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Under what conditions would it be appropriate to use a process costing system?

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Introduction

Strayer University Graduate Chapter Questions: Ch. 1. Under what conditions would it be appropriate to use a process costing system? Process costing system can be used in industries that produce essentially homogenous products on a continuous basis, such as bricks and paper. 2. In what ways are job-order and process costing similar? Job-order and process costing are similar in three ways that the book declares. One, both systems have the same basic purposes- to assign materials, labor, and overhead to products and to provide a mechanism for computing unit product costs. Second, both systems use the same basic manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work In Process, and Finished Goods. Third, the flow of costs through the manufacturing accounts is basically the same in both systems. ...read more.

Middle

A separate Work In Process account is maintained for each processing department. Therefore, it depends on how many department a company have. 7. Assume that a company has two processing department-Mixing and Firing. Prepare a journal entry to show a transfer of partially completed units from the Mixing Department to the Firing Department. Work In Process (Mixing) xxx Work In Process (Firing) xxx 8. Assume again that a company has two processing departments-Mixing and firing. Explain what costs might be added to the Firing Department's Work in Process account during a period. After the processing has been completed in the final department, the costs of the completed units are transferred to the Finished Goods inventory account. The entry would be formulated as shown below: Finished Goods xxx Work In Process (Firing) ...read more.

Conclusion

Why is this an apt comparison? A snowball goes around with no ending point similar to a product in a process costing system. For instance a cost is transferred to preceding department until it is sold. If it is not sold it transfers back into beginning inventory. 12. Watkins Trophies, Inc. produces thousands medallions made of bronze, silver, and gold. The medallions are identical except for the materials that are used in their manufactured. What costing system would you advise the company to use? I would advise the company to use the hybrid of the two common costing systems. The hybrid is operation costing. This system is used in situations where products have some common characteristics and also some individual characteristic. 13. Give examples of companies that might use operation costings? Examples of companies that may use operation costings are Nike, any jewelry business, and Watkins Trophies, Inc given in question 12. ...read more.

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