ADMN 3021H Chapter 6: Chapter 6

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Trent University
Business Administration
ADMN 3021H
Malcolm Mac Taggart

Chapter 6 Systems Design: Process Costing Similarities Between JobOrder and Process Costing Both systems assign material, labour, and overhead costs to products and they provide a mechanism for computing unit product costs Both systems use the same manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods The flow of costs through the manufacturing accounts is basically the same in both systems Differences Between JobOrder and Process Costing Process costing is used when a single product is produced on a continuing basis or for a long period of time o Joborder costing is used when many different jobs having different production requirements are worked on each period Process costing systems accumulate costs by department o Joborder costing systems accumulated costs by individual jobs Process costing systems use department production reports to accumulate costs o Joborder costing systems use job cost sheets to accumulate costs Process costing systems compute unit costs by department o Joborder costing systems compute unit costs by job on the job cost sheet Equivalent Units of Production Equivalent units are the product of the number of partially completed units and the percentage completion of those units Equivalent units = of partially completed units X percentage completion Needs to be calculated because a department usually has some partially completed units in its beginning and ending inventory Treatment of Direct Labour Direct labour costs may be small in comparison to other product costs in process cost systems Direct labour and manufacturing overhead may be combined into one classification of product cost called conversion costs Equivalent Units FIFO method or WeightedAverage Method WeightedAverage Method Makes no distinction between work done in prior or current periods Blends together units and costs from prior and current periods
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