accounting test 2-chapter 18

how can the production cost report be used to make decisions?

1. controlling costs 2. evaluating performance 3. pricing products 4. identifying the most profitable products 5. preparing the financial statements

4 steps to creating a production cost report (assembly department)

1. summarize the flow of physical units (UNITS) 2. compute output in terms of equivalent unit of production (UNITS) 3. compute the cost per equivalent unit of production ($$$ DOLLARS) 4. assign costs to units completed and units in process ($$$ DOLLARS)

4 steps to creating a production cost report (cutting department)

1. summarize the flow of physical units (UNITS) 2. compute output in terms of equivalent unit of production (UNITS) 3. compute the cost per equivalent unit of production ($$$ DOLLARS) 4. assign costs to units completed and units in process ($$$ DOLLARS)

production cost report

a report prepared by a processing department for equivalent units of production, production costs, and the assignment of those costs to the completed and in process units basically, shows the calculations for the physicals flows and the cost flows of the products

equivalent units of production (EUP)

allows businesses to measure the amount of materials added to or work done on a partially finished group of units during a period and to express it in terms of fully complete units of output

job order costing system

an accounting system that accumulates costs by job. used by companies that manufacture unique products or specialized services (accounting firms, building contractors, custom furniture manufacturers)

process costing system

an accounting system that accumulates costs by process. used by companies that manufacture identical units through a series of uniform production steps two methods: weighted average method and FIFO

1st process in preparing a production cost report

assembly department shows the physical flows of units and cost flows of the unit for one department/process applies glue to the cardboard and then presses picture onto cardboard

what do companies use per unit cost for?

control costs, set selling prices, calculate account balances

2nd process in preparing a production cost report

cutting department the costs of materials from the assembly department are transferred into cutting department weighted average method combines the average cost of equivalent units of production by combining beginning inventory costs with current period costs cuts the board into puzzle pieces and packages the puzzles in a box, the box then moved to finished goods storage

weight-average method

determines the average cost of equivalent units of production by combining beginning inventory costs with current period costs

differences between job order costing and process costing

how and when costs are recorded in WIP inventory job order has one WIP inventory account, with a subsidiary ledger continuing individual job cost records for each job. costs transferred to finished goods inventory when jobs are completed process costing has a separate wit inventory account for each process/department. production cost report completed for each process/department, and costs are transferred at end of each period. cost transfer is from one WIP inventory account to the next WIP inventory account and eventually into finished goods inventory

process

one of a series of steps in manufacturing production; usually associated with making large quantities of similar products (soft drink bottlers, paint manufactures, gas refiners)

conversion costs in the cutting department

referes to the direct labor and manufacturing overhead costs incurred only in the cutting department. conversion costs incurred in assembly department are also transferred in costs for the cutting department

conversion costs

the cost to convert raw materials into finished goods; direct labor combined with manufacturing overhead

transferred in costs

the costs of the materials from the assembly department that are transferred into the cutting department

in process costing, production costs are accumulated by process. at the end of the period, the total production costs incurred in each process must be split between...

the units that have been completed in that process and transferred to the next process (or to finished goods inventory if its the last process) the units not completed and remaining in WIP inventory for that department

two unique terms used on production cost report

to account for: amount in process at the beginning of the period plus the amount started or added during the period accounted for: shows what happened to the amount to account for; either still in process or completed and transferred out MUST BE EQUAL

what do companies use process costing systems for

to determine the per unit cost

similarities between job order costing and process costing

track the product costs of direct materials, direct labor, and manufacturing overhead through three inventory accounts on balance sheet (raw materials inventory, WIP inventory, finished goods inventory) when products sold, both transfer product costs to COGS, an expense account on income statement