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Unformatted text preview: CHAPTER 6 DISCUSSION QUESTIONS 6-1 Q6-1. The basic objective of process costing is to determine the costs of the products manufac-tured by the company. Determining the cost of the products manufactured is necessary in order to properly cost ending inventories for external reporting purposes (i.e., reporting to creditors and owners of the company, the SEC, and the IRS) and to evaluate the prof-itability of the manufacturing activity. In order to cost products, the costs must be deter-mined for materials, labor, and factory over-head used to process each unit of product through each department. Q6-2. The products manufactured within a depart-ment (or cost center) during the period can be heterogeneous if job order costing is used, but must be homogeneous if process costing is used. In job order costing, products are accounted for in batches. The cost of each unit of product manufactured on a job is deter-mined by dividing the total cost charged to the job by the number of units produced on the job. Since the manufacturing cost of each job is accounted for separately, accurate and useful product cost can be determined even when the products manufactured on different jobs are substantially different. By contrast, in process costing, all manufacturing costs are charged to the department, and the unit cost is determined by dividing the cost charged to the department by the number of units pro-duced. As a consequence, the units of prod-uct manufactured within a department must be essentially alike in order for the cost allo-cated to each unit to be meaningful (i.e., to reasonably reflect the actual cost of the resources used to manufacture the product). Q6-3. (a) Process (b) Process, unless significantly different models are manufactured (c) Process (d) Job order (e) Process (f) Process (g) Job order (h) Process, unless different fabrics are used for different models, in which case the conversion costs may be accounted for using process, but the materials using job order Q6-4. Three product flow formats are: sequential, parallel, and selective. Sequential means that the product flows or is manufactured in an unchanging fixed set of operations, going from one department to the next. P ar allel means that certain operational phases take place simultaneously in other departments and the partially completed units or parts are brought together in subsequent departments. Selectiv e refers to the fact that a product does not necessarily move through every depart-ment. Depending upon the character or shape of the final product, different departments are engaged in completing the desired product. Q6-5. Mater ials Costs In job order costing, materi-als requisitions are used and charges are made to jobs; in process costing, charges for materials issued to production are made to departments, with infrequent use of materials requisitions....
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- Spring '11