Question

Process Cost Accounting & Cost-Volume-Profit Analysis

This module focuses on measuring costs in process production companies. We explain process production, describe how to assign costs to processes, and compute and analyze cost per equivalent unit. Discuss two of the three topics:

What is meant by equivalent units of production, and why are they important when a process costing system is used?

What are the four steps in accounting for production activity in a period?

Job order costing and process costing are two major costing systems used in manufacturing. Briefly contrast the characteristics of these two systems.

Answer 1

Answer (B) -

Four steps in accounting for production activity in a period-

1. Determine the physical flow of units.

2. Calculate equivalent units of production.

3. Calculate cost per equivalent unit.

4. Assign and reconcile costs.

Answer (C) -

Job order costing- In Job Order costing, the cost of producing or manufacturing different and unique products is calculated.

Process costing system- In process costing system, the total costs, that is material, labour and overheads associated with each process are calculated.

Contrast between the characteristics of Job costing system and process costing system-

1. Job costing system is used for customised and unique products, whereas in process costing system, products do not differ from each other.

2. Job costing is used for small production runs and process costing is used for large production runs.

3. Much data is required for job costing and in process costing, costs are aggregated so requires less data and records.

4. Example of job costing- designing a software program or customised machine.

Example of process costing- process to manufacture stock of 1000 tennis balls.