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19 Cards in this Set

  • Front
  • Back

Job-Costing Systems

Distinct, identifiable units of a product or service




examples: custom-made machines, houses

Process-Costing Systems

masses of identical or similar units of a product or service




examples: food, chemical processing

Process Costing

a system where the unit cost of a product or service is obtained by assigning total costs to many identical or similar units


- used where output is a large volume of a single, homogeneous product


- one unit of product is indistinguishable from any other unit of product


- product flows evenly through a continuous production process

Process Costing continueed

- each unit receives the same or similar amounts of direct materials costs, direct materials costs, direct labour costs, and manufacturing overhead


- unit costs are computed by dividing total costs incurred by the number of units of output from the production process (each unit of product is assigned the same average cost)

Process-Costing Assumptions

- direct materials are assumed to be applied at discrete points in the production process (direct materials are often added at the beginning of the production process, or at the start of work in a subsequent department down the assembly line)


- conversion costs are added equally along the production process (conversion costs are all other costs than direct materials which include manufacturing labour, indirect materials and all other indirect costs)

Steps in Process Costing

1. summarize the flow of physical units of output


2. compute output cost allocation base in equivalent units


3. summarize total costs to account for


4. Compute cost per equivalent unit


5. Assign total costs to units completed and units in ending work in process

Equivalent Units

- a derived amount of output units that: takes the quantity of each input in units completed and in unfinished units of work in process and converts the quantity of input into the amount of completed output units that could be produced with that quantity of input


- are calculated separately for each input (direct materials and conversion costs)

Weighted-Average Process-Costing Method

- weighted-average cost is the total of all costs in the work-in-process account divided by the total equivalent units of work done to date


- calculates the average equivalent unit cost of the work done to date regardless of when the work was done


- assigns this cost to equivalent units completed and transferred out of the process, and to incomplete units still in process

Weighted-Average Process-Costing Method Continueed

the beginning balance of the work-in-process account (work done in a prior period) is blended in with current period costs


- smooths out unit costs from month to month

Results of step 5 of the Weighted-Average Process-CostingProcess

1. the amount of the journal entry transferring the allocated cost of units completed and sent from work-in-process inventory to finished goods and inventory


2. the ending balance of the work-in-process inventory account that will appear on the balance sheet

Weight-Average Method with beginning and ending WIP

- EU calculation is total work done to date regardless of whether the work done in the preceding or current periods


- Weighted-average cost is the total of all costs entering WIP (from beginning WIP and new work in the period)

FIFO Method

- a distinctive feature of FIFO process-costing method is that work done on beginning inventory before the current period is kept separate from work done in the current period


- assigns the cost of the previous accounting period's equivalent units in beginning work-in-process inventory to the first units completed and transferred out of the process (costs carried forward from the previous period are assigned directly to completed goods)

FIFO Method Continueed

- assigns the cost of equivalent units worked on during the current period


- first to complete beginning inventory


- next to start and complete new units


- lastly to units in ending work in process inventory

Unit costs can differ materially between the two methods when:

- direct materials or conversion costs per unit vary from period to period


- physical inventory levels of WIP are large in relation to total number of units transferred out

Standard Costing and Process Costing

- standard costs replace actual costs in equivalent unit calculations


- standard costing helps to simplify the record keeping and costing


- variances arise due to the difference between the standard and actual costs

Hybrid Costing Systems

- a hybrid-costing system blends characteristics from both job-costing and process-costing systems


- many actual production systems are in fact hybrid (ie. manufacturers of tvs, dishwashers, etc.)

Transferred-In Costs

- are costs incurred in previous departments that are carried forward as the products cost when it moves to a subsequent process in the production cycle (aka previous department costs, as physical units move from one department to the next, their costs per EU move with them, journal entries are made to mirror the progress in production from department to department)


- transferred-in costs are treated as if they are a separate type of direct material added at the beginning of the process

Transferred-In Costs and the weighted average method

- units transferred to the next operation are 100% complete as to transferred-in costs


- because these costs are simply carried forward from the previous process to the current one

Transferred-in costs and the FIFO method

- the amount transferred-out will be based on applying the FIFO method


- each department is regarded as being separate and distinct fro accounting purposes


- the amount transferred-in will be the amount transferred-out from the previous department and treated as 'materials' contributed as the beginning of the next department operation