Chapter 4 Managerial Accounting

What is process costing?

Used by companies to produce large quantities of identical products.

How does process costing compute unit costs?

By department

In process costing, what is different about WIP accounts then Job Costing?

In process costing, a separate WIP account is used for each processing department.

Journal Entry: Raw Materials

Dr: WIP Department A; Dr: WIP Department B; Cr: Raw Materials

Journal Entry: Labor Costs

Dr: WIP Department A; Dr: WIP Department B; Cr: Salaries and Wages Payable

Journal Entry: Manufacturing Overhead

Dr: WIP Department A; Dr: WIP Department B; Cr: MOH

Journal Entry: Transfer of WIP Between Departments

Dr: WIP- Department B; Cr: WIP- Department A

Journal Entry: Completion of Finished Goods

Dr: Finished Goods; Cr: WIP- Department B

Journal Entry: Selling of Finished Goods

Dr: COGS; Cr: Finished Goods

Three concepts of process costing

weighted average, conversion costs, equivalent units

Equivalent Units Formula

Number of partially completed units x percentage complete

total equivalent units formula (EU)

units transferred out + EUs in ending WIP

True or false: Units transferred out are 100% complete

True

True or false: Ending WIP is only partially complete

True

Two costs that are not added to production uniformly

Materials and conversion

Cost per equivalent unit formula

cost of beg. WIP inventory + cost added during period/EUs of Production

Cost reconciliation report- costs TO BE accounted for:

1. Cost of beginning WIP (materials and conversion)

2. add: cost added during period (materials and conversion)

Cost reconciliation report- costs accounted for:

1. cost of ending WIP (materials and conversion)

2. add: cost of units transferred out (materials and conversion)

Cost of ending WIP inventory formula

cost per equivalent unit x equivalent units for each category

How to find equivalent units from scratch

1. Find beg. WIP

2. add additional units

3. subtract units in ending WIP

4. add to ending WIP x percent complete

5. = EU