. By reference to the above data, explain the concept of equivalent units in process costing.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Caricolor Limited operates a paint manufacturing plant, housing two distinct departments: the mixing department and the quality control department. The paint undergoes sequential processing in both of these departments.
The company's process-costing system is structured around two primary cost categories: direct materials and conversion costs. Direct materials are introduced at the initial stages of the process, while conversion costs are gradually incurred throughout the process. After completing the mixing department's tasks on the paint, the product is promptly forwarded to the quality control department. Caricolor employs the weighted-average method for
Data for the mixing department for October 2020 are as follows:
Physical Units
Cost (Gallons of Paint) Direct Materials Conversion
Work in process, October 1x 16,000 $2,800,000 $ 901,400
Started during October 2020 44,000
Completed during October 2020 51,000
Work in process, October 31y 9,000
Total costs added during October 2020 $9,400,000 $5,111,000
x Degree of completion: direct materials, 100%; conversion costs, 60%.
y Degree of completion: direct materials, 100%; conversion costs, 70%.
Questions:
4. By reference to the above data, explain the concept of equivalent units in process costing.
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