Chap016 - Chapter 16 Process Costing and Analysis Chapter...

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Chapter 16 - Process Costing and Analysis Chapter 16 Process Costing and Analysis QUESTIONS 1. Yes, services can be delivered by processes. For example, Federal Express delivers parcels by (a) picking them up from the sender, (b) transporting them to Memphis, (c) sorting them for rerouting, (d) transporting them to their destination cities, and (e) delivering them to the recipient. 2. The main deciding factor in choosing between a job order costing system or a process costing system is the type of product or service. Examples where a process costing system is likely appropriate include chemicals, cleaning fluids, mail processing, and oil refinement. Examples where a job order costing system is likely appropriate include home building, tax return preparation, financial planning, legal services, and consulting. (Hybrid systems are also common.) 3. A materials consumption report is an alternative control document. 4. The main focus in process costing is the production department (process). 5. The journal entries to match cost flows with product flows are primarily the same for both process costing and job order costing. In process costing, the materials flow into production and direct labor is applied to the product. Also, factory overhead is measured and applied to each production department. This similarly compares to each job in job order costing. 6. The computation of equivalent units of production focuses on converting partially completed units to a measure in terms of completed units. We need to use EUP because some units of the production process are partially completed at the end of the accounting period (for example, mail that must still be processed into additional categories) and we desire some measure of the stage of completion. The stage of completed units is typically different for direct materials, direct labor, and factory overhead. For example, toys must still be assembled once all the parts are completed. 7. The two main methods of process costing are the weighted-average and the first-in, first-out (FIFO) methods. The weighted-average method considers “average flow” of the beginning inventory costs along with the current activity for a period, whereas the FIFO method considers the explicit flow of costs and activity for a period. 16-1
Chapter 16 - Process Costing and Analysis 8. A process cost accounting system treats labor that is used entirely within one production department as direct labor. The labor may include the software engineer to control the equipment and the maintenance by persons who work entirely within that department. The key is that the cost object is the process and not the job. 9. Direct labor costs flow first from the Factory Payroll account to the Goods in Process Inventory. Then the direct labor costs in the Goods in Process Inventory account flows to the Finished Goods Inventory and then on to Cost of Goods Sold. 10. After all labor costs have been allocated to Goods in Process Inventory accounts and/or Factory Overhead, the Factory Payroll account should have a zero balance. 11.

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