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CHAPTER 6 PRODUCT AND SERVICE COSTING: A PROCESS SYSTEMS APPROACH QUESTIONS FOR WRITING AND DISCUSSION 1. A process is a series of activities (opera- tions) that are linked to perform a certain ob- jective. For example, the bottling process of a pain medication manufacturer consists of four linked activities: loading, counting, cap- ping, and packing. 2. Process costing is typically used for indus- tries where units are homogeneous and mass produced. Process costing collects costs by process (department) for a given period of time. Unit costs are computed by dividing these costs by the department’s output measured for the same period of time. Process costing uses multiple work-in- process accounts and uses a cost of pro- duction report to summarize the cost and work activity for a department. When work is completed in a department, the cost of the work is transferred to the next department. The final department transfers the work to finished goods. Job-order costing is used for industries, which produce heterogeneous products (often custom made). Job-order costing collects costs by job. Unit costs are computed by dividing the job’s costs by the units produced in the job. There is a single work-in-process account; costs and work activity are collected on the job-order cost sheet. When work is completed, it is trans- ferred to finished goods. 3. The work-in-process account of the receiv- ing department is debited, and the work-in- process account of the transferring depart- ment is credited. The finished goods ac- count is debited, and the work-in-process account of the final department is credited upon completion of the product. 4. Transferred-in costs are the manufacturing costs transferred from a prior department to the current receiving department. 5. Transferred-in units represent partially com- pleted units and are clearly a material for the receiving department. To complete the product (or further process it), additional dir- ect materials and conversion costs are ad- ded by the receiving department. 6. A production report summarizes the activity and costs associated with a process for a given period. It shows the physical flow, the equivalent units, the unit cost, and values of ending work in process and goods trans- ferred out. The report serves the same func- tion as a job-order cost sheet in a job-order costing system. 7. Process costing can be used for service or- ganizations provided the services are homo- geneous and repetitively produced. Check processing in a bank, cleaning teeth, and sorting mail are examples of services that could use process costing. In fact, the use of process costing for services is simplified by the fact that there are no work-in-process inventories. JIT has no inventories and so all that is needed is to measure output and costs for a period to calculate unit costs— thus JIT can use process costing, simplified by the absence of inventories. 8.
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This note was uploaded on 01/31/2009 for the course ACCOUNTING ACCT 470 taught by Professor Professorrajkiani during the Spring '08 term at California State University , Monterey Bay.

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