Quiz 18: Process Costing Systems


Lean manufacturing: Lean manufacturing is also referred to as just in time processing It is a method under which the management strives to earn maximum profits with high quality, lower costs, and readily availability in the market. This method aims to attain both efficiency and effectiveness. Under lean manufacturing the workers are trained to perform multitasks at a point of time to reduce the time taken to produce the product and hence, increase the efficiency. Individual tasks are given to each individual to avoid and confusion later. It increases the efficiency of the workers and also, the equipment are properly taken care of. The basic objective of this process to increase the speed without compromising the quality of the product. This process helps in reducing wastage of resources. In the given case: • The treatment done by Bishop was unethical. The product was a success because of its quality and quantity. Chips used in the production process are the main ingredient of the product. Hampering its quantity will also reduce the quality of the product. • The division controller should immediately stop the production process to avoid further degradation in the quality. • The division controller should introduce Bishop, the product manager with the concept of lean manufacturing. • The way adopted by product manager was ethically incorrect and should be rectified as soon as possible to maintain the quality of the product intact. • Also, methods are adopted to increase the sales which will decrease the per unit cost automatically.

(a) An assembly-type industry using mass production methods, such as TV assembly, would use the process cost system because the products are somewhat standard and lose their identities as individual items. In such industries, it is neither practical nor necessary to identify output by jobs. (b) A job order cost system would be used by a building contractor to accumulate the costs for each individual building because the costs can be identified with each job without great difficulty. (c) A job order cost system is best suited for an automobile repair shop because costs can be reasonably identified with each job. (d) A process cost system would be best suited for a paper manufacturer because the processes are continuous and the products are homogeneous. (e) A job order cost system is best suited for a custom jewelry manufacturer because most of the production consists of job orders, and costs can be reasonably identified with each job.

In process costing cost of product is determined which passes through various production process. In such costing methodology cost of product determined by allocating direct and indirect cost in process account. It is generally followed by manufacturing firms having different continuous process throughout the period. Pass the journal entries and show the accounts would be debited and credited for the given business events as follows: a. Materials used by the blending department: img b. Transfer of blended product to the molding department: img c. Transfer of chocolate to the packing department: img d. Transfer of boxed chocolate to the distribution center: img e. Sale of boxed chocolate: img Inventory is an asset and debit balance account, hence debited to increase and credited to decrease. Transfer of inventory (work-in-process) from one department to another is decrease of inventory in transferring department hence, credited to decrease, and increase of inventory in receiving department hence, debited to increase.

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