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Introduction:
• 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
• 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,
• 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
• 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,
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.
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Chapter 20 Solutions
Loose Leaf for Fundamentals of Accounting Principles and Connect Access Card
- provide correct answer mearrow_forwardgeneral accountingarrow_forwardE3-17 (Algo) Calculating Equivalent Units, Unit Costs, and Cost Assigned (Weighted-Average Method) [LO 3-2] Vista Vacuum Company has the following production Information for the month of March. All materials are added at the beginning of the manufacturing process. Units . • Beginning Inventory of 3,500 units that are 100 percent complete for materials and 28 percent complete for conversion. 14,600 units started during the period. Ending Inventory of 4,200 units that are 14 percent complete for conversion. Manufacturing Costs Beginning Inventory was $20,500 ($10,100 materials and $10,400 conversion costs). Costs added during the month were $28,400 for materials and $51,500 for conversion ($26.700 labor and $24,800 applied overhead). Assume the company uses Weighted-Average Method. Required: 1. Calculate the number of equivalent units of production for materials and conversion for March. 2. Calculate the cost per equivalent unit for materials and conversion for March. 3. Determine the…arrow_forward
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