Principles of Accounting: Chapter Twenty

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Chapter 20 introduces process costing. Process costing is suited to situations where goods are produced in a continuous process, such as refining of petrochemicals. The method is compared to job costing, and a detailed illustration is developed.

Process costing begins with the concept of equivalent units, which is the amount of in-process production expressed in terms of finished units. Cost per equivalent unit is measured and becomes the basis for final cost allocation between work in process and finished goods. The book illustrates the weighted-average cost method, although other techniques (FIFO) are possible. A cost of production report provides a composite view of the entire process costing method, and gives rise to a series of journal entries.

Activity-based costing is an alternative technique that looks at organizational activities and identifies the related costs. Those costs are then assigned based on how a particular activity is consumed in production. The chapter outlines a series of steps that can be followed to implement ABC. A case study is used to demonstrate ABC and its impact on the decision process.

Exercises

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Problems
Goals Achievement
Fill in the Blanks
Multiple Choice
Objectives
Key Terms

Fill in the Blanks: Chapter Twenty

1. The ____________ process costing system is often employed in steel, petroleum, chemical, and other similar types of industries.

2. In a process costing system, costs are accumulated by ____________processor ____________department for a specified period of time.

3. The process costing report which documents the units and costs which flow through a manufacturing department is called a ____________cost of production report.

4. One of the first steps in preparing a cost of production report is to analyze the ____________physical flow of goods.

5. ____________Conversion cost is the cost to to convert raw material into finished products; more specifically, the sum of direct labor and factory overhead.

6. Equivalent units should be separately calculated for ____________materials and ____________conversion.

7. Before recording the cost of completed units, the ____________work in process account should have a balance equal to the total costs accounted for on the production cost report.

8. ____________Activity-based costing is a method under which departments are divided into activities, and the cost of individual activities are applied to cost objects.

9. ____________Period costs are expensed under traditional costing methods, but may partially be allocated to individual products under activity-based costing.

10. The identification of activities is facilitated by dividing business processes into levels. These levels include: ____________unit-level, ____________batch-level , ____________product-level, ____________customer-level , ____________ market-level, or ____________entity sustaining.

11. From a conceptual point of view, cost objects drive the need for ____________activities and activities consume ____________resources.