Warren SMChap18(03)

Warren SMChap18(03) - CHAPTER 18(FIN MAN CHAPTER 3(MAN...

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CHAPTER 18 (FIN MAN) CHAPTER 3 (MAN) PROCESS COST SYSTEMS EYE OPENERS 1. a. An assembly-type industry using mass production methods, such as TV as- sembly, would use the process cost sys- tem because the products are some- what standard and lose their identities as individual items. In such industries, it is neither practical nor necessary to identify output by jobs. b. A job order cost system would be used by a building contractor to accumulate the costs for each individual building be- cause the costs can be identified with each job without great difficulty. c. A job order cost system is best suited for an automobile repair shop because costs can be reasonably identified with each job. d. A process cost system would be best suited for a paper manufacturer be- cause the processes are continuous and the products are homogeneous. e. A job order cost system is best suited for a custom jewelry manufacturer be- cause most of the production consists of job orders, and costs can be reasonably identified with each job. 2. Since all goods produced in a process cost system are identical units, it is not neces- sary to classify production costs into job or- ders. 3. In a process cost system, the direct labor and factory overhead applied are debited to the work in process accounts of the individu- al production departments in which they oc- cur. The reason is that all products pro- duced by the department are similar. Thus, there is no need to charge these costs to in- dividual jobs. For the process manufacturer, the direct materials and the conversion costs are charged to the department and di- vided by the completed production of the de- partment to determine a cost per unit. 4. Transferred-out materials are materials that are completed in one department and trans- ferred to another department or to finished goods. 5. (1) Determine the units to be assigned costs. (2) Calculate the equivalent units of produc- tion. (3) Determine the cost per equivalent unit. (4) Allocate costs to completed and partially completed units. 6. Equivalent units is the term used to repres- ent the total number of units that would have been completed within a processing depart- ment as a result of the productive efforts during a period. They are the portion of the whole units that are completed with respect to material or conversion costs during the period. Equivalent units may be said to measure the productive activity for a given period. 7. The cost per equivalent unit is frequently de- termined separately for direct materials and conversion costs because these two costs are frequently incurred at different rates in the production process. For example, mater- ials may be incurred entirely at the begin- ning of the process, while conversion costs are typically incurred evenly throughout the process. 8.
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This note was uploaded on 10/12/2010 for the course ACCT 116B taught by Professor Rivers during the Spring '09 term at City.

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Warren SMChap18(03) - CHAPTER 18(FIN MAN CHAPTER 3(MAN...

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