Process Costing

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process costing

accumulates costs by department and assigns these costs uniformly to all identical units that pass through a department during a period

third step of process costing

assign costs to units

FIFO method

calculates unit costs based solely on the costs and outputs from the current period

weighted average method

calculates unit costs by combining costs and outputs from the current and prior periods

operating departments

carries out the central purposes of the organization

second step of process costing

compute cost per equivalent unit

first step of process costing

compute equivalent units of production

process costing systems

compute unit costs by department

transferred-in costs

costs assigned to units transferred from subsequent department

service departments

do not directly engage in operating activities

second key concept of process costing computations

each department needs to calculate a separate unit cost for each type of manufacturing cost that it incurs

processing departments

each of these have a separate work in process account

direct method

ignores any services provided by one service department to another service department

a major difference between FIFO and weighted average methods

inclusion of BWIP inventory cost in computation of CPEU

equivalent units

number of complete units that could have been obtained from the materials and effort that went into the partially completed units

processing department

organizational unit where work is performed on a product and where materials, labor, or overhead costs are added to the product

third key concept of process costing computations

partially completed units are translated into an equivalent number of fully completed units

fourth step of process costing

prepare cost reconciliation report

step-down method

provides for allocation of a service department's costs to other service departments as well as to operating departments; sequential

interdepartmental services

services provided between service departments

operation costing

used in situations where products have some common characteristics and some individual characteristics; products are typically processed in batches

process costing

used most commonly in industries that convert raw materials into homogeneous products; sometimes used in companies with assembly operatings

first key concept of process costing computations

weighted average and FIFO methods for calculating departmental unit costs

weighted average method

when using this, completion percentages of pertaining to BWIP inventory will be ignored


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