Ch.6 (Process)

Ch.6 (Process) - Process Costing Chapter 6 1 Comparison of...

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1 Process Costing Chapter 6
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2 þ Cost objects: processes or departments þ Mass production of homogeneous products or services. þ Unit cost computed by dividing total process costs of the period by units produced or served. Process Costing Job Costing þ Cost objects: jobs or batches þ Wide variety of products or services. þ Unit cost computed by dividing total job costs by units produced or served at end of the job . Comparison of Job and Process Costing
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3 Same objective: determine the cost of products Same Inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method: predetermined rate times actual activity Same objective : determine the cost of products Same Inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method: predetermined rate times actual activity Comparing Job Costing and Process Costing
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4 Chemicals Oil refining Textiles Paints Flour Canneries Rubber Steel Food processing Types of Businesses Using Process Costing
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5 Process costing accumulates costs by process or department and then assigns them to a large number of nearly identical products. Characteristics of Process Costing Continuous mass production Similar processes Homogeneous products Unit cost = Process costs Equivalent units produced
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6 Same objective: determine the cost of products Same Inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method: predetermined rate times actual activity Equivalent units is a concept expressing partially complete units as a smaller number of fully complete units. Cost per equivalent unit = Manufacturing costs for a period Equivalent units for the period We must now deal with the concept of equivalent units . Equivalent Units
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7 Assumptions of Equivalent Units Direct labor and manufacturing overhead are incurred uniformly throughout the process. Managers and accountants can estimate the percentage of completion accurately. Product costs hinge critically on the accuracy of % of completion estimation - particularly when work in process is large (wineries)
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8 Critical Analysis Explain how an individual could manipulate reported earnings by misstating degrees of completion of ending WIP. Would it be easy to continue this manipulation for subsequent periods? Explain.
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9 Production Cost Report - summarizes the number of physical units and equivalent units of a department, the costs incurred during the period and the costs assigned to both units completed and transferred out and ending work in process Œ Analysis of physical units ± Calculation of equivalent units ²
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Ch.6 (Process) - Process Costing Chapter 6 1 Comparison of...

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