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Lecture Fundamental accounting principles (21/e) - Chapter 20: Process cost accounting

After completing this chapter you should be able to: Explain process operations and the way they differ from job order operations, define and compute equivalent units and explain their use in process cost accounting, define and prepare a process cost summary and describe its purposes. | Chapter 20 Process Cost Accounting Chapter 20: Process Cost Accounting Used for production of small, identical, low-cost items. Mass produced in automated continuous production process. Costs cannot be directly traced to each unit of product. Process Operations C 1 Process costing is used to determine the unit costs of small, identical, low-cost items. We could not justify the use of job order costing for such small items. Comparing Job Order and Process Operations Job Order Systems Custom orders Heterogeneous products Low production volume High product flexibility Low to medium standardization Process Systems Repetitive operations Homogeneous products High production volume Low product flexibility High standardization A 1 On the left, you see characteristics of a job order system that you learned in the previous chapter. Compare the characteristics of a process costing system on the right with those of a job order system. In a job order system, the focus is on the job, while in a process system, the focus is on the process. Direct Materials Finished Goods Cost for each job Direct Labor Factory Overhead Jobs The goods in process account consists of individual jobs in a job order system. Comparing Job Order and Process Operations A 1 Recall that in a job order system we trace direct material costs and direct labor costs to jobs. Factory overhead is an indirect cost that we allocate to jobs using a predetermined overhead rate. Direct Materials Finished Goods Direct Labor Factory Overhead Processes The goods in process account consists of specific processes in a process cost system. Cost per unit processed Comparing Job Order and Process Operations A 1 In a process cost system, we trace direct material costs and direct labor costs to the process. Factory overhead is an indirect cost that we allocate to the process using a predetermined overhead rate. Once the costs are properly accumulated in the process, we will divide these costs by the units processed to get | Chapter 20 Process Cost Accounting Chapter 20: Process Cost Accounting Used for production of small, identical, low-cost items. Mass produced in automated continuous production process. Costs cannot be directly traced to each unit of product. Process Operations C 1 Process costing is used to determine the unit costs of small, identical, low-cost items. We could not justify the use of job order costing for such small items. Comparing Job Order and Process Operations Job Order Systems Custom orders Heterogeneous products Low production volume High product flexibility Low to medium standardization Process Systems Repetitive operations Homogeneous products High production volume Low product flexibility High standardization A 1 On the left, you see characteristics of a job order system that you learned in the previous chapter. Compare the characteristics of a process costing system on the right with those of a job order system. In a job order system, the focus is on the job, while in