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Chapter 3 - Chapter 3 Process Costing THE NATURE OF PROCESS...

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Chapter 3: Process Costing THE NATURE OF PROCESS COST SYSTEMS I. Uses of process cost systems a. Mass produced products that are identical/very similar in nature i. All units produced the same, all same end product ii. Unlike job order cost- specific costs assigned to jobs b. Process cost- soft drinks, oil, computer chips chemicals, job order- advertising, movies, ice rinks, patient health care II. Similarities and differences between job order cost and process cost systems a. Job order- assign costs to each job i. DM, DL, MO WIP INV(JOB NO. 101, 102, 103) FG INV COGS b. Process- track costs through series of connected manufacturing processes or departments i. DM, DL, MO WIP INV (DEP. A) WIP INV (DEP. B) FG INV COGS c. Similarities i. Manufacturing cost elements- DM, DL, MO ii. The accumulation of the costs of materials, labor and overhead 1. T-accounts, debit RM to RM inv, FL to FL and MOC to MO iii. The flow of costs- costs assigned to WIP, FG, and COGS 1. Methods of assigning costs DIFFER! d. Differences i. The number of WIP accounts used- JO=1, PC=multiple ii. Documents used to track costs 1. JO-charges costs to individual jobs, summarizes in job cost sheet 2. PC- summarizes costs in production cost reports for each department iii. Point at which costs are totaled, JO-job is completed, PC- end of a period of time iv. Unit cost computations 1. JO- cost of each job/units produced for the job 2. PC- Total manufacturing costs/units produced during the periods III. Process cost flow a. DIAGRAM IV. Assigning manufacturing costs- journal entries ----Companies debit all ram materials to RM inv at time of purchase ----Debit all factory labor to FL as labor costs are incurred ----Debit overhead costs to MO as costs are incurred a. Material costs i.
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