Ch. 4 - Process Costing
FIFO method:
Bases costs solely on the costs and outputs from the current period
To record direct labor costs in processing department #1: To record labor costs in the first department
Debit: Work in process department #1 Credit: Manufacturing overhead Debit: WIP Credit: Wages payable
When unit costs are transferred from department A to department B, department B will treat costs as:
Transferred in
The equivalent units completed are valued the same as the units _________ for the purpose of determining the cost per unit
Transferred out
Transfer of partially completed products from one processing department to another, requires a journal entry that affects the ___________ account of both processing departments
WORK IN PROCESS
equivalent units of production under the weighted-average method equal:
Equivalent units in ending work in process + units transferred out Beginning WIP is ignored
T/F: When using the process costing, labor and overhead can be added in any department, but materials can ONLY be added in the first processing department:
FALSE
Characteristics of operation costing include:
Products are processed in batches and costs are accumulated by department.
Equivalent units
Number of partially completed units x percentage completion
Industries that convert raw materials into homogeneous products typically use ______________ costing
PROCESS
When a customer's order is filled and units are sold, there is a _____ to Finished Goods and a _______ to COGS
CREDIT, DEBIT
To record the sale of goods to customers:
Debit: COGS Credit: Finished goods
Processing department
An organizational unit where work is performed on a product and where materials, labor, or overhead costs are added to the product.
Operations costing is similar to job order costing because:
Each batch is charged for its own specific materials
When production is completed in the last processing department, units are transferred to the __________ _________ account
FINISHED GOODS
two most commonly used methods for determining unit product costs are?
Job order and process costing
Examples of products that may use operation costing include:
Shoes, clothing, jewelry
When using process costing, a separate ________ account is maintained for each processing department
WORK IN PROGRESS
Process costing:
A single product is produced either on a continuous basis or for long periods of time. All units of product are identical. Costs are accumulated by department. Unit costs are computed by department. Materials can be added in ANY processing department. Manufacturing overhead costs are generally applied using a predetermined overhead rate OH costs are applied according to the amount of the allocation base incurred in the department
Journal entry to record direct materials cost in processing department #1
Debit: WIP Credit: Raw Materials
To record material cost in the second department include a ______ to work in process department
DEBIT
To record the sale of finished goods to customer:
Debit: COGS Credit: Finished goods
Conversion cost
Direct labor cost + manufacturing overhead cost
Differences between job-order and process costing include that process costing:
Accumulates costs by department and is used for indistinguishable products
To record the transfer of completed units to the finished goods warehouse is:
Debit: Finished goods Credit: Work in process
To record entry to apply overhead cost to processing department #1:
Debit: WIP department #1 Credit: MOH
Cost per equivalent unit using the weighted average method:
(Cost of BEGINNING work in process inventory + cost added during the period)/ Equivalent units of production Used to value both units in ending inventory and units transferred to the next department. Ex. 1) Cost in beginning WIP inventory = $4,500 $37,800 in costs added during period 7,050 equivalent units Cost per unit = $6 Ex. 2) Total of _____ equivalent units of production - WIP = 100 units, 40% complete - 300 units transferred to the next department during the period .4(100) + 300 = 340
Weighted-average method:
Combines costs and outputs from the current and prior periods
Operations costing is similar to process costing because:
Labor and overhead costs are accumulated by operating or department
Job-Order Costing:
Many different jobs are worked on during each period, with each job having unique production requirements. Costs are accumulated by individual job. Unit costs are computed by job on the job cost sheet.
Job-order costing is used for:
Many different products with unique production requirements
True/False: The equivalent units of production computed under the weighted average method does NOT take into account the percentage completed of the beginning inventory
TRUE
A processing department produces _______ and ________ units
Homogenous and identical
True/False: The flow of costs through manufacturing accounts is basically the same for job-order costing and process costing
TRUE
Units in beginning WIP + units started/transferred in =
Units in ending WIP + units completed/transferred out
