Chapter_21_LO_4,5,6,7 - Chapter 21 (continued ) LO 4,5,6,7...

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Unformatted text preview: Chapter 21 (continued ) LO 4,5,6,7 The Process Costing System Objective 4 Explain product flow and cost flow in a process costing system The Process Costing System Used by companies that Produce large amounts of similar products or liquid products Have long, continuous production runs of identical products Tracking costs to individual products in a continuous flow environment would be too difficult and too expensive Also, would not result in significantly different product costs The Process Costing System (contd) Because products are alike, they should cost the same to produce A process costing system accumulates costs and assigns them to products as they are produced during a particular period Patterns of Product Flows and Cost Flows When using process costing, the steps in processing can be combined in hundreds of different ways Two basic production flows 1. The completed product from one department becomes the direct materials for the next department 2. Two separate products are each developed in their own department and then joined with a third direct material in another department Production Flows for Process Costing Patterns of Product Flows and Cost Flows Steps describing the production flow during the manufacture of computer chips 1. Producing the silicon wafer 2. Fabricating the chips 3. Final testing, assembly, and packaging of chips Product Flows in a Process Costing System for Computer Chip Making Patterns of Product Flows and Cost Flows Costs are accumulated as the product passes through each manufacturing process, department, or work cell and passed on to the next manufacturing process, department, or work cell At the end of every accounting period, the system generates a process cost report Process Cost Report Assigns the costs that have accumulated during the period to the units that Have transferred out of the process, department, or work cell Are still work in process Used to assign costs using the FIFO costing method FIFO Costing Method Cost flow follows the logical physical flow of production Costs assigned to first materials processed are the first costs transferred out when the materials flow to the next process, department, or work cell Cost Flows Through the Work in Process Inventory Accounts Work in Process Inventory accounts are the focal point of process costing As products flow through the Work in Process Inventory account s for each process, department, or work cell, the costs associated with them flow to the Work in Process Inventory account of that process, department, or work cell. Cost Flows Through the Work in Process Inventory Accounts (contd) Costs of cookie dough accumulate Cookie dough is prepared Mixing Department Cookie dough is prepared in the Mixing Department, where the costs of direct materials, direct labor, and manufacturing overhead incurred accumulate Cost Flows Through the Work in Process Inventory Accounts...
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Chapter_21_LO_4,5,6,7 - Chapter 21 (continued ) LO 4,5,6,7...

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