ch6 - Chapter 6 1 CHAPTER 6 PROCESS COSTING QUESTIONS 1. A...

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Chapter 6 1 CHAPTER 6 PROCESS COSTING QUESTIONS 1. A company that produces homogeneous goods in mass quantities is likely to use a process costing system. The company can either have a single department or multiple departments. Job order costing and process costing are similar in that they are both methods of assigning costs to products. Also, the methods use similar product accounts (raw materials, work in process, finished goods, cost of goods sold) to capture the costs associated with production and use similar cost pools (DM, DL, OH). Job order costing and process costing differ in the way in which costs are gathered. In a job order costing system, costs are accumulated by department and by job; in a process costing system, costs are accumulated by production departments for the products that flow through those departments. In process costing, production must be determined on the basis of equivalent units to properly allocate the costs associated with each cost component to the work that was completed during the period and to the work that is still in process at the end of the period. Equivalent units of production are unnecessary in job order costing. 2. The only difference between weighted average and FIFO equivalent units of production is in the treatment of the work that was completed on beginning inventory in the prior period. Under weighted average, the work performed on beginning inventory in the prior period is combined with the work performed during the current period. Under FIFO, the work performed on beginning inventory during the prior period is held out separately and not commingled with the work performed during the current period. The FIFO method more accurately portrays the actual physical flow of units through the manufacturing process, because it is most likely that the units in beginning inventory will be the first units to be completed during the current period - thus a first-in, first-out flow. 3. Equivalent units of production is an approach to put partially completed and wholly completed units on a comparable basis. Without use of equivalent units, partially completed and fully completed units would be combined as if they were homogeneous measures of output. This would result in meaningless data since fully and partially completed units are different outputs.
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Chapter 6 4. One EUP calculation is generally not sufficient for all cost components because the components may be at different percentages of completion within a production department. However, if components are at the same percentage of completion, a single EUP calculation can be made. For example, if overhead is applied on the basis of direct labor, a single “conversion” cost component calculation can be made. Or, if several direct materials are added at the beginning of the process, these DMs may be combined as a single cost component. 5.
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ch6 - Chapter 6 1 CHAPTER 6 PROCESS COSTING QUESTIONS 1. A...

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