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Chapter 4 - Systems Design Process Costing Chapter Four...

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1 Accounting 2102 Chapter Four Systems Design: Process Costing
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2 Accounting 2102 Costing Systems job order costing and process costing similarities objectives (accumulating production costs, assigning costs to products) flow of costs (factory schematic from Chapter 2) use of factory overhead accounts (normal costing system from Chapter 3) differences manufacturing environment cost object used for cost accumulation (departments not jobs as in job order costing) usually have multiple WIP accounts (transferred in costs included in product costs)
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3 Accounting 2102 What is a Processing Department? Any location in an organization where materials, labor, or overhead are added to the product. The activities performed in a processing The activities performed in a processing department are department are performed uniformly performed uniformly on all on all units of production. Furthermore, the output of units of production. Furthermore, the output of a processing department is a processing department is homogeneous homogeneous . .
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4 Accounting 2102 Comparing Job-Order and Process Costing Finished Goods Cost of Goods Sold Work in Process Direct Materials Direct Labor Manufacturing Overhead Job Order Costing System . . . WIP-Job Process Costing System . . . WIP-Department
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5 Accounting 2102 Cost Flow in a Process Costing Environment . . . let’s think through the flow of costs in a normal costing manufacturing environment + Beginning WIP Inventory + Direct Materials + Direct Labor + APPLIED Manufacturing Overhead + Transferred In Costs - Ending WIP Inventory Transferred Out Costs if we’re the first department in the manufacturing process, which line would drop out of the equation? Transferred in will this work for raw materials inventory and finished goods inventory too? yes the equation
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6 Accounting 2102 Chain Gang, LLC Chain Gang, LLC manufactures beaded necklaces. On February 1, the value of the Finished Goods Inventory was $3,600. By the end of the month, the value of the Finished Goods Inventory had decreased by $600. The following production costs were incurred during the month of February in the two sequential production departments: Stringing Clasping Work in Process on February 1 $12,000 $5,000 Work in Process on February 28 $6,000 $2,000 Direct Materials requisitioned during February $4,000 $1,500 Direct Labor charges incurred during February $7,000 $2,300 Applied Manufacturing Overhead $2,000 $1,000
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7 Accounting 2102 Chain Gang, LLC let’s apply the equation to each department . . .
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