Iii.b. Process Costing (Cost Accumulation System)

Front 1

Define Process Costing.

Back 1

Process costing is a method of product costing that averages costs & applies them to a large number of homogeneous items.

Front 2

What are the 5 steps of Process Costing?

Back 2

1) Summarize the flow of physical units (beginning w/the production report).

2) Calculate "equivalent unit" output.

3) Accumulate the total costs to be accounted for (production report)

4) Calculate the unit costs based on total costs & equivalent units.

5) Apply the average costs to the units completed & the units remaining in ending WIP inventory.

Front 3

What is a Production Report?

Back 3

• costs incurred for a period as well as all units produced during that period are accumulated on a production report that accounts for the physical flow of units

Front 4

Define Equivalent Units.

Back 4

An equivalent unit of DM, DL, or conversion costs (DM + Factory Overhead) is equal to the amount of DM, DL, or conversion costs necessary to complete one unit of production.

Front 5

What are the 2 ways to calculate EU?

Back 5

1) FIFO

2) Weighted-Average

Front 6

Define FIFO.

Back 6

the ending inventory is priced at the cost of manufacturing during the period, assuming that the beginning inventory was completed during the period

Front 7

FIFO EU are composed of 3 elements:

Back 7

1) Completion of units on hand at the beginning of the period.

2) Units started & completed during the period (Units Completed - Beg WIP).

3) Units partially complete at the end of the period.

Front 8

Define WA EU.

Back 8

The WA cost method averages the cost of production during the period with the costs in the beginning WIP inventory.

Front 9

WA EU is composed of 2 elements:

Back 9

1) Units completed during the month (Beg Inv + Units Started & Completed during the month)

2) Units partially complete at the end of the period.

Front 10

How is Normal Spoilage handled?

Back 10

• occurs under regular operating conditions
• is included as a standard inventory cost of the manufactured product.

Front 11

How is Abnormal Spoilage handled?

Back 11

• should not occur during normal operating condition
• is NOT included in the standard cost of a manufactured product
• expensed separately on the IS as a period expense