Managerial Accounting Chapter 4: Process Costing Vocabulary

A complete set of vocabulary flashcards covering key definitions, cost flow mechanisms, journal entries, and calculation formulas for Process Costing.

Processing Department

Any unit in an organization where materials, labor, or overhead are added to the product, characterized by uniform activities on all units and homogeneous output.

Conversion Costs

The combination of direct labor and manufacturing overhead costs, frequently grouped together in process costing because direct labor costs are relatively small compared to other product costs.

Equivalent Units

The product of the number of partially completed units and the percentage completion of those units.

Weighted-Average Method

A process costing method that calculates unit costs by combining costs and outputs from the current and prior periods without distinguishing between work done in different periods.

FIFO Method

A process costing method that calculates unit costs based solely on the costs and outputs from the current period.

Equivalent Units of Production (Weighted-Average)

The number of units transferred to the next department or finished goods plus the equivalent units in ending work in process inventory.

Cost per Equivalent Unit Formula

$$\text{Cost per Equivalent Unit} = \frac{\text{Cost of Beginning Work in Process Inventory} + \text{Cost Added During the Period}}{\text{Equivalent Units of Production}}$$

Job-Order Costing System Flow

A manufacturing cost flow system where direct materials, direct labor, and manufacturing overhead costs are traced and applied directly to specific jobs.

Process Costing System Flow

A manufacturing cost flow system where direct materials, direct labor, and manufacturing overhead costs are traced and applied to processing departments.

Raw Materials Journal Entry (Process Costing)

A journal entry debiting Work in Process - Department A and Work in Process - Department B, and crediting Raw Materials when materials are issued to production departments.

Labor Costs Journal Entry (Process Costing)

A journal entry debiting Work in Process - Department A and Work in Process - Department B, and crediting Salaries and Wages Payable to record direct labor costs traced to departments.

Manufacturing Overhead Journal Entry (Process Costing)

A journal entry debiting Work in Process - Department A and Work in Process - Department B, and crediting Manufacturing Overhead to apply overhead based on predetermined overhead rates.

Departmental Transfer Journal Entry

A journal entry debiting Work in Process - Department B and crediting Work in Process - Department A to transfer costs of completed units to the next processing department.

Finished Goods Transfer Journal Entry

A journal entry debiting Finished Goods and crediting Work in Process - Department B to record the cost of units completed and transferred out of the final processing department.

Cost of Goods Sold Journal Entry

A journal entry debiting Cost of Goods Sold and crediting Finished Goods when units are sold to fill a customer order.