Question

1) what are the 3 building blocks of process costing?

2) What are equivalent units?

3) What is FIFO?

4) How does FIFO and the weighted average differ?

5) what are the 5 steps in process costing?

6) What are transfer in cost?

7) Conversion costs consist of what?

8) Conversion cost are usually incurred _________ throughout production.

9) Most companies use a __________which summarizes the 5-step procedure.

Answer 1

(1) The three building blocks of process costing are as follows:

(a) Conversion costs (DL + MOH)

(b) Inventory flow assumptions (weighted average, FIFO)

(c) Equivalent units (amount of work done in a period in terms of fully complete units of output)

(2) Equivalent units: The equivalent units of production is a term applied to the work in progress inventory at the end of an accounting period. Basically, the fully completed units and the partially completed units are expressed in terms of fully completed units.

(3) FIFO: FIFO is the acronym for First-In, First-Out. It is a cost flow assumption often used to remove costs from the inventory account when an item in inventory had been purchased at different costs. Under FIFO, the oldest cost of an item is removed first when one of those items are sold.

(4) The main difference between weighted average and FIFO is the difference in which each method calculates inventory and cost of goods sold. The weighted average cost method uses the average of the cost of the goods to assign cost whereas, FIFO accounting method uses the costs assigned to goods are the cost for the first goods bought.

(5) The 5 steps in process costing are as follows:

(a) Summarise the flow of physical units (of output).

(b) Compute output in terms of equivalent units.

(c) Summarise total costs to account for.

(d) Compute cost per equivalent unit.

(e) Assign total costs to units completed and to ending work in progress.

(6) Transfer in cost: The amount of money spent on switching the processing of a product or a Service between departments of a company is called 'Transfer-in cost'. Such costs combine manufacturing cost by various departments and production processes.

(7) Conversion costs consist of the following:

(a) Direct Labor Costs.

(b) Manufacturing overhead costs.

(8) Conversion costs are usually incurred evenly throughout production.

(9) Most companies use a weighted average which Summarizes the 5-step procedure.