Under process costing, costs are accumulated by department, rather than by order, and assign these costs uniformly to all units that pass through the department during a period.
- What two essential features characterize any processing department in a process costing system?
The first feature is the activity performed in the processing department must be performed uniformly on all units passing through it. The second feature is the output of the processing department must be homogeneous.
- Why is cost accumulation easier in a process costing department in a job-order costing system?
In a process costing system, instead of having to trace costs to hundreds of different jobs, costs are traced to only a few processing departments.
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How many Work In Process accounts are maintained in a company using process costing?
A separate Work In Process account is maintained for each processing department. Therefore, it depends on how many department a company have.
- 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
- 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) xxx
After a sold it made the cost of the units is transferred to Cost of Goods Sold. Journal entry will be
Cost of Goods Sold xxx
Finished Goods xxx
- What is meant by the term equivalent units of production when the weighted average method is used?
In the weighted-average method, the equivalent units of production for a department are the number of units transferred to next department or finished goods plus the equivalent units in the department’s ending work in process inventory.
- What is the quantity schedule, and what purpose does it serve?
The quantity schedule is the part of a production report that shows the flow of units through a department during a period and a computation of equivalent units.
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Under process costings, it is often suggested that a product is like a rolling snowball as it moves from department to department. 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.
- 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.
- 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.
