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1. There are two main cost accounting systems namely, the job order costing and
the process costing. The first accounting system which is the Job order costing is
a cost accounting system that accumulates manufacturing costs separately for
each job while the second is a system that accumulates manufacturing costs
separately for each process. The job order cost system may be used favorably
when goods are produced in lots of predetermined quantity usually based on
customers’ specifications. The process cost system may be used advantageously
when goods are produced continuously as in the case of mass production
industries.
4. The difference of job order cost system and Process cost systems is that in a job
order cost system, (a) costs are accumulated by specific jobs or orders, and (b)
unit costs are calculated at the time the job or order is finished.
On the other hand, in a process cost system, (a) costs are accumulated by
processes or departments, and (b) unit costs are calculated at the end of a given
period, usually a month, for each process or department.
5. The difference between the two terms is that, the term “unit cost” refers to the
average cost of producing each unit manufactured during a given period; the term
“job cost” on the contrary refers to the cost of producing each job completed or fully
manufactured during a given period. A job may consist of any number of units.
6. A. In accounting for materials under a job order cost system, the costs, as
determined from materials requisitions, are charged to specific jobs (direct
materials) or to factory overhead (indirect materials). Under a process cost system,
these costs are charged to the departments to which the materials were issued.
B. The cost of labor under a job order cost system is charged to specific jobs
worked on (direct labor) or to factory overhead (indirect labor). The cost of labor
under a process cost system is charged to the departments in which the work was
done.
9. It is necessary to estimate the stage of completion of work in process at the end of the
accounting period so that the costs incurred during the period may be properly allocated
between the goods finished during the period and those in process at the end of the period.
10. If the estimate of the stage of completion of work in process is too high, the figure
representing equivalent production would be overstated and, therefore, the unit cost for
the month would be too low. As a result, the uncompleted units would absorb more than
their appropriate share of total costs and the goods finished would be charged for less than
the correct amount of costs. The unit cost of finished goods would be understated.
Conversely, if the estimate of the stage of completion of work in process was too low, the
figure representing equivalent production would be understated and, therefore, the unit
cost for the month would be too high. As a result, the uncompleted units would absorb less
than their appropriate share of total costs and the good finished would be charged more
than the correct amount of costs.
11. The production report shows the number of units (1) in process at the beginning of the
period, as well as the stage of completion, (2) placed in process or received from a prior
department during the period, (3) completed or transferred to a subsequent department
during the period, and (4) in process at the end of the period, as well as the stage of
completion.
12. The four main sections of a cost of production summary are (1) the costs to be accounted
for, (2) the equivalent production (unit output) for the period, (3) the computation of unit
costs for the period, and (4) the summary of production costs accounted for (inventory
costs).
13. In a single-department factory, units transferred out are moved to the stockroom as
finished goods. In a multiple-department factory, the units transferred out of the first
department are considered to be raw materials that will be added at the beginning of a
second department’s processing operations.
14. No. The calculation of unit cost in a department subsequent to the first considers only those
costs incurred for materials, labor, and factory overhead added during the month in that
department and the equivalent units produced in that department. However, a separate
computation is made for the transferred-in costs and it is added to the cost of the goods
transferred out.
15. Yes. In determining the costs transferred from a second department to a third, all prior
departments’ costs must be considered. The costs from the first department would also be
included in the computation of the ending work in process in the second department.
16. Goods that are finished but still on hand in a department at the end of the month are
accounted for as “goods completed and on hand” on the cost of production report, and as
finished goods for financial statement purposes.
17. If the prior department’s transfers from two different periods have different unit costs each
month, these previous department costs must be averaged as a separate grouping so that
these transferred-in costs can be properly allocated to the products being produced in the
department to which they were transferred.
P5 - 1
Inventory costs:
Costs of goods finished and transferred to Shaping
during month (5,400 x $10) ..................................................... .. $ 54,000
Cost of work in process, end of month:
Materials (1,200 x 1/2 x $5.000) ....................................... $ 3,000
Labor (1,200 x 1/2 x $2.667) ............................................ 1,600
Factory overhead (1,200 x 1/2 x $2.333) ......................... 1,400 6,000
Inventory costs:
Costs of goods finished and transferred to Finishing:
Cost in Cutting (4,400 x $10.00) ........................................ $ 44,000
Cost in Shaping (4,400 x 2.50) .......................................... 11,000
(4,400 x $12.50) .................................. $ 55,000
Inventory costs:
Costs of goods finished and transferred to finished goods:
Cost in Cutting (4,000 x $10.00) ....................................... $ 40,000
Cost in Shaping (4,000 x2.50) 10,000
Cost in Finishing (4,000 x4.00) 16,000
(4,000 x $16.50) ................................. $ 66,000
Inventory costs:
Costs of goods finished and transferred to Blending
during month (13,000 x $2.05) $ 26,650
Cost of work in process, end of month:
Materials (2,000 x 1/4 x $1.22) $ 610
Labor (2,000 x 1/4 x $0.40) 200
Factory overhead (2,000 x 1/4 x $0.43 215 1,025
Total production costs accounted for $ 27,675
Tanaka Manufacturing Co.
Cost of Production Summary-Blending For the
Month Ended December 31, 20—
Total $ 1.35
Inventory costs:
Costs of goods finished and transferred to Bottling
during the month:
Cost of mixing (10,000x$2.05) $20,500
Cost of blending ( 10,000x1.35) 13,500
( 10,000x3.40) $34,000
Cost in Bottling:
Materials ($900 + $1,500)+ 12,000 $0.20
Labor ($3,100 + $6,500) - 12,000 .80
.80
Factory overhead ($3,080 + $7,000) +12,000 .84
Total $1.84
Inventory costs:
Costs of goods finished and transferred:
Cost in Mixing and Blending (11,000 x $3.37) $37,070
Cost in Bottling (11,000 x 1.84) 20,240
(11,000 x $5.21) 57,310
Cost in work in process, end of month:
Cost in Mixing and Blending (2,000 x $3.37) $ 6,740
Cost in Bottling:
Materials (2,000 x 1/2 x $0.20) $ 200
Labor (2,000 x 1/2 x $0.80) 800
Factory overhead (2,000 x 1/2 x $0.84) 840 1,840 8,580
$ 65,890
Total production costs accounted for
Tanaka Manufacturing Co.
Departmental Cost Work Sheet
For the Month Ended December 31, 20—
Blending:
Opening inventory in
process 1,500 $ 4,970
Received during Month from
Mixing Costs added during 13,000 26,650
month:
Bottling:
Opening inventory in 3,000 $ 16,890
process 1 0,000 34,000
Received during Month
from
Costs added during month:
Materials ...... 0.20 1.500
Labor ........... 0.80 6,500
Factory overhead 0.84 7,000
Finished and
transferred to stock $5.24 $ 57,310
11,000
Closing work in process 2,000 8,580
Adjusting due to
averaging costs
from prior department (.03)
Labor:
Mixing $ 4,750
Blending 8,000
Bottling 6,500 19,250
Factory overhead:
Mixing $ 5,240
Blending 6,100
Bottling 7,000
18,340
Materials $19,000
Labor 19,250
Factory overhead 18,340
Total $ 56,590
Add work in process inventories, December 1 24,545
Total $ 81,135
Less work in process inventories, December 31 23,825
Cost of goods manufactured during the month $ 57,310