Question

4-1 Under what conditions would it be appropriate to use a process costing system? 4- In what ways are job-order and process costing similar? 4-3 Why is cost accumulation simpler in a process costing system than it is in a job-order costing system? 4-4 How many Work in Process accounts are maintained in a company that uses process costing? 4-5 Assume that a company has two processing departments-Mixing followed by Firing. Prepare a journal entry to show a transfer of work in process from the Mixing Depart- ment to the Firing Department.

please answer each question induvidually thanks

Answer 1

4-1 Process costing is a method of cost accounting whereby costs are charged to processes or operations and averaged over units produced.

Conditions where product costing is appropriate are

• When the products produced are homogeneous.
• Each plant or factory is divided into a number of processes, cost centers or department, and such division is a stage of production or processes.
• Where the output of one process becomes the input of another process.
• Where there is continuous flow of production.
• When it is not possible to trace the identity of any particular lot of output to any lot of input materials.
• Manufacturing is carried out continuously by means of one or more process run sequentially or simultaneously.

4-2   Similarities of job order costing and process costing

• The basic similarity between job order costing and process costing is both are used to determine the cost of a product.
• Treatment of over or under absorbed overhead is similar for both the costing system.
• The information used for calculating the unit cost is similar for both.
• The cost flows are similar .
• Manufacturing accounts are maintained for job order costing and process costing.   

4-3 Cost accumulation is simpler in process costing than job order costing because we need to identify only the cost incurred in each department and not the cost incurred in each job.As far as a company is concerned it may have a hundred of job but only have few processing departments.

4-4 A company that uses process costing has to maintain work in progress accounts for each processing departments. For example,if company has firing department and mixing department, it has to maintain work in progress account for both these departments.

4-5 Journal entry to show the transfer of WIP from mixing department to firing department is :  

Firing department work in progress Dr

To mixing department work in progress

4-6     Cost to be added to firing department work in progress in the accounting period is

1. Cost which is transferred from mixing department and

2. The costs  incurred in firing department.

4-7    Equivalent units of production represents the production of work in progress expressed in terms of completed units.

When we use average method , the percentage completion stage of opening work in progress is not required. The cost of opening work in progress and cost of the current period are aggregated and the aggregated cost is divided by output in terms of completed units. The equivalent production in this case consists of work load already contained in opening work in progress and work load of current period.

4-8        In my opinion the company should use process costing since the medallions produced are identical.Only the materials used is different. Process costing is a form of operation costing and it is used when standardized goods has to be produced.