Cornerstones of Cost Management Study Set 4

Business

Quiz 6 :

Process Costing

Quiz 6 :

Process Costing

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What is a process? Provide an example that illustrates the definition.
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Process:
A process is a series of activities (operations) that are linked to perform a specific objective. For example, B Company, a manufacturer of wide variety of over-the-counter medications vitamins, uses process costing in its plants. Its different processes for production of one of the medications are given as under:
Example:
img Blending, encapsulating bottling are the three processes. Each process consists of four linked activities as described above.

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What is a production report? What purpose does this report serve?
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Production report and its purposes:
The production report summarizes the manufacturing activity occurring in a department for a given period.
It discloses information concerning the physical flow of units, equivalent units, unit costs, and disposition of manufacturing costs associated with the period.
A production report prepared according to FIFO method separated the cost of BWIP from the cost of the current period.
1) BWIP is assumed to be completed and transferred out first.
2) Cost from BWIP is not pooled with the current period costs in computing unit cost. Additionally, equivalent units of production exclude work done in the prior period.
3) When calculating the cost of goods transferred out, the prior period casts are added to the costs of completing the units in BWIP, and then these costs are added to the costs of units started and completed.
A production report prepared according to Weighted Average Method do not separated the cost of BWIP from the cost of the current period.
1) Cost from BWIP is pooled with the current period costs in computing unit cost. Additionally, equivalent units of production include work done in the prior period.
2) When calculation the cost of goods transferred out, the prior period costs are added to the current costs of completing the units.

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How is the equivalent unit calculation affected when direct materials are added at the beginning or end of the process rather than uniformly throughout the process?
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Equivalent unit calculation is affected when isolated equivalent units are not computed for conversion costs and direct materials and results will not be clear and reliable. Therefore, it is important to calculate separate equivalent units for direct materials and conversion costs in order to eliminate this effect.

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Physical Flow and Equivalent Units with EWIP Fleming, Fleming, and Johnson, a local CPA firm, provided the following data for individual returns processed for March (output is measured in number of returns): img Required: 1. Prepare a physical flow schedule 2. Prepare an equivalent units schedule. Explain why output is measured in equivalent units. 3. What if EWIP is 80 percent complete? How would this change affect the physical flow schedule? The equivalent units schedule?
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Nonuniform Inputs Apeto Company produces premium chocolate candy bars. Conversion costs are added uniformly. For February, EWIP is 40 percent complete with respect to conversion costs. The following information is provided for February: img Required: 1. Calculate the equivalent units for each input category. 2. Calculate the unit cost for each category and in total. 3. What if a different type of materials is also added at the end of the process (a candy wrapper), costing $4,800? Calculate the new unit cost.
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What journal entry would be made as goods are transferred out from one department to another department? From the final department to the warehouse?
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Cost Information and FIFO Gunnison Company had the following equivalent units schedule and cost information for its Sewing Department for the month of December: img Required: 1. Calculate the unit cost for December, using the FIFO method. 2. Calculate the cost of goods transferred out, calculate the cost of EWIP, and reconcile the costs assigned with the costs to account for. 3. What if you were asked for the unit cost from the month of November? Calculate November's unit cost and explain why this might be of interest to management.
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Can process costing be used for a service organization? Explain. Describe how process costing can be used for JIT manufacturing firms.
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Unit Information with BWIP, Weighted Average Method Jackson Products produces a barbeque sauce using three departments: Cooking, Mixing, and Bottling. In the Cooking Department, all materials are added at the beginning of the process. Output is measured in ounces. The production data for July are as follows: img Required: 1. Prepare a physical flow schedule for July. 2. Prepare an equivalent units schedule for July using the weighted average method. 3. What if you were asked to calculate the FIFO units beginning with the weighted average equivalent units? Calculate the weighted average equivalent units by subtracting out the prior-period output found in BWIP.
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Cost Information During October, McCourt Associates incurred total production costs of $60,000 for copyediting manuscripts and had the following equivalent units schedule: img Required: 1. Calculate the cost of copyediting one manuscript for October. 2. Assign costs to manuscripts completed and to EWIP and then do a cost reconciliation. 3. What if the costs assigned to units completed and EWIP total were calculated using a unit cost of $225? What is the discrepancy between the costs assigned and the costs to account for? What could have caused an incorrect unit cost?
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Unit Information with BWIP, FIFO Method Jackson Products produces a barbeque sauce using three departments: Cooking, Mixing, and Bottling. In the Cooking Department, all materials are added at the beginning of the process. Output is measured in ounces. The production data for July are as follows: img Required: 1. Prepare a physical flow schedule for July. 2. Prepare an equivalent units schedule for July using the FIFO method. 3. What if 60 percent of the materials were added at the beginning of the process and 40 percent were added at the end of the process (all ingredients used are treated as the same type or category of materials)? How many equivalent units of materials would there be?
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What are equivalent units? Why are they needed in a process-costing system?
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Under the weighted average method, how are prior-period costs and output treated? How are they treated under the FIFO method?
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Cost Flows Lamont Company produced 80,000 machine parts for diesel engines. There were no beginning or ending work-in-process inventories in any department. Lamont incurred the following costs for May: img Required: 1. Calculate the costs transferred out of each department. 2. Prepare the journal entries corresponding to these transfers. Also, prepare the journal entry for Grinding that reflects the costs added to the transferred-in goods received from Molding. 3. What if the Grinding Department had an ending WIP of $12,000? Calculate the cost transferred out and provide the journal entry that would reflect this transfer. What is the effect on finished goods calculated in Requirement 1, assuming the other two departments have no ending WIP?
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Describe the differences between process costing and job-order costing.
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Describe the five steps in accounting for the manufacturing activity of a processing department, and indicate how they interrelate.
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Production Report Tomar Company produces vitamin energy drinks. The Mixing Department, the first process department, mixes the ingredients required for the drinks. The following data are for April: img Direct materials are added throughout the process. Ending inventory is 60 percent complete with respect to direct labor and overhead. Required: 1. Why would a manager want a production report? 2. Prepare a production report for the Mixing Department for April.
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Unit Cost, No Work-in-Process Inventories Lising Therapy has a physical therapist who performs electro-mechanical treatments for its patients. During April, Lising had the following cost and output information: img Required: 1. Calculate the cost per treatment for April. 2. Calculate the cost of services sold for April. 3. What if Lising found a way to reduce overhead costs by 20 percent? How would this affect the profit per treatment?
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What are transferred-in costs?
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Explain why transferred-in costs are a special type of material for the receiving department.
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