sm_19 21e - CHAPTER 19 PROCESS COST SYSTEMS CLASS...

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CHAPTER 19 PROCESS COST SYSTEMS CLASS DISCUSSION QUESTIONS 1. a. 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 reason- ably identified with each job. b. A process cost system would be best suited for a paper manufacturer be- cause the processes are continuous and the products are homogeneous. 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 job order cost system would be used by a building contractor to accumulate the costs for each individual building because the costs can be identified with each job without great difficulty. e. An assembly-type industry using mass production methods, such as TV as- sembly, would use the process cost system because the products are somewhat standard and lose their iden- tities as individual items. In such indus- tries, it is neither practical nor neces- sary to identify output by jobs. 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 indi- vidual production departments in which they occur. The reason is that all products produced by the department are similar. Thus, there is no need to charge these costs to individual jobs. For the process manufacturer, the direct materials and the conversion costs are charged to the depart- ment and divided by the completed produc- tion of the department to determine a cost per unit. 4. Transferred-out materials are materials that are completed in one department and transferred to another department or to fin- ished goods. 5. (1) Determine the units to be costed. (2) Calculate the equivalent units of pro- duction. (3) Determine the cost per equivalent unit. (4) Allocate costs to completed and par- tially 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 department as a result of the productive ef- forts during a period had there been no work in process at the beginning or end of the period. Equivalent units may be said to measure the productive activity for a given period. 7. The cost per equivalent unit is frequently determined separately for direct materials and conversion costs because these two costs are frequently incurred at different rates in the production process. For ex- ample, materials may be incurred at the be- ginning of the process and conversion costs incurred evenly throughout the pro- cess. 8. The cost per equivalent unit is used to al- locate direct materials and conversion costs between completed and partially completed units.
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sm_19 21e - CHAPTER 19 PROCESS COST SYSTEMS CLASS...

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