19 -- Product Costing and Related Topics

19 -- Product Costing and Related Topics - CPA BEC - STUDY...

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CPA BEC - STUDY UNIT 19 Product Costing and Related Topics: Core Concepts A. Spoilage and Scrap 1. Spoilage consists of completed products that do not meet quality standards. Because they are defective, they will not fetch the normal selling price. Normal spoilage is an expected part of the production process. 2. Scrap consists of leftover raw materials after the production process is finished and is therefore in no sense a completed product like spoilage. B. Job-Order Costing 1. Job-order costing is concerned with accumulating costs by specific job . This method is appropriate when producing products with individual characteristics or when identifiable groupings are possible, e.g., batches of certain styles or types of furniture. 2. Two of the three major components of product cost (direct materials and direct labor) are charged to work-in-process using the actual amounts incurred. 3. The third component, manufacturing overhead , is charged using an estimated rate . Overhead costs are applied to (“absorbed” by) each job based on a predetermined overhead application rate for the year. At the end of each period, it can be determined whether overhead was over- or underapplied . C. Process Costing 1. Process cost accounting is used to assign costs to inventoriable goods or services. It is applicable to relatively homogeneous products that are mass produced on a continuous basis (e.g., refined oil). 2. Process costing is an averaging process that calculates the average cost of all units. Direct materials are used by the first department in the process. The products move from one department to the next. The second department adds more direct materials. Direct labor costs incurred for the period are recorded. 3.
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19 -- Product Costing and Related Topics - CPA BEC - STUDY...

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