Chapter06 Solutions-Hansen6e

Chapter06 Solutions-Hansen6e - CHAPTER 6 PRODUCT AND...

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Unformatted text preview: CHAPTER 6 PRODUCT AND SERVICE COSTING: A PROCESS SYSTEMS APPROACH QUESTIONS FOR WRITING AND DISCUSSION 1. A process is a series of activities (opera- tions) that are linked to perform a certain objective. For example, the bottling process of a pain medication manufacturer consists of four linked activities: loading, counting, capping, and packing. 2. Process costing is typically used for com- panies where units are homogeneous and mass produced. Process costing collects costs by process (department) for a given period of time. Unit costs are computed by dividing these costs by the department’s output measured for the same period of time. Process costing uses multiple work- in-process accounts and uses a cost of production report to summarize the cost and work activity for a department. When work is completed in a department, the cost of the work is transferred to the next de- partment. The final department transfers the work to finished goods. Job-order cost- ing is used for companies that produce het- erogeneous products (often custom made). Job-order costing collects costs data by job. Unit costs are computed by dividing the job’s costs by the units produced in the job. Costs and work activity are collected on the job-order cost sheet. When work is completed, it is transferred to finished goods. 3. The work-in-process account of the receiv- ing department is debited, and the work-in- process account of the transferring depart- ment is credited. The finished goods ac- count is debited, and the work-in-process account of the final department is credited upon completion of the product. 4. Transferred-in costs are the manufacturing costs transferred from a prior department to the current receiving department. 5. Transferred-in units represent partially completed units and are clearly a material for the receiving department. To complete the product (or further process it), addition- al direct materials and conversion costs are added by the receiving department. 6. A production report summarizes the activity and costs associated with a process for a given period. It shows the physical flow, the equivalent units, the unit cost, and values of ending work in process and goods trans- ferred out. The report serves the same function as a job-order cost sheet in a job- order costing system. 7. Process costing can be used for service or- ganizations provided the services are ho- mogeneous and repetitively produced. Check processing in a bank, cleaning teeth, and sorting mail are examples of ser- vices that could use process costing. In fact, the use of process costing for services is simplified by the fact that there are no work-in-process inventories. JIT has no in- ventories and so all that is needed is to measure output and costs for a period to calculate unit costs—thus JIT can use pro- cess costing, simplified by the absence of beginning or ending inventories....
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This note was uploaded on 01/28/2011 for the course ACC 3354 taught by Professor Tesher during the Spring '10 term at St. John's.

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Chapter06 Solutions-Hansen6e - CHAPTER 6 PRODUCT AND...

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