Process Cost System Flashcards
What is process costing?
A product costing system that accumulates costs by processes or departments and averages them over identical units produced.
When is process costing used?
For continuous production of homogeneous products like chemicals, textiles, oil, flour, or cement.
What are equivalent units?
A way to express partially completed units as a number of fully completed units.
How is cost per equivalent unit calculated?
Costs divided by the number of equivalent units produced during the period.
What are conversion costs?
Combined direct labor and factory overhead costs incurred uniformly throughout the production process.
What are the 5 steps to complete a production cost report?
- Analyze physical flow 2. Calculate equivalent units 3. Determine total costs 4. Compute cost per equivalent unit 5. Assign total costs to completed and WIP units.
How does the weighted-average method calculate costs?
It averages beginning WIP costs with current period costs for unit cost calculation.
How does the FIFO method calculate costs?
It considers only current period costs to compute unit costs.
In process costing, when direct materials are added at the beginning and labor/overhead throughout, how are equivalent units calculated?
Direct materials equivalent units are 100% at the start; conversion costs are proportional to completion.
What are transferred-in costs?
Costs accumulated in previous departments transferred into a subsequent department.
How are transferred-in equivalent units treated under weighted-average?
They are equal to the total units to account for.
How are transferred-in equivalent units treated under FIFO?
They are total units minus units completed from beginning WIP.
How is normal spoilage accounted for?
It can either be shown separately or averaged into the cost of good units.
How is abnormal spoilage accounted for?
It is reported separately, showing costs lost up to the inspection point.
What methods can enhance a process costing system?
Activity-based costing (ABC), contribution margin methods, and theory of constraints.
What distinguishes the weighted-average method from FIFO?
Weighted-average averages all costs; FIFO considers only current period costs for unit cost calculation.
What report is prepared each period under process costing?
A Production Cost Report, summarizing the costs assigned and completed units.
