Basic Concepts
This costing method is typically used in industries where production is continuous and units are indistinguishable.
Process Costing
The three main cost components in process costing are direct materials, direct labor, and this.
Manufacturing overhead.
This formula is used to calculate equivalent units under the weighted-average method.
Units completed + (Ending WIP × % completion)
This journal entry records the transfer of costs from one department to another.
Debit WIP – Receiving Dept, Credit WIP – Sending Dept
This term refers to the loss of units during production that is expected by the management.
Normal Loss.
In process costing, this term refers to the number of units that could have been completed given the amount of work done.
Equivalent units.
These costs are added at the beginning of the process and are often 100% complete for equivalent unit calculations.
Direct materials.
Under FIFO, this portion of beginning WIP is excluded from current period equivalent units.
Work done in the prior period.
This report summarizes the physical flow of units, equivalent units, and cost assignment.
Production Cost Report
This type of spoilage is within the expectation of the entity since the lost units are brought about by the inherent characteristics of the materials being used in the process.
Normal and continuous.
This document tracks the flow of costs through each department in a process costing system.
Production cost report.
In process costing, this term refers to the cost transferred from one department to another, which must be carefully tracked to avoid misstating departmental performance.
Transferred-in cost
This method of calculating equivalent units is more accurate when costs fluctuate between periods.
FIFO Method.
This entry records the application of overhead to a processing department.
Debit WIP, Credit Manufacturing Overhead
The method of neglect handles spoilage that is classified as:
Normal and Continuous
This costing method assigns costs to units based on the average cost of all units produced.
Weighted average method.
This type of cost behavior complicates process costing because it does not change proportionally with production volume, requiring careful estimation and allocation.
Fixed overhead cost
This term describes the percentage of completion for ending inventory in process costing.
Degree of completion.
This entry is made when finished goods are transferred from the last processing department.
Debit Finished Goods Inventory, Credit WIP – Final Dept
Which of the following would be considered a discrete loss in a production process?
a. adding the correct ingredients to make a bottle of ketchup
b.putting the appropriate components together for a stereo
c.adding the wrong components when assembling a stereo
d.putting the appropriate pieces for a bike in the box
C
This method separates costs into those incurred in the current period and those from the previous period.
FIFO method.
This advanced costing concept involves assigning overhead based on activities rather than volume, and is sometimes integrated with process costing for more accurate cost control.
Activity based costing
This is the key difference in how beginning inventory is treated between FIFO and weighted-average methods.
The separation of prior and current period costs.
This entry is made when goods are sold and includes both revenue and cost of goods sold.
Debit Accounts Receivable, Credit Sales Revenue; Debit COGS, Credit Finished Goods Inventory
Mac Co. produces a special kind of insecticides. Materials are added at the end of production of Mixing Department. For the month of March 2024, the following data were gathered:
No. Of Units
Work-in-process March 1, 40% complete as to
conversion costs …......................…………. 40,000
Started in process during the month ...….. 100,000
Transferred to the Molding Department ……....85,000
Lost units in processing …………………………. 10,000
Work-in-process, March 31, 60% complete as to
Conversion cost ……….....……………………… 45,000
The remaining units absorbed the costs corresponding to the lost units.
What are the equivalent units for the materials unit cost calculation?
85,000