Process Costing & Accounting for materials and labour Flashcards
(56 cards)
What is process costing appropriate for
Process costing is appropriate for organisations involved in continuous or mass production of homogeneous products
What does process costing do
Process costing:
- Accumulates costs over a specific period
- Calculates average unit cost by dividing total production cost by total units produced
- Does not assign cost to individual items because all units are identical
What is process costing efficient and simple for
Process costing is efficient and simple for standardised production
When is process costing unsuitable
Process costing is unsuitable when units are unique or produced to order
What is the output like for job costing
Job costing output is unique or customised
What is output like for process costing
Process costing output is identical, mass-produced
What is cost attribution like for job costing
Job costing cost attribution is traced per job
What is cost attribution like for process costing
Cost attribution for process costing is averaged across proocesses
What are industry examples of job costing
Industry examples for job costing are: Construction, film production
What are industry examples of process costing
Industry examples for process costing are: Oil refining, beverage manufacturing
What are cost records like for job costing
Cost records for job costing are maintained for each job
What are cost records like for process costing
Cost records for process costing are maintained for each process
What does actual costing use
Actual costing uses actual costs
What does nominal costing use
Nominal costing uses budgeted overhead rates
What does nominal costing offer
Nominal costing offers stability and timely reporting
Why is nominal costing more practical
Nominal costing is more practical since actual overheads are often unknown until the period ends
Overhead Absorption Rate (OAR) =
OAR = Budgeted overheads / Budgeted activity base
What is the purpose of predetermined overhead rates
Purpose of predetermined overhead rates enables timely and consistent cost elimination during production
Why do budgeted overheads normally lead to under or over-absorption
Budgeted overheads rarely match actuals - leading to under or over-absorption
What are the three adjustment methods for accounting for overhead differences
Three adjustment methods for accounting for overhead differences are:
1. Adjusted Allocation Rate
2. Proration
3. Write-Off
What does Adjusted Allocation Rate do
Adjusted Allocation Rate: Recalculates costs using actual data
What does proration do
Proration: Spread variance over COGS, WIP, and Finished goods
What does write-off do
Write-off: Charge then entire difference to COGS
What is normal loss
Normal loss: Expected, unavoidable loss during productions
