Managerial Accounting Chapter 5 Study Guide

CHAPTER 5
PRODUCT AND SERVICE COSTING:
A PROCESS SYSTEMS APPROACH

LEARNING OBJECTIVES

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:
1. Describe the basic characteristics of process costing, including cost flows, journal entries, and the cost of production report.
2. Describe process costing for settings without work-in-process inventories.
3. Define equivalent units, and explain their role in process costing.
4. Prepare a departmental production report using the FIFO method.
5. Prepare a departmental production report using the weighted average method.
6. Prepare a departmental production report with transferred-in goods and changes in output measures.
7. Describe the basic features of operation costing.
8. Explain
b. The cost information section includes:

BI (WIP) + Cost incurred during period = Cost of goods transferred out + EI (WIP)

Costs to account for Costs accounted for 2. The preparation of a cost of production report follows a five-step procedure: a. Analyze the flow of the physical units. Estimate the degree of completion in ending work-in-process inventory units. b. Calculate the equivalent units. c. Compute the unit cost. d. Determine the cost of goods transferred out and the costs remaining in work-in-process inventory. e. Reconcile the costs by determining whether the costs in beginning work in process plus the costs added during the period equal the costs transferred out plus the costs remaining in ending work in process.

Review textbook Exhibit 5-5, which gives an example of a cost of production
Nonuniform Application of Productive Inputs 1. Not all inputs are added at the same time. For example, materials may be added at the start of the process or at discrete times during the process, while labor and overhead may be added continuously throughout the process. 2. If the inputs are added at different times, separate equivalent units must be calculated for each category of input. The unit cost is then calculated for each input category. The total unit cost is the sum of the individual category unit costs. ■ It is common to have separate categories for transferred-in costs (i.e., prior department costs), several different materials (that are added at different times), and conversion costs (labor and overhead). E. Beginning Work-in-Process Inventories 1. The work done on beginning work in process represents prior-period work/effort, and the costs assigned to it are prior-period costs. 2. Beginning work-in-process inventories can be handled using two different cost flow approaches: the first-in, first-out (FIFO) costing method and the weighted average method.

IV. FIFO Costing