Textbook Notes on Chapter 4,8-Process Costing and Activity-Based Costing

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5 Aug 2010
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Chapter 4 ± Systems Design: Process Costing
Processing department ± any location in an organization where work is performed on a product
and where materials, labour, or OH costs, are added to the product (one company could have
more than one ± sequential/parallel processing[after certain points some unites go through diff.
processing depts.- e.g. Coca-Cola])
- 2 essential features:
o activity performed in the dept. must be performed uniformly on all the units
passing through
o output of processing dept. must be homogeneous
- costs are traced to processing departments, NOT specific jobs
- separate WIP accounts for each processing department
- materials, labour, and OH can be added to any processing department
Transferred-in cost ± cost attached to products that have been received from a prior processing
dept.
JE:
Material costs ±
Dr. WIP ± dept 1 XXX
Cr. RM XXX
Dr. WIP ± dept 2 XXX
Cr. RM XXX
Labour costs ±
Dr. WIP ± Dept 1 XXX
Dr. WIP ± Dept 2 XXX
Cr. Salaries/wages payable XXX
OH ± (if production = stable and incurred uniformly over the year, actual OH costs can be
charged to products, if production = fluctuates or not incurred uniformly, POR used ± each dept.
has its own rate)
Dr. WIP ± dept 1 XXX
Dr. WIP ± dept 2 XXX
Cr. Manu. OH XXX
Completing cost flows ± (after processing)
1) Dr. WIP ± dept 1 XXX
Cr. WIP - dept 2 XXX
2) Dr. Finished Goods XXX
Cr. WIP ± dept 2 XXX
3) Dr. COGS XXX
Cr. Finished Goods XXX
1. FIFO Method (of computing equivalent units of production) ± method of accounting for cost
flows in a process costing process system in which equivalent units and unit costs relate only to
work done during the period (units/costs of prior periods are separated from units/costs of current
period)
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Document Summary

Materials, labour, and oh can be added to any processing department. Transferred-in cost cost attached to products that have been received from a prior processing dept. Oh (if production = stable and incurred uniformly over the year, actual oh costs can be charged to products, if production = fluctuates or not incurred uniformly, por used each dept. has its own rate) Completing cost flows (after processing: dr. wip dept 1, dr. Conversion cost = direct labour cost + manu. Blends together work accomplished in prior periods with work accomplished in current period. ** rounding errors - 1) all costs per equivalent unit are rounded to 3 decimal places. Flexible manufacturing systems plants are heavily automated and its activities are organized around cells, or islands, of automated equipment; highly efficient in reducing the set-up time required between products and jobs. As fms grows, predicted that job-order costing will slowly disappear\

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