Ch. 4: Process Costing and Hybrid Product-Costing Systems

1. petrochemical refinery 2. paint manufacturer 3. paper mill

3 typical process cost applications:

1. analysis of physical flow of units 2. calculation of equivalent units 3. computation of unit costs 4. analysis of total costs

4 steps used in preparing a departmental production report:

equivalent

WIP inventory at both the beginning and end of the period are only partially complete; _ units is a concept expressing these partially completed units

physical

WIP inventory at both the beginning and end of the period are only partially complete; equivalent units is a concept expressing these partially completed units; equivalent units refer to the amount of manufacturing activity that has been applied to a batch of _ units

operation costing

a hybrid of job order and process costing; direct material is accumulated by batch of products using job order costing methods; conversion costs are accumulated by department and assigned to product units by process-costing methods

equivalent unit

a measure of the amount of production effort applied to a physical unit of production; for example, a physical unit that is 50% completed represents one-half of a _

weighted-average method

a method of process costing in which the cost assigned to beginning WIP inventory is added to the current-period production costs; the cost per equivalent unit calculated under this process-costing method is a weighted average of the costs in the beginning WIP and the costs of the current period

process-costing system

a product-costing system in which production costs are averaged over a large number of product units; used by firms that produce large numbers of nearly identical products

hybrid product-costing system

a system that incorporates features from two or more alternative product-costing systems, such as job-order and process costing

work-in-process

actual costs of manufacturing overhead are entered in _ inventory

partially complete

by definition, units in work-in-process inventory at both the beginning and end of the period are only _ (finished units are transferred out)

conversion cost per unit =

conversion cost for the period / conversion equivalent units for the period =

process costing

costs accumulated by department or process; work in process has a production report for each batch of products; a few identical, low-cost products; units continuously produced for inventory in automated process

job-order costing

costs accumulated by the job; work in process has a job-cost sheet for each job; many unique, high-cost jobs; jobs built to customer order

transferred-in costs

costs assigned to partially completed products that are transferred into one production department from a prior department

transferred-in costs

costs that were incurred in a previous process and brought into a later process as part of the product's cost

incurred uniformly throughout the process

direct material is usually placed into production at the beginning of the production process; in contrast, direct labor and manufacturing overhead, called conversion costs, usually are _

batch manufacturing

high-volume production of several product lines that differ in some important ways but are nearly identical in others

finished-goods inventory

in a single production department situation, as goods are finished, costs are transferred to _

work-in-process inventory

in a single production department situation, direct-material, direct-labor, and manufacturing-overhead costs are added to a _ account

cost of goods sold

in a single production department situation, during the period when goods are sold, the product costs are transferred to _

job-cost records

in job-order costing, costs are accumulated by job order and recorded on _ ; the cost of each unit in a particular job order is found by dividing the total cost of the job order by the number of units in the job

cannot be directly traced to each unit of product

in process costing, costs _

department

in process costing, costs are accumulated by _ , rather than by job order or batch; the cost per unit is found by dividing the total costs incurred by the units produced

process costing

industries using _ include paper, petroleum, chemicals, textiles, food processing, lumber, and electronics

batch manufacturing processes

job-order and process costing represent the polar extremes of product-costing systems; but some production processes exhibit characteristics of both job-order and process costing environments; these production processes often are referred to as _ ; such processes are characterized by high-volume production of several product lines that differ in some important ways but are nearly identical in others

the weighted-average method

makes no distinction between work done in the prior period and work done in the current period; lends together units and costs from the prior period and the current period

predetermined overhead rate

manufacturing overhead is applied to work-in-process inventory using a _

materials cost per equivalent unit =

materials cost for the period / materials equivalent units for the period =

operation costing

since batch manufacturing operations have characteristics of both job-order costing and process-costing environments, a hybrid product-costing system is required; one common approach is called _

work-in-process

the _ account for job-order costing consists of individual jobs in a job-order cost system

cost per equivalent unit for direct material

the _ is computed by dividing the total direct-material cost, including the cost of the beginning work in process and the cost incurred during the month, by the total equivalent units (from Step 2)

departmental production report

the key document in a process-costing system; this report summarizes the physical flow of units, equivalent units of production, cost per equivalent unit, and analysis of total departmental costs

departmental production report

the key document in a typical process-costing system is the _ , prepared for each production department at the end of each accounting period; this report summarizes the flow of production quantities through the department, and it shows the amount of production cost transferred out of the department's Work-in-Process Inventory account during the period

cost per equivalent unit

the report provides a convenient summary of all of the process-costing calculations made under the weighted-average method; this method is called the weighted-average method because the _ , for both direct material and conversion activity, is computed as a weighted average of the costs incurred during two different accounting periods

cost per equivalent unit

the third step in the process-costing procedure is calculating the _ for both direct material and conversion activity

individual products in a process-cost system

the work-in-process account for process costing consists of _

operation costing

this product-costing system is used when conversion activities are very similar across product lines, but the direct materials differ significantly; conversion costs are accumulated by department, and process costing methods are used to assign these costs to products; in contrast, direct-material costs are accumulated by job order or batch, and job-order costing is used to assign material costs to products

process costing

used in repetitive production environments, where large numbers of identical or very similar products are manufactured in a continuous flow

assigned to equivalent units rather than to physical units

when an accounting period ends, the partially completed goods that remain in process generally are at different stages of completion with respect to material and conversion activity; the most important feature of process costing is that the costs of direct material and conversion are _