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Process Costing
Costs are accumulated for each of the departments or processes with the factory
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Process Cost System
- homogenous production
- used for production of small, identical, low-cost items
- mass produced in automated continuous production process
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Cost Accounting for Financial Statements
Measuring:
Inventory= Balance Sheet
COGS(cost of goods sold)= Income Statement
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Cost Flow Assumptions
- FIFO
- LIFO (Prohibited by IFRS)
- Weighted Average
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FIFO (first in-first out)
prices:
rising - ↓ COGS, ↑ OI, ↑ Tax
declining - ↑ COGS, ↓ OI, ↓ Tax
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LIFO (Prohibited by IFRS)
prices:
rising - ↑ COGS, ↓ OI, ↓ Tax
declining - ↓ COGS, ↑ OI, ↑ Tax
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Weighted Average
weighted avg. x units sold = COGS
weighted avg. x ending Inv = Ending Inv Bal
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Equivalent Units
- calculated for
- - Direct materials
- - Conversion costs
- depends on:
- -moment the costs are incurred during the production process (beginning/ending)
- *FIFO *Weighted Avg [calculates cost per equivalent unit of all work done to date (Beginning+Ending)]
-% completed at the end of period
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Whole Units
# of units in production during a period, WHETHER OR NOT COMPLETED
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Equivalent Units
Units that could have been completed within a given accounting period
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Cost Production Report
Production reports are prepared for each department
- 2 Parts:
- -Units (Steps 1,2)
- -Costs (Steps 3,4,5)
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Production Report (5 Steps)
1. Determine whole units
2. Calculate equivalent units
3. Determine total costs to account for
4. Determine costs per equivalent
5. Allocate cost to transferred units and partially completed units
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Weighted Average (Step 1)
- Beg WIP (units)
- + Started units
- = Whole units
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Weighted Average (Step2)
- Completed units
- + Ending Inventory (Whole units-completed units)
- = Equivalent units
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Weighted Average (Step 3)
- Beg WIP (costs)
- +Current period costs
- = Total cost accounted for
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Weighted Average (Step 4)
- Total costs accounted for
- ÷ Equivalent units
- = Costs per equivalent units
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Weighted Average (Step 5)
- Cost assigned to completed units
- +Cost assigned to ending inventory
- = Total cost accounted for
- (Respective completed units x respective costs per equivalent units)
- (Respective ending inventory x respective costs per equivalent units)
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FIFO (Step 1)
- Beg WIP (units)
- + Started units
- = Whole units
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FIFO (Step 2)
- Beginning inventory (units) (FLIP %)
- Started & completed (total completed & transferred - Beginning units)
- + Ending inventory
- = Equivalent units
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FIFO (Step 3)
- Beg WIP (costs)
- +Current period costs
- = Total cost accounted for
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FIFO (Step 4)
- Current period costs
- ÷ Equivalent units
- = Cost per equivalent units
(FIFO method)
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FIFO (Step 5)
- Cost assigned to beginning inventory
- Cost assigned to started & completed
- Cost assigned to ending inventory
- + Beginning Inventory Cost
- =Total cost accounted for
- (Respective beginning inventory x respective equivalent units)
- (Respective started & completed units x respective costs per equivalent units)
- (Respective ending inventory x respective costs per equivalent units)
- FIFO Method ( Must add along too assigned cost)
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