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Chapter 4

RSM222H1 Chapter Notes - Chapter 4: Weighted Arithmetic Mean, Microsoft Powerpoint, Indian Railways


Department
Rotman Commerce
Course Code
RSM222H1
Professor
Stojanovic Dragan
Chapter
4

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Chapter four: system design: process costing
Comparison of job order and process costing
The similarities that exist between a job order and process costing can be summarized as follows;
1. Both systems have the same basic purposesto assign materials, labor, and overhead costs to products and
to provide a mechanism for computing unit costs
2. Both systems use the same basic manufacturing accounts, including manufacturing overhead, raw materials,
work in process, and finished goods
3. The flow of cost through the manufacturing accounts is basically the same in both systems
The differences between these two costing systems is:
1. The flow of units in a process costing system is more or less continuous
2. These units are indistinguishable from one another
Under process costing, it makes no sense to try to identify materials, labor, and overhead costs with a particular
order from a customer, says each order is just one of many that are filled from a continuous flow of virtually
identical units from the production linecosts are accumulated by departments rather than order and assigned
these costs equally to all units that passed through the department during a period
Job cost sheet is not used a process costing, says the focal point of that market is department
Production report: a report that summarizes all activity in the department’s work in process account during a
period and that contains three parts: a quantity schedule and computation of equivalent units, a computation of
total and unit costs and a cost reconciliation.--> in addition, it shows what costs are charged to the department
and what disposition was made to these costs
** exhibit 4.1 differences between job order and process costing**
Process cost flows
Processing departments
Processing departments: any location in an organization where work is performed on a product and where
materials, labor, or overhead costs are added to the product
A company has as many or as few processing departments as are needed to complete a product or service
All processing departments have two essential features:
1. The activity performed in the processing department must be performed uniformly on all of the units
passing through it
2. The output of the processing department must be identical
** exhibit 4.2 sequential processing departments**
The flow of materials, labor, and overhead costs
In a process costing systems, costs are traced to only a few processing departmentsproduction costs are not
identified with specific units for baptism product, instead, and average unit cost is computed by dividing the
total production cost for the period by the number of units produced during the same period
In a process costing system, work in process account is maintained for each processing departments instead of a
single work in process account for the entire company
In a process costing system, the completed production of the first processing department is transferred into the
work in process account for the second processing department, where it undergoes further work, whereas
completed products’ cost is transferred directly to finished goods account.
After this further work, the completed units are then transferred into the finished goods
The materials, labor, and overhead costs can be added in any processing departments not just one cost of
departments B’s work in process account would consist of the materials, labor, and overhead cost incurred in
department B plus the cost attached to partially completed units transferred from department A Transferred-
in cost: the cost attached to products that have been received from the prior processing department
** exhibit 4.3 T-accounts model of process costing flows**
Materials, labor, and overhead cost entries
Material cost:
Materials can be added in any process departments, although it is not unusual for details to be added only in the
first processing department, with subsequent departments adding only believer and overhead costs as the
partially completed units move along toward completion
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