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Chapter 16: Q14DQ (page 744)

Question: Companies such as Apple commonly prepare a process cost summary. What purposes does a process cost summary serve?

Short Answer

Expert verified

The primary purpose of the process cost summary is tocalculate the cost incurred by each department of the business entity, to determine the department’s performance, and to identify the departments that need improvement.

Step by step solution

01

Definition of Process Costing

The costing method used by the business entity to allocate operational costs to the goods produced in mass is known as process costing. It is used by the business entity whose product passes through different processes.

02

Process cost summary

A report prepared by the business entity provides information about expenses incurred in each process. In this report, along with the process expenses, the business entity includes the units produced and the cost allocated to each unit produced. It provides a summary of the activities of an individual process.

03

Purpose of process cost summary

  1. Process cost summary provides information about the cost incurred and helps prepare the financial statement.
  2. Identification of the cost charged by each department.
  3. It helps in the determination of the performance of each cost center.
  4. It helps in the identification of the department that are incurring unnecessary costs.

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Most popular questions from this chapter

Question: Abraham Company uses process costing to account for its production costs. Conversion is added evenly throughout the process. Direct materials are added at the beginning of the process. During September, the production department transferred 80,000 units of product to finished goods. Beginning work in process consisted of 2,000 units that were 100% complete with respect to direct materials and 85% complete with respect to conversion. Of the units completed, 2,000 were from beginning work in process and 78,000 units were started and completed during the period. Beginning work in process had \(58,000 of direct materials and \)86,400 of conversion cost. At the end of September, the work-in-process inventory consists of 8,000 units that are 25% complete with respect to conversion. The direct materials cost added in September is \(712,000, and conversion cost added is \)1,980,000. The company uses the weighted average method.

Required

  • 1.Determine the equivalent units of production with respect to (a) conversion and (b) direct materials.
  • 2.Compute both the conversion cost and the direct materials cost per equivalent unit.
  • 3.Compute both conversion cost and direct materials cost assigned to (a) units completed and transferred out and (b) ending work in process inventory.

Analysis Component

  • 4.The company sells and ships all units to customers as soon as they are completed. Assume that an error is made in determining the percentage of completion for units in ending inventory. Instead of being 25% complete with respect to conversion, they are actually 75% complete. Write a one-page memo to the plant manager describing how this error affects its September financial statements.

At the end of a period, what balance should remain in the Factory Overhead account?

Refer to the information in QS 16-10. Prepare the November 30 journal entry to record the transfer of units (and costs) from the assembly department to the painting department. Use the weighted-average method.

The Fields Company has two manufacturing departments, forming and painting. The company uses the weighted-average method of process costing. At the beginning of the month, the forming department has 25,000 units in inventory, 60% complete as to materials and 40% complete as to conversion costs. The beginning inventory cost of \(60,100 consisted of \)44,800 of direct materials costs and \(15,300 of conversion costs.

During the month, the forming department started 300,000 units. At the end of the month, the forming department had 30,000 units in ending inventory, 80% complete as to materials and 30% complete as to conversion. Units completed in the forming department are transferred to the painting department.

Cost information for the forming department is as follows:

Beginning work-in-process inventory

\)60,100

Direct material added during the month

1,231,200

Conversion added during the month

896,700

1. Calculate the equivalent units of production for the forming department.

2. Calculate the costs per equivalent unit of production for the forming department.

3. Using the weighted-average method, assign costs to the forming department’s output—specifically, its units transferred to painting and its ending work in process inventory.

List the four steps in accounting for production activity in a

reporting period (for process operations).
See all solutions

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