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Chap004 (dragged) - the Internal Revenue Service and...

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McGraw-Hill/Irwin ¤ 2005 The McGraw-Hill Companies, Inc. Managerial Accounting, 6/e 4-1 CHAPTER 4 Process Costing and Hybrid Product-Costing Systems ANSWERS TO REVIEW QUESTIONS 4-1 In a job-order costing system, costs are assigned to batches or job orders of production. Job-order costing is used by firms that produce relatively small numbers of dissimilar products. In a process-costing system, costs are averaged over a large number of product units. Process costing is used by firms that produce large numbers of nearly identical products. 4-2 Process costing would be an appropriate product-costing system in the following industries: petroleum, food processing, lumber, chemicals, textiles, and electronics. Each of these industries is involved in the production of very large numbers of highly similar products. 4-3 Process costing could be used in the following nonmanufacturing enterprises: processing of tests in a medical diagnostic laboratory, processing of tax returns by
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Unformatted text preview: the Internal Revenue Service, and processing of loan applications in a bank. 4-4 Product-costing systems are used for the following purposes: (a) In financial accounting: Product costs are needed to value inventory on the balance sheet and to compute the cost-of-goods-sold expense on the income statement. (b) In managerial accounting: Product costs are needed for planning, for cost control, and to provide managers with data for decision making. (c) In reporting to interested organizations: Product cost information is used to report on relationships between firms and various outside organizations. For example, hospitals keep track of the costs of medical procedures that are reimbursed by insurance companies or by the federal government under the Medicare program. 4-5 An equivalent unit is a measure of the amount of productive effort applied in the production process. In process costing, costs are assigned to equivalent units rather than to physical units....
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