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Cost Accounting Systems: 1) Job-Order Costing 2) Process Costing

The document summarizes key aspects of process costing and job order costing systems as well as absorption and variable costing methods. It outlines the basic steps and calculations for weighted average and FIFO process costing, including determining equivalent units, calculating unit costs, and computing costs of goods completed and ending work in process. It also contrasts absorption costing, which treats fixed overhead as a product cost, and variable costing, which treats it as a period cost, noting their different uses for financial reporting versus managerial decision making.

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58 views5 pages

Cost Accounting Systems: 1) Job-Order Costing 2) Process Costing

The document summarizes key aspects of process costing and job order costing systems as well as absorption and variable costing methods. It outlines the basic steps and calculations for weighted average and FIFO process costing, including determining equivalent units, calculating unit costs, and computing costs of goods completed and ending work in process. It also contrasts absorption costing, which treats fixed overhead as a product cost, and variable costing, which treats it as a period cost, noting their different uses for financial reporting versus managerial decision making.

Uploaded by

education890
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Acct 212 chapter 4 & 7 Chapter 4 Cost Accounting Systems: 1) 2) Job-order costing Process costing

Process Costing A company produces many units of a single product. One unit of product is indistinguishable from other units of product. The identical nature of each unit of product enables assigning the same average cost per unit.

Job-order Costing Process Costing 1) 2) Weighted average FIFO (first-in, first-out)

Equivalent units Equivalent units represent the number of wholly-completed units a department could have finished given their available resources.

Steps Weighted Average Process Costing 1) 2) 3) 4) Calculate the equivalent units for both direct materials & conversion costs Calculate unit costs for both direct materials & conversion costs Calculate the cost of goods completed and transferred out Calculate the cost of ending work in process

Unit costs:

Cost of goods completed & transferred out: Units Completed x Total Unit Cost

Cost of ending work in process: DM: Equivalent units in ending WIP x Unit Cost + CC: Equivalent units in ending WIP x Unit Cost

Steps FIFO Process Costing 1) 2) 3) 4) Calculate the equivalent units for both direct materials & conversion costs Calculate unit costs for both direct materials & conversion costs Calculate the cost of goods completed and transferred out Calculate the cost of ending work in process

Unit costs:

Cost of goods completed & transferred out: I. Cost of units in beginning work in process a. cost of beginning work in process

b.

cost to complete units in beginning wip DM: units in beg wip x % remaining x unit cost CC: units in beg wip x % remaining x unit cost

+ II. Cost of units started & completed in current period (units completed - units in beg wip) x total unit cost

Cost of ending work in process: DM: Equivalent units in ending WIP x Unit Cost + CC: Equivalent units in ending WIP x Unit Cost

Chapter 7 Product Costing 1. 2. Absorption costing Variable costing

Absorption costing and variable costing differ only in the treatment of fixed overhead: absorption - fixed overhead is a product cost

variable - fixed overhead is a period cost

Absorption Costing: required by GAAP for external financial reporting (income statements & balance sheets) according to the Tax Reform Act of 1986, absorption costing must be used when filing income tax returns uses a traditional income statement format (sales cost of goods sold = gross profit s&a expenses = net income)

Variable Costing: preferred by managers for decision making consistent with cost-volume-profit analysis because all costs on the income statement are either variable or fixed uses a contribution income statement format (sales variable costs = contribution margin fixed costs = net income)

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