Mangerial Acct midterm ch4

FIFO Apply costs

1. Compute cost of ending WIP 2. Compute cost of transferred out a. Cost in beginning WIP b. Cost to complete beginning WIP c. Cost started and completed

Why would FIFO be more accurage than weight-average?

Because FIFO doesn't mix costs of the current period with costs of the prior period.

Why do we calculate equivalent units?

Because a department usually has some partially completed units in its beginning and ending inventory. These partially completed units complicate the determination of a department's output for a given period and the unit cost that should be assigned to that output.

reciprocal services

When service departments provide services to each other

How to find equivalent units through the weighted average method?

add the number of units transferred out plus the equivalent units in ending Work in Process Inventory

operating department

carries out the central purpose of the organization like the Production Department at Mitsubishi

conversion costs

direct labor costs (since its so low anyway) + manufacturing overhead (excluding direct materials)

Service departments

do not directly engage in operating activities like the accounting department

Operation costing

hybrid of job-order and process costing because it possesses attributes of both approaches; commonly used when batches of many different products pass through the same processing department (like sewing shoes whether it be leather or synthetic fiber)

Direct Method: allocation bases

number of employees and square feet occupied

Know how to do exercises and problems for Chapter 4

such as calculating equivalent units

Equivalent units

the product of the number of partially completed units and the percentage completion of those units.

How do you apply these to T-accounts?

Study slides 10-23

FIFO Calculate cost per equivalent unit

Cost added during period/equivalent units

relation of operating dpt to the service dpt

Costs of the service department become overhead costs to the operating department

How to turn weighted average amount of equiv. units into fifo?

Equivalent units of weighted average Less equivalent units in beginning inventory (since FIFO is the amount left to be completed)

What is the effect of lean production?

FIFO and weighted-average methods yield similar unit costs

Direct Method of allocation

Interactions between service departments are ignored and all costs are allocated directly to operating departments (such as a cafeteria or the custodial department)

weighted-average method

Makes no distinction between work done in prior or current periods so that it blends together those units and costs

Step-down method

Once a service department's costs are allocated, other service department costs are not allocated back to it. 1. allocate costs from the one with more service (Cafeteria > Custodial) Formula = cost * ( #employees of dept/total employees) = total cost allocated

Differences Between Job-Order and Process Costing (regarding periods)

Process costing is used when a single product is produced on a continuing basis or for a long period of time. Job-order costing is used when many different jobs having different production requirements are worked on each period.

Differences Between Job-Order and Process Costing (regarding costs)

Process costing systems accumulate costs by department. Job-order costing systems accumulated costs by individual jobs.

Differences Between Job-Order and Process Costing (regarding computing costs)

Process costing systems compute unit costs by department. Job-order costing systems compute unit costs by job on the job cost sheet.