TF 2 Flashcards- Managerial Accounting

Process Costing System

Costing system where all product costs for the period are accumulated and divided evenly over all units produced.

Work in Process (WIP)

Inventory account that tracks partially completed goods in a manufacturing process.

Job Order Costing vs. Process Costing

Job order costing accumulates costs by job, while process costing accumulates costs by department.

Example of Companies Using Process Costing

Jelly Belly Candy Company, soft drink bottlers, and paint manufacturers like Sherwin Williams.

Cost Accumulation in Process Costing

Costs are accumulated by department rather than by job.

Stages of Production in Process Costing

Includes multiple work in process accounts such as Mixing, Baking, and Cooling.

Work in Process - Mixing

Account that tracks direct materials, labor, and overhead costs during the mixing stage of production.

Work in Process - Baking

Account that tracks costs incurred during the baking process.

Work in Process - Cooling

Account that tracks costs incurred during the cooling stage of production.

Journal Entry - Transfer of Costs Between Departments

Debit: Work in Process - Next Department XXX Credit: Work in Process - Previous Department XXX.

Similarities Between Job Order and Process Costing

Both accumulate direct materials, direct labor, and manufacturing overhead and track costs through inventory accounts.

Differences Between Job Order and Process Costing

Process costing mass produces identical products with continuous production, while job order costing tracks unique products.

Equivalent Units (EU)

Measure used in process costing that represents unfinished units in terms of completed units.

Equivalent Units Calculation

Add units completed and transferred out to the equivalent units of ending work in process.

Conversion Costs

Production costs that include direct labor and manufacturing overhead.

Calculating Equivalent Units Example

100,000 units at 60% completion are equivalent to 60,000 completed units.

Physical Unit Flow Calculation

Beginning WIP + Units Started = Units Transferred Out + Ending WIP.

Cost Reconciliation in Process Costing

Ensures that total costs from beginning inventory and new costs added match the total costs allocated.

Allocating Product Costs to Units

Equivalent cost per unit = Total costs / Equivalent units of production.

Cost per Equivalent Unit Calculation

Total costs for materials and conversion costs divided by equivalent units.

Ending WIP Cost Calculation

Multiply equivalent units in WIP by cost per equivalent unit.

Cost Transferred to Next Department

Multiply units transferred out by cost per equivalent unit.

Steps in Process Costing

1. Calculate physical unit flow, 2. Determine equivalent units, 3. Compute cost per equivalent unit, 4. Allocate costs, 5. Reconcile costs.

Journal Entry - Costs Added to WIP

Debit: Work in Process - Department XXX Credit: Raw Materials Inventory, Wages Payable, Overhead Applied XXX.

Journal Entry - Transferring Completed Goods

Debit: Finished Goods Inventory XXX Credit: Work in Process - Last Department XXX.

Cost Allocation for Partially Completed Units

Assign costs based on percentage of completion for materials and conversion costs.

Reconcile Costs Equation

Beginning WIP balance + Costs added = Costs transferred out + Ending WIP balance.

Key Document in Process Costing

Departmental production report.

Key Document in Job Order Costing

Job cost sheet.

Units Transferred Out Calculation

Beginning inventory + Units started - Ending inventory.

Cost Flow in Process Costing

Raw Materials → WIP 1 → WIP 2 → Finished Goods → Cost of Goods Sold.

Importance of Equivalent Units

Ensures fair cost allocation between completed and partially completed units.

Overhead in Process Costing

Applied to each department based on a predetermined overhead rate.

Equivalent Units for Materials vs. Conversion

Materials and conversion costs may have different completion percentages and require separate calculations.

Final Step in Process Costing

Reconciliation of all costs to ensure proper allocation and transfer of costs between departments.

Why Use Process Costing?

Suitable for industries with continuous production and homogeneous products.

Weighted Average vs. FIFO in Process Costing

Two methods to assign costs, with weighted average blending costs and FIFO keeping costs separate by period.

Cost per Unit in Process Costing

Total costs divided by total equivalent units.

Work in Process Inventory Role

Tracks production costs for unfinished goods at different production stages.

Transferred-in Costs

Costs accumulated in previous departments that carry forward to the next department.

Beginning Inventory Impact on Costing

Affects cost allocation depending on whether weighted average or FIFO is used.

Cost of Goods Manufactured (COGM) in Process Costing

Total manufacturing costs assigned to completed units during the period.

Cost of Goods Sold (COGS) in Process Costing

Cost assigned to finished goods sold during the period.

Process Costing in Decision Making

Helps managers determine pricing, budgeting, and cost control strategies.