Principles of Accounting: Chapter Twenty

Home

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

To aid in your understanding of this chapter, exercises with solutions are available for free download at Bookboon.com. You will find these exercises very helpful in providing models and guidelines for solving all of the problems at principlesofaccounting.com.

Click here to go to Bookboon.

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

Problems: Chapter Twenty

Obtain the entire Managerial/Cost Problem Workbook via the linked image at left. Our high volume production process makes this an economical option as compared to printing these files on your own printer!



Basic		Problem	Worksheet	Combined	Objective

	B-20.01				Process costing concepts

	B-20.02				Equivalent unit calculations (weighted-average)

	B-20.021				Equivalent unit calculations (FIFO)

	B-20.03				Calculating cost per equivalent unit (weighted-average)

	B-20.031				Calculating cost per equivalent unit (FIFO)

	B-20.04				Allocating costs to production (weighted-average)

	B-20.041				Allocating costs to production (FIFO)

	B-20.05				Preparing a cost of production report (weighted-average)

	B-20.051				Preparing a cost of production report (FIFO)

	B-20.06				Journal entries from cost of production data

	B-20.07				Critical thinking about process cost flows

	B-20.08				Basic activity-based costing concepts

	B-20.09				Straightforward application of activity-based costing



Involved		Problem	Worksheet	Combined	Objective

	I-20.01				Critical thinking about process costing (weighted-average)

	I-20.011				Critical thinking about process costing (FIFO)

	I-20.02				Process costing (weighted-average) with journal entries

	I-20.021				Process costing (FIFO) with journal entries

	I-20.03				Team-based process costing involving multiple departments

	I-20.04				Application of activity-based costing to a bidding situation

The preceding table includes links to "Basic" and "Involved" problems. Each link will download the file containing a spreadsheet for the problem and a template worksheet on which you can prepare the solution electronically. If you see a light bulb icon on a worksheet, just mouse over above the icon and a comment box will appear. The comments include useful suggestions for improving your spreadsheet skills.

Solutions to these problems may be obtained from your instructor, however you may not post or redistribute, electronically or otherwise, any such solution material. Solution material may be provided to you for your sole use only, at the discretion of your individual instructor. Violation of this policy constitutes a copyright violation. Alternative problems, with solutions, may be found under the "Exercises" tab within each chapter. Video solutions to selected problems are available to students enrolling in the online course.