Question

List the four steps in accounting for production activity in a

reporting period (for process operations).

Short answer

The four processes are:

1. Determination of physical flow of units
2. Computation of equivalent units of production
3. Calculation of cost per equivalent unit
4. Assigning and reconciliation of costs.

Step-by-step solution

Explanation of determination of physical flow of units

In this step, physical units at the beginning of the period and completed during the period are reconciled.

Explanation of equivalent units of production

In this step, equivalent units of production are estimated by adding the number of complete units completed and transferred out and the number of equivalent units in the ending WIP.

Calculation of cost per equivalent unit 

In this step, the weighted average method is used to estimate the cost per equivalent unit. Total costs are estimated by adding the cost of beginning WIP inventory and costs incurred during the period. Then, the total cost is divided by equivalent units of production estimated in step 2.

Explanation on assigning and reconciliation of costs

In this step, equivalent units of production estimated in Step 2 and the cost per equivalent units of production estimated in Step 3, are used to assign the cost.