week 3: process costing

Question 1

What is job costing?

Answer 1

JOB COSTING assigns costs to each individual unit of output because each unit consumes different quantities of resources.

Question 2

What is PROCESS COSTING?

Answer 2

PROCESS COSTING Does not assign costs to each unit of output because each unit is identical. Instead, average unit costs are computed

Question 3

What are the three main differences between job-order and process costing?

Answer 3

Production Type:

Job-Order Costing: Many different jobs with unique production requirements.
Process Costing: A single, identical product is produced continuously or for long periods.
Cost Accumulation:

Job-Order Costing: Costs are accumulated by individual job.
Process Costing: Costs are accumulated by department.
Unit Cost Computation:

Job-Order Costing: Unit costs are computed by job on the job cost sheet.
Process Costing: Unit costs are computed by department.

Question 4

When are process costing systems used?

Answer 4

Process costing systems are where All outputs of a process are identical, or
There are no separately identifiable units during processing
The cost object is not the individual unit/product, but the process (or department)

Examples: Publisher, auto manufacturer, chemical processing (e.g., paint), petrochemicals, steel, food processing, brewing, etc.

Question 5

explain the difference between normal/ uncontrollable losses vs Abnormal / controllable losses?

Answer 5

It is important to distinguish between:

Normal / uncontrollable losses
Inherent to the process,
Absorbed by ‘normal’ production

Abnormal / controllable losses
Not expected under normal conditions
A cost of processing inefficiency, rather than a normal product cost
Hence reported as a period cost

Question 6

What is the method for completed processes?

Answer 6

Method for completed processes:

Calculate net input cost: NL with scrap value

Direct materials + conversion costs
Less scrap value of normal losses

2. Calculate normal (expected) output
   After normal losses
3. Calculate unit cost of normal production
   (net input cost/normal output)
4. Value completed products and abnormal losses/gains.

Question 7

What is process costing complicated by?

Answer 7

Process costing is based on normal costs of normal production

Process costing is complicated by:
The presence of significant beginning and ending inventories.
The treatment of beginning inventory cost.
Non-uniform application of manufacturing costs.