Process Costing

• Process costing is used when there is mass production or under a condition of continuous processing of similar products.
• True or False.

  Process costing is not applicable for products which require different departments for its production and a cost flow from one department to another. The costs are accumulated per department or cost center.

  False.
• Unit cost assigned to each product = total cost of the dept / # of units produced
• Methods of Costing under Process Costing

  1. FIFO
  2. Weighted average
• S1: FIFO does not combine the costs of the beginning inventory units and started this month units

  S2: Beg. inventory units are only allocated to completed beg. units

  S3: Current month costs will be allocated between completed units this month and work in process beg.

  Statement 3 is incorrect. WIP end.
• True or False

  The FIFO method is simpler as compared to the weighted average method.

  False
• Weighted average - accumulates every cost of completed units for the period and does not differentiate the units started this month and the preceding month
• Methods of Application of Cost Elements:

  1. Even application of cost - uses same rate for tmc
  2. Uneven application of cost
• Uneven application of costs - tmc were applied at different stages of the production process, which resulted in a different equivalent unit of production (EUP) of tmc.
• The 3 parts of cost of production report:

  1. Quantity schedule - flow of units
  2. Costs to account (cost schedule)
  3. Cost accounted for (cost reconciliation/assignment) - disposition of costs of units completed and transferred
• Quantity schedule

  1. Physical flow of units
  2. Equivalent units of production
• Cost to account for - it is composed of beginning inventory costs, the current month cost incurred by the department, and if the department is not the first cost center in the process, it will also include those costs receive from previous department.
• Accounting for lost units

  1. Normal lost units - product costs, absorbed by good units
  2. Abnormal lost units - period costs
• Detection of lost units

  1. Continuous loss - occur evenly
  2. Continuous normal lost units - assumed to have been discover at the start of the process if not specifically stated
  3. Continuous abnormal lost units - assumed to have been discover at the end of the process if not specifically stated
  4. Discrete loss - only detected if a firm performs a quality control inspection at inspection point