Chapter 4: Process Costing
Cost per equivalent unit formula (WA method)
(cost of beginning WIP inventory+costs added during the period)/equivalent units of production
Conversion Cost
Direct Labor + Manufacturing Overhead
key feature of process costing
averages production costs over all units produced
weighted average method
averages together costs from both prior and current periods
Process Costing accumulates costs how?
by department
In process costing, labor costs are traced to ______
departments
goal of process costing systems
determine the cost of a product or service by assigning costs to masses of identical or similar units of output
two cost classifications of process costing
direct materials and conversion costs
main objective of costing systems in general
help determine costs of products or services that aid in planning decisions like pricing and product mix
equivalent units formula
number of partially completed units * percentage completion
Processing Department
organizational unit where work is performed on a product. DM, DL and MOH costs are added to product here.
Equivalent units
the number of complete units that could have been obtained from the materials and effort that went into the partially complete units
A separate _________ account is maintained for each ________.
work in process, department
2 essential features of a processing department
1) activity is performed uniformly on all products passing through 2) all of the units produced are identical (homogeneous)
five step approach to process costing
1. Physical Units 2. Equivalent Units 3. total Costs 4. Equivalent Unit costs 5. Assign total costs to units completed and to units in ending WIP inventory
the two types of costing systems
job costing and process costing
Process Costing
A cost accounting system used by companies in industries that convert raw materials into uniform products on a continuous basis.
Operation Costing
A hybrid costing system used when products have some common characteristics and some individual characteristics.
Costs to be Accounted for
Cost of beginning WIP Inventory and costs added to production during the period
Costs Accounted For
Cost of ending WIP inventory and costs of units transferred out
Units in beginning WIP Inventory + Units started into production must =?
Units in ending WIP inventory + units completed and transferred out
Equivalent units of production formula (weighted Average method)
Units transferred to the next department or to finished goods + equivalent units in ending WIP inventory