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BA4320   CHAPTER  17 PROCESS  COSTING CHAPTER  OUTLINE I. Costing systems A. Types 1. Job costing: cost object is a job that constitutes a distinctly identifiable product or service 2. Process costing: process forms basis of costing system B. Principal functions 1. Determining the cost of products or services that aid in planning decisions such as pricing and product mix 2. Valuing inventory and cost of goods sold for external reporting 3. Controlling and evaluating performance (not emphasized in this chapter) II. Basics of process costing Identify the situations in which process-costing systems are appropriate A. Appropriate use of process costing: unit cost of a product or service obtained by assigning total costs to many identical or similar units [Surveys of Company Practice] 1. In manufacturing, each unit receives same or similar amount of direct materials costs, direct manufacturing labor costs, and indirect manufacturing costs 2. In computing product unit costs, total costs incurred divided by number of units of output—same average production cost per unit 3. In comparison to job costing, the extent of averaging is main difference 4. In mass production of product units, similar or identical units of product or service processed B. Factors in computing product costs 1. Costs separated into cost categories according to when costs introduced into the process a. Each cost item assigned to category identified by when added to the process 2. Presence of ending inventories (zero beginning inventory) a. Zero beginning/ending inventory: all units started and completed in accounting period b. Zero beginning inventory but some amount of ending inventory:
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Describe the five steps in process costing 3. Steps to calculate costs with some fully assembled units and some partially assembled units in process costing a. Step 1: Summarize the flow of physical units of output [Exhibit 17-1] Calculate equivalent units and understand how to use them b. Step 2: Compute output in terms of equivalent units [Exhibit 17-1] c. Step 3: Compute equivalent unit costs (Steps 3, 4, and 5 together are production cost worksheet) [Exhibit 17-2] d. Step 4: Summarize total costs to account for [Exhibit 17-2] e. Step 5: Assign total costs to units completed and to units in ending work in process Prepare journal entries for process-costing systems 4. Journal entries for process costing [Exhibit 17-3] a. Similar to entries made in job-costing systems with respect to direct materials and conversion costs b. Main difference is one Work-in-Process account for each process rather than each job 5. Presence of beginning inventory and ending inventory—requires choice of cost-flow method which produces differing amounts for cost of units completed and for ending work in process II. Inventory-flow methods and process costing Use the weighted-average method of process costing A. Weighted-average process-costing method : calculates equivalent-unit cost of all work done to date and assigns this cost to equivalent units completed and transferred out of the process and those in ending work-in-
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