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