What items are included in a cost of good manufactured statement?
- Accounts for the manufacturing costs of the products completed during the period. Includes
- Direct Materials
- Direct Labor
- Manufacturing Overhead
What does a typical COG Manufactured Statement contain?
- WIP inventory, beginning
- Add, DM used, DL, Manu-OH applied
- Total manufacturing costs available
- (Less, WIP inventory, ending)
- COG Manufactured
What items are collected on the Production Report
- The total costs incurred for a period
- The units (aka quantities) produced during that period
What are the steps required to complete process costing?
- Summarize the flow of physical units beginning with the production report
- Calculate "equivalent unit" output
- Accumulate the total costs to be accounted for (production report)
- Calculate the avg cost/unit based on total costs and equivalent units
- Apply the avg cost/unit to the completed and remaining WIP inventory
Company X put 10,000 units into production during the 1st quarter. Raw material was input at the beginning of production. Conversion costs were 75% complete during the first 2 months, the remainder to be complete during the 3rd month. What are the equivalent units at the end of February?
- 100% complete for raw materials = 10,000 units
- 75% complete for conversion = 7,500 units
What are the 4 process costing assumptions
- (1) transfers in are 100% complete from the previous process
- (2) DM added at the beginning of the process is 100% complete
- (3) DM added during the process is "partially complete" depending on how much work has been done
- (4) DM added at the very end of the process will not be included in ending WIP inventory (0% complete)
Which of the following bears an observable and known relationship to a quantifiable activity base: (1) fixed cost, (2) engineered cost, (3) target cost, (4) indirect cost.
- Engineered costs
- These include direct labor and direct materials as these can be directly linked to output
Describe traditional overhead costing. What is another name for this method?
- aka Volume-based costing
- All indirect manufacturing overhead costs are placed into a single cost pool. This cost pool is then allocated using a single cost driver (such as direct labor hours or machine hours).
Since overhead is allocated based on the budgeted rate, what happens when the actual overhead is > applied overhead
- = Underapplied overhead (a debit balance)
- Means actual is more than budgeted (an unfavorable position)
What does it mean when the Manufacturing Overhead account has a credit balance?
- More overhead has been allocated than was budgeted
- Actual costs < applied costs
- Meaning costs are less than budget = favorable
For indirect materials, provide a flow of the following in the order used: (1) factory overhead control, (2) stores control, (3) WIP control, (4) factory overhead applied
- Stores control
- Factory overhead control
- Factory overhead applied
- WIP Control
What is the difference (definition) between (1) total manufacturing cost, and (2) cost of goods manufactured?
- Total manufacturing costs are the costs to create products and includes DL, OH, and DM. Some of these remain unfinished in WIP.
- Cost of Goods Manufactured at the finished products that transfer to finished goods inventory and are ready for sale.
Product costs are not expensed until [this happens].
The products are sold.
Describe the two methods of calculating average unit costs.
- FIFO: Assume the beginning inventory was completed first and is assigned the initial costs.
- Weighted Average: Averages the cost of production during the period with the costs in the beginning WIP inventory.
What are the 3 elements that compose calculating the equivalent units using the FIFO method? What are the cost components?
- Beginning WIP x % to be completed
- Add, units started and completed during the period (= completed - started)
- Add, ending WIP x % completed
- (current costs incurred during the period) / equivalent units
What are the 2 elements that compose calculating the equivalent units using the weighted avg method? What are the cost components?
- Units completed (beginning WIP + units started and completed --> beginning WIP is not adjusted for % to be completed)
- Add, ending WIP x % completed.
- (costs of beginning inventory + current costs incurred during the period) / equivalent units
What accounts for the difference in equivalent units comparing FIFO to the Wt Avg method? Which method has fewer equivalent units?
- In FIFO we account for the partially completed beginning WIP inventory
- For Wt Avg the beginning units are included in the completed products amount.
- Thus FIFO will always have fewer equivalent units than Wt Avg.
ABC Co incurs abnormal spoilage due to a power outage. How is this abnormal spoilage accounted?
As a period expense, not a production expense
Since overhead is allocated based on the budgeted rate, what happens when the actual overhead is < applied overhead
- = Overapplied overhead (a credit balance)
- Means actual is less than budgeted (an favorable position)
For process costing, costs are accumulated based on (1) activities, (2) operations, (3) job, or (4) department