Acc550-ch 17 - ACC550 CHAPTER 17 PROCESS COSTING A review...

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ACC550 CHAPTER 17 PROCESS COSTING A review of job costing versus process costing 1) Job costing system a) Costs are traced to individual jobs. b) A job may represent one unit or it may represent one batch of many units. c) Costs of individual jobs are tracked separately from each other. d) Used when units are highly customized or expensive. e) Examples – construction projects, machine tools, made-to-order items. f) Unit costs i) Unit costs are calculated as each job is completed. ii) The unit cost represents the cost per individual job. iii) The unit cost represents the cost of a finished product. 2) Process costing system a) Costs are traced to individual departments or cost centers rather than individual jobs. b) Used when units are homogeneous and produced in a continuous process. c) Examples – almost anything mass-produced; toys, paints, candy bars. d) Unit costs i) Unit costs are calculated each accounting period for each department. ii) The unit cost represents an average cost based on all costs and units traced to the department during the accounting period. iii) The unit cost does not necessarily represent the cost of the finished product. Expanded discussion Job costing is best suited for situations where we want to separately track the cost of each individual job. For example, a construction company would want to separately track the cost of each construction project; the company would not want to commingle the costs of various construction projects. The company would want to how much wood was used in project #1 versus project #2. Process costing is best suited for situations where we do not wish to separate the cost of individual jobs, but instead wish to calculate an average cost of all jobs produced in a particular time period. For example, a manufacturer of candy bars would probably not care to separately track the cost of each individual candy bar. They would not care how much cocoa went into candy bar #10,000 versus candy bar #10,001. Instead, they would want to know how much cocoa went into all candy bars produced this period, and would then calculate an average cost of cocoa per candy bar produced during the period. Overview of accounting flow for process costing 1) A separate work in process account is established and maintained for each department. 2) All manufacturing costs for a department flow through its work in process account. 3) Each period, each department assigns its production costs to a) Units completed and transferred out of the department b) Incomplete units in ending work in process inventory 4) The cost of units completed and transferred out the department is transferred to the next department in the production process. a)
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This note was uploaded on 02/21/2009 for the course ACC 100 taught by Professor Smith during the Spring '09 term at University of Phoenix.

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Acc550-ch 17 - ACC550 CHAPTER 17 PROCESS COSTING A review...

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