Process Costing • Process Costing is a method of cost allocation and calculation used when the types of goods produced are similar in nature and in large quantities. • The cost allocation is done for all products on basis of a standard cost estimate which is calculated by dividing the total costs for each process by the number of units produced. • The advantage of this method is that it allows for simple and efficient cost allocation and calculation especially when the variations in the types of goods produced are minimal. Cost Classification • The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs. • Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor. • Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead • Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment Work In Process Accounts • Work in Process accounts are maintained in a Process costing system to account for the various types of direct costs incurred in the form of direct material, labor and overhead. • The costs of production directly attributable to the goods manufactured are recorded in a Work in process account. • The costs of Goods completed in production are transferred to the finished goods from the Work in Process Account. To Determine: Why costs of some materials do not actually become part of the finished product, including some labor costs not directly associated with producing the product, are classified as direct costs.

Question

Want to see the full answer?

Answer 1

Question

Chapter 20, Problem 4BTN

To determine

Introduction:

Process Costing

• Process Costing is a method of cost allocation and calculation used when the types of goods produced are similar in nature and in large quantities.

• The cost allocation is done for all products on basis of a standard cost estimate which is calculated by dividing the total costs for each process by the number of units produced.

• The advantage of this method is that it allows for simple and efficient cost allocation and calculation especially when the variations in the types of goods produced are minimal.

Cost Classification

• The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs.

• Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

• Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

• Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

Work In Process Accounts

• Work in Process accounts are maintained in a Process costing system to account for the various types of direct costs incurred in the form of direct material, labor and overhead.

• The costs of production directly attributable to the goods manufactured are recorded in a Work in process account.

• The costs of Goods completed in production are transferred to the finished goods from the Work in Process Account.

To Determine:

Why costs of some materials do not actually become part of the finished product, including some labor costs not directly associated with producing the product, are classified as direct costs.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Write down as many descriptions describing rock and roll that you can. From these descriptions can you come up with s denition of rock and roll? What performers do you recognize? What performers don’t you recognize? What can you say about musical inuence on these current rock musicians? Try to break these inuences into genres and relate them to the rock musicians. What does Mick Jagger say about country artists? What does pioneering mean? What kind of ensembles w

Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's expenses, Gross margin, and Net income?

Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What impact would the write-down of inventory have had on Abercrombie's assets, Liabilities, and Equity?