are Total units to be accounted for ?

Answer 10

Total units to be accounted for - units started (or transferred) into production during the period + units in production at beginning of period.

Question 11

What are Total units accounted for?

Answer 11

Total units accounted for - units transferred out during period + units in process at end of period.

Question 12

What are Unit Production Costs?

Answer 12

Costs expressed in terms of equivalent units of production.

Question 13

When equivalent units of production are different for materials and for conversion costs, three unit costs are computed:

Answer 13

1. Materials
2. Conversion
3. Total Manufacturing

Question 14

What is operations costing?

Answer 14

combination of a process cost and a job order cost system.

Question 15

What is operations costing?

Answer 15

combination of a process cost and a job order cost system.

• this hybrid system is similar to process costing in its assumption that standardized methods are used to manufacture the product.
• At the same time, the product may have some customized, individual features that require the use of a job order cost system.

Question 16

Equivalent units under FIFO are the sum of the work performed to:

Answer 16

1. Finish the units of beginning work in process inventory.
2. Complete the units started into production during the period (referred to as the units started and completed).
3. Start, but only partially complete, the units in ending work in process inventory.

Question 17

Under the FIFO method, the unit costs of production are based entirely on

Answer 17

the production costs incurred during the month.

Question 18

FIFO and Weighted-Average

Answer 18

• Weighted-average is simple to understand and apply.
• In cases where prices do not fluctuate significantly,
  weighted-average will be very similar to FIFO.
• Conceptually, the FIFO method is superior because it measures current performance using only costs incurred in the current period.
• FIFO method provides current cost information, which the company can use to establish more accurate pricing strategies for goods manufactured and sold.