Unit 3: Process Costing Flashcards
Define Gross Margin/Gross Profit
Total Sales - COGS or Cost of Revenues
Define Process Costing
A method of product costing whereby production costs for a period are accumulated and then averaged over all units manufactured during that period.
Define Conversion Costs
All product costs necessary to “convert” raw materials into finished goods
Costs of direct labor and manufacturing overhead
Which is a measure of the amount of work done during the production period under process costing?
a) Equivalent units in beginning inventory
b) Conversion costs
c) Direct materials
d) Equivalent units of production
d) Equivalent units of production
Equivalent units of production is the term used in process costing to measure the actual work performed during the production period.
Assume a production process using process costing starts with a certain number of units in beginning inventory that are partially completed, a certain number of units are started and completed during the period, and the ending inventory at the end of the period is partially complete.
How would you determine the equivalent units of production in this situation for the period?
You would add the work required to complete the units in beginning inventory to the number of units started and completed during the period to the degree of completion of the ending inventory units.
Which of the following are transferred from work-in-progress to finished goods inventory?
a) Only the actual inventory items
b) Neither the actual goods nor the cost of the finished items
c) Actual inventory items and the costs of those inventory items
d) Only the cost of the inventory items
c) Actual inventory items and the costs of those inventory items
Both the costs and the actual inventory items must be tracked through the process costing system. When the items are 100% complete, the inventory would be transferred to finished goods inventory at the costs that were expended to make the inventory.
