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1

Similarities Between Job-Order and Process Costing

- Both systems assign material, labor, and overhead costs to products and they provide a mechanism for computing unit product costs.
- Both systems use the same manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods.
- The flow of costs through the manufacturing accounts is basically the same in both systems.

2

Differences Between Job-Order and Process Costing

Job-Order = many different jobs during each period, with each job being unique
Process = single product is produced on a continuous basis or for long periods of time. All units are identical
Job-Order = costs are accumulated by individual job. Unit costs are computed by job on the job cost sheet.
Process = costs are accumulated by dept. Unit costs are computed by department

3

Processing Departments

Any unit in an organization where materials, labor, or overhead are added to the product.

The activities are performed uniformly on all units of production. Furthermore, the output of a processing department must be homogeneous.

Typically flow in a sequence from one dept. to another.

4

In process costing, what are the two numbers calculated for financial reporting purposes?

- The cost of its ending work in process inventory
- The cost of its completed units that were transferred to the next stage of the production process

5

What are the two methods for calculating unit costs in process costing?

Weighted-average method
FIFO method (first in first out)

6

What is the weighted-average method of process costing?

Process costing calculates unit costs by combining costs and outputs from the current and prior periods

The equivalent units of production for a department are the number of units transferred to the next department (or finished goods) plus the equivalent units in the department’s ending work in process inventory.

7

What is the FIFO method of process costing?

Calculates the unit costs based solely on the costs and outputs from the current period

8

What are conversion costs?

Direct labor and manufacturing overhead are often combined into one classification of product cost called conversion costs.

9

Define Equivalent Units

Defined as the product of the number of partially completed units and the percentage completion of those units.
Equivalent units need to be calculated because a department usually has some partially completed units in its beginning and ending inventories. These partially completed units complicate the determination of a department’s output for a given period, and the unit cost that should be assigned to that output.

10

How do you calculate Equivalent Units?

Equivalent units = Number of partially completed units X Percentage completion

the product of the number of partially completed units and the percentage completion of those units with respect to the processing in the department. The equivalent units is the number of complete units that could have been obtained from the materials and effort that went into the partially complete units.

11

What is Operation Costing?

Operation costing is a hybrid of job-order and process costing because it possesses attributes of both approaches.

Operation costing is commonly used when batches of many different products pass through the same processing department.