We continue our discussion of the details of a product costing system in Chapter 8 by developing a process costing system. As we discussed in Chapter 6, the difference between job order and process costing is the level at which costs are aggregated before they are assigned to the individual units of product. Process costing assumes that all units are homogeneous and follow the same path through the production process. | Process Costing Chapter 8 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin We continue our discussion of the details of a product costing system in Chapter 8 by developing a process costing system. As we discussed in Chapter 6, the difference between job order and process costing is the level at which costs are aggregated before they are assigned to the individual units of product. Process costing assumes that all units are homogeneous and follow the same path through the production process. Determining Equivalent Units . 1 Explain the concept and purpose of equivalent units. Equivalent units: Number of complete physical units to which units in inventories are equal in terms of work done to date. 8 - When manufacturing a product using a continuous process we assume all units have the same costs. The problem: some units are not completed. The answer: equivalent units. Equivalent units were introduced in Chapter 6. Using Product Costing in a Process Industry . 2 Assign costs to products using a five-step process. Step 1: Measure the physical flow of resources. Step 2: Compute the equivalent units of production. Step 3: Identify the product costs for which to account. Step 4: Compute the costs per equivalent unit. Step 5: Assign product cost to batches of work. 8 - In chapter 6, we applied costs to products that had been transferred out of work-in-process and units that remained in work-in-process ending inventory. We will do the same thing in this chapter. The approach we follow is summarized in five steps: 1. Measure the physical flow of resources. 2. Compute the equivalent units of production. 3. Identify the product costs for which to account. 4. Compute the cost per equivalent unit. And 5. Assign product cost to batches of work. Steps 4 and 5 . 3 Assign costs to products using weighted-average costing. Compute the costs per equivalent unit: Weighted-average (Step 4) First, Steps 1, 2, and 3 . | Process Costing Chapter 8 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin We continue our discussion of the details of a product costing system in Chapter 8 by developing a process costing system. As we discussed in Chapter 6, the difference between job order and process costing is the level at which costs are aggregated before they are assigned to the individual units of product. Process costing assumes that all units are homogeneous and follow the same path through the production process. Determining Equivalent Units . 1 Explain the concept and purpose of equivalent units. Equivalent units: Number of complete physical units to which units in inventories are equal in terms of work done to date. 8 - When manufacturing a product using a continuous process we assume all units have the same costs. The problem: some units are not completed. The answer: equivalent units. Equivalent units were introduced in Chapter 6. Using Product .
