ch03 - Chapter 3 Process Costing QUESTIONS 1 Job-order...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 3 Process Costing QUESTIONS 1. Job-order costing is used when a company produces individual products or batches of products that are unique. Generally, each unique product or batch is a “job” for which the company needs cost information. Therefore, manufacturing costs must be traced to specific jobs. Process costing, on the other hand, is used when a company produces large quantities of identical items. It is basically a system of averaging. The production costs are divided by the number of units to arrive at an average unit cost. 2. Student answers will vary but here is one possible answer. Three types of manufacturing companies which might use process costing include pharmaceutical firms, paint manufacturers, and chemical manufacturers. In each of these companies, the products are relatively homogenous and produced in large batches. In many cases, a product suitable for process costing will be a low-cost product, but not necessarily (i.e., various drugs can be expensive, as can various chemicals). 3. Equivalent units is the quantity of partially completed units expressed in terms of whole units. The number is used in calculating the average unit costs under process costing. To calculate equivalent units, the number of units that are partially completed is multiplied by the percentage of completion. 4. Direct labor and overhead, together, are called conversion costs. 5. The costs associated with units received from a preceding department within the company for further processing are called transferred-in costs. 6. Material may enter at the start of a production process while labor and overhead are incurred throughout the process. 7. Cost to account for = (Cost in beginning work in process + Cost incurred in current period). 8. Reconciliation helps to ensure that mistakes are not made in calculations and units are not “lost.” 9. Transferred-in costs are the costs associated with units received from a preceding department within the company received for further processing. Therefore, they occur in all production departments except the first. 10. The four steps involved in preparing a production cost report are as follows: a. Account for the number of physical units b. Calculate the cost per equivalent unit for material, labor, and overhead c. Assign costs to items completed and items in ending work in process d. Account for the amount of product cost
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
EXERCISES E1. LO 1, 2 In the production of chips, much of manufacturing overhead is a fixed cost. This cost is assigned to completed items and work in process. By starting a large number of items at year end, and given the simplifying assumption that items in process are 50% complete, a significant proportion of the fixed manufacturing overhead will end up in work in process, which reduces the cost of finished items and ultimately the cost of goods sold. The result is that profit will be artificially inflated.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern