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