I-Les3 - LESSON 3 Determining costs of products Process...

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LESSON 3 Determining costs of products — Process costing Topic outline and required reading 3.1 A perspective of process costing and process cost flows (Level 1) Chapter 4, pages 149-154 excluding “Equivalent Units of Production” 3.2 Equivalent units of production (Level 1) Chapter 4, pages 154-156 excluding “Weighted-Average Method” 3.3 Production report — Weighted-average method (Level 1) Chapter 4, pages 156-159 3.4 Production report — FIFO method (Level 1) Appendix 4A, pages 163-168 3.5 Spoilage and lost units (Level 1) No required reading 3.6 Operation costing and surveys of practice (Level 1) Chapter 4, page 160-163 3.7 Computer illustration 3-1: Production report — Weighted-average method and FIFO method (Level 1) No required reading Summary No required reading Introduction From Lesson 2 you should have developed a good understanding of job-order costing. In Lesson 3, you will gain a perspective of process cost flows, working through a detailed example of process costing. The weighted-average and FIFO methods of accounting for cost flows are explained and evaluated in the context of the production report. The lesson will also describe how to deal with spoilage and lost units in a process costing system. Operation costing and surveys of practice are also presented. Computer illustration 3-1 shows how you can use a spreadsheet program to prepare a production report and cost reconciliation based on both methods described in the lesson. Learning objectives After completing this lesson, you should be able to do the following: Prepare the journal entries to record the flow of materials, labour, and overhead through a process costing system. Explain and compute the equivalent units of production for both the weighted-average method and the FIFO method. Management Accounting Fundamentals Lesson 3 1
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Compute the unit costs for a period using both the weighted- average and FIFO methods. Prepare the production report using both the weighted-average and FIFO methods. Compute the cost of spoilage and lost units. Understand how operation systems can be created by combining different components of job-order and process cost systems. The learning objectives for Computer illustration 3-1 are listed at the beginning of the computer illustration. TOPIC 3.1 A perspective of process costing and process cost flows Required reading Chapter 4, pages 149-154 excluding “Equivalent Units of Production” LEVEL 1 Costs in a process cost system flow through Raw materials inventory, Work in progress inventory, Finished goods inventory, and out to Cost of goods sold. Notice here that the process cost system makes use of the same general ledger accounts as those described for the job-order cost system. So what is the difference between the two systems? The major difference between process and job costing is regarding accounting for Work in progress inventory (see Exhibit 3-1). Instead of accumulating work in progress by job, a process cost
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This note was uploaded on 06/07/2011 for the course ACCT 101 taught by Professor None during the Spring '11 term at University of Illinois, Urbana Champaign.

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I-Les3 - LESSON 3 Determining costs of products Process...

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