Formulas
Total Direct Materials Cost for the Period / Total Equivalent Units of Direct Materials
Direct Materials Cost per Equivalent Unit
What would be the journal entry if a company purchased materials on account. What is the correct debit and credit?
Materials DEBIT
Accounts Payable CREDIT
What is the number of units in production during a period, whether completed or not.
Whole units
The ___________ is used for decision making by providing information for controlling and improving operations
cost of production report
What costs include utility costs (power) and depreciation on the equipment?
Factory Overhead Costs
total production costs / total equivalent units
cost per equivalent unit
What would be the journal entry for recording the Cost of Goods Sold from the Finished Goods Inventory of $100,000?
Cost of Goods Sold DEBIT $100,000
Finished Goods CREDIT $100,000
A manufacturer that produces products that are indistinguishable from each other using a continuous production process.
Process Manufacturer
Cost of production reports may be prepared to help managers?
Two answers allowed
- isolate problems
- seek opportunities for improvement
Records and summarizes product costs.
Classifies product costs as direct materials, direct labor, and factory overhead.
Allocates factory overhead costs to products.
Uses a perpetual inventory system for materials, work in process, and finished goods.
Provides useful product cost information for decision making.
total conversion costs for the period / total equivalent units of conversion costs
Conversion cost per equivalent unit
If the Dharani Department transferred costs of $50,000 to the Kareena Department, what is the journal entry?
Work in Process - Kareena DEBIT $50,000
Work in Process - Dharani CREDIT $50,000
The rate used to allocate costs between completed and partially completed production.
Cost per equivalent Unit
An oil refinery processes crude oil through a series of steps to produce a barrel of gasoline. One barrel of gasoline, the product, cannot be distinguished from another barrel. What type of manufacturer is this?
Process Manufacturer
If a company incurred direct labor in the Dharani and Kareena department of $20,000 and $40,000 respectively, what are the journal entries recorded?
Work in Process - Dharani DEBIT $20,000
Work in Process - Kareena DEBIT $40,000
Wages Payable CREDIT $60,000
Calculate the Direct Materials Cost per Equivalent Unit if the July 1st inventory includes a Direct Materials Cost of $80,000 for 40,000 units.
80,000/40,000 = $2 per unit
Factory Overhead - Dharani DEBIT $2,000
Factory Overhead - Kareena DEBIT $5,000
Accumulated Depreciation CREDIT $7,000
A type of costing typically used by companies that mass produce very similar or identical products or units of output
Process Costing
This cost system is used when inventory items are so identical that it is hard to assign specific costs to single units.
Weighted Average Cost Method
Name the first step for the cost flows for a process manufacturer.
The cost of materials purchased is recorded in the materials account.
Calculate the Conversion cost per equivalent unit if the conversion cost is $40,000 for 10,000 units 80% completed.
40,000/10,000 (0.8) = $5 per unit
If there was applied factory overhead to Dharani and Kareena departments of $10,000 and $20,000 respectively, what would be the journal entries recorded?
Work in Process - Dharani DEBIT $10,000
Work in Process - Kareena DEBIT $20,000
Factory Overhead - Dharani CREDIT $10,000
Factory Overhead - Kareena CREDIT $20,000
The number of production units that could have been completed within a given accounting period, given the resources consumed.
Equivalent Units of Production
These steps belong to which method of determining costs:
Step 1. Determine the units to be assigned costs
Step 2. Compute equivalent units of production
Step 3. Determine the cost per equivalent unit
Step 4. Allocate costs to transferred out and partially completed units
Weighted Average Cost Method
Name the last step for the cost flows for a process manufacturer.
The cost of units sold is transferred to Cost of Goods Sold