Process Costing
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