Question

Chapter 20

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.

Pick two topics below and discuss. Use proper grammar, please.

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:-

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

A- Equivalent units of production measure production with respect to direct materials, direct labor, and overhead, expressed as the number of units that could have been manufactured during a period if all effort during a period had been applied only to those units started and completed during the period.

Determining equivalent units of production is important for the calculation of the cost per unit and, thus, for calculating the costs of inventories and the cost of goods sold

Equivalent units of production is a term applied to the work-in-process inventory at the end of an accounting period. It is the number of completed units of an item that a company could theoretically have produced, given the amount of direct materials, direct labor, and manufacturing overhead costs incurred during that period for the items not yet completed.

In short, if 100 units are in process but you have only expended 40% of the processing costs on them, then you are considered to have 40 equivalent units of production.

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

Answer:-

Partculars of Charaterstics	Job Costing	Process Costing
1. When Used	Custom orders	Repetitive Productions
2. Products	Heterogeneous product	Homogeneous product
3.Volume	Low Production Volume	High Production Volume
4.Flexibility	High product flexibility	Low product flexibility
5.Standardization	Low to medium standardization	High Standardization

Explanation:-

Process costing handles the same types of manufacturing costs (Highly Standardized) as compared job order costing ( Low to Medium) .

Both systems deal with tracking how manufacturing costs such as direct materials, direct labor, and overhead flow through work-in-process to finished goods and finally, when the goods are sold, to cost of goods sold

although

Job order costing accumulates costs by job, using job order cost sheets that stay with the inventory as it flows through the production process.

Process costing, on the other hand, accumulates costs by department. Process costing gives each department its own separate work-in-process (WIP) account for accumulating costs and tallies costs at the end of each fiscal period; job order costing uses only a single WIP account for all unfinished jobs and tallies the cost of a job when it’s finished.

job order costing measures the cost of each individual job,

process costing measures the cost of work actually done on WIP during a period.

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