process costing Flashcards
(3 cards)
Distinguish between Job costing and process costing
job Costing
Used for custom, unique, or small-batch production (e.g., construction, printing, furniture making).
Tracks costs per job or project (e.g., Building A, Client X’s order).
Process Costing
Used for mass-produced, identical items (e.g., oil, cereal, pharmaceuticals).
Averages costs per department or process (e.g., Mixing Dept., Packaging Dept.).
Job Costing
Each job has a separate cost record (materials, labor, overhead).
Unit cost = Total job cost ÷ Units in that job.
Process Costing
Costs are pooled by production stage (e.g., refining, bottling).
Unit cost = Total department costs ÷ Total units produced.
Production Flow
Job Costing
Non-repetitive (each job differs).
Work-in-Progress (WIP) tracked per job.
Process Costing
Continuous, repetitive (identical processes).
WIP tracked per department (e.g., half-processed chemicals).
Flexibility & Cost Control
Job Costing
High flexibility (customization).
Focuses on per-job profitability.
Process Costing
Low flexibility (standardized).
Focuses on departmental efficiency.
Explain how normal and abnormal loss are treated differently in process
costing.
Normal Loss
Definition: Expected, unavoidable waste inherent in the production process (e.g., evaporation, scrap).
Accounting Treatment:
Cost Absorption: Normal loss costs are absorbed by good output, increasing the per-unit cost.
No Separate Valuation: Lost units are not valued independently—their cost is spread over remaining units.
Cost per unit = total input costs / good output - normal loss
abnormal Loss
Definition: Unforeseen, avoidable waste due to inefficiencies (e.g., machine breakdowns, errors).
Accounting Treatment:
Separate Valuation: Abnormal loss is calculated and charged to the Profit & Loss (P&L) account as a period cost.
Not Included in Product Costs: Unlike normal loss, abnormal loss does not inflate the cost of good units.
