1.

What are the characteristics of a company that would be more likely to use process costing than
job order costing?

The nature of the items influences the product costing systems that companies select. A company
who sell homogeneous items or produce similar or identical units of product in batches frequently
utilize the process costing method in which they calculate the cost of several outputs that go
through a continuous production process to accumulate and assign costs to units of production. The
process costing method is frequently used by businesses that produce food, chemical processing, oil
refining, candles, glass, cement, paint manufacture, paper, etc.

2. How do the weighted average and first-in, first-out methods of process costing differ in their
treatment of beginning Work in Process Inventory units?

The beginning WIP Inventory and current period production are merged to create a single average
cost per unit using the weighted average approach while the beginning WIP inventory and current
period production, as well as their costs, are separated by the first-in, first-out approach so that a
current period cost per unit may be computed. In FIFO, incomplete goods or WIP ending at previous
period is the beginning WIP at the current period and are completed first; it can be computed by
multiplying the remaining percentage from the completed units while in WA, the actual units or
100% is used.

3. What is an “equivalent unit of production,” and why is it a necessary concept to employ in a

process costing system?

Equivalent Unit of Production calculate the potential number of complete units of production from
the actual effort put forth over a given period and assign production costs for direct material, direct
labor, and overhead to complete and incomplete output of the period. A distinct EUP calculation is
necessary for each cost component that is at a different percentage of completion in the production
process.

4. Is one equivalent unit computation sufficient for all cost components? Explain your answer.

No, a separate calculation of EUP is made for each cost component to get the cost per EUP because
the value will be later on multiplied in their corresponding category upon assigning cost to
inventories.

**because the current period's activity is tied to EUPs. Therefore, regardless of the cost flow
assumption utilized, there can only be one accurate measure of equivalent units created for every
given set of production fact. Use either the WA or FIFO method to determine the EUP for each cost
component.

5. What is meant by the phrase units started and completed? Why is this phrase more closely
associated with the first-in, first-out method of process costing than with the weighted average
method? (di pa gets)

Units started and completed is the difference between the number of units completed for the period
and the units in beginning inventory. It can also be computed as the number of units started during
the period minus the units in ending inventory. FIFO assumes that the remaining units transferred
during the period is the started and completed in the current period.

6. What is meant by the term transferred-out cost? Why does the transferred-out cost under the WA
method include only one computation but the FIFO method includes multiple computations?
Transferred out cost are the costs in the finished goods inventory that are transferred to the next
department.

Take the units transferred out times the sum of the two equivalent unit costs (materials
and conversion) because all items transferred to the next department are complete with
respect to materials and conversion, so each unit brings all its costs.

The WA method doesn’t care about which period the transferred units were started so it includes
both prior and current period that uses only one computation that you can found on completed and
transferred to FG in the accounted for multiplies by its eup

while the FIFO method, separates the units started during the period and assumes that the units in
beginning WIP Inventory are the first units completed during the current period and, thus, are the
first units transferred out.

7. How is the cost of ending inventory calculated in a process costing system?

You will get the same ending inventory even if you use either WA or FIFO. The direct material and
conversion will be multiplied to its percentage upon completion and to their corresponding cost per
EUP. The total value of both component will be added to get the ending WIP. Another method is by
computing “to account for” and then subtracting the cost of goods transferred out.

8. Which cost component can be found in a downstream department of a multidepartment

production process that will not be present in the first upstream department? Discuss.

9. A company has two sequential processing departments. On the cost of production reports for the
departments, will the cost per unit transferred out of the first department always be equal to the
cost per unit transferred in to the second department? Explain.

10. Why does standard costing make process costing more clerically and computationally efficient?

The managerial accounting tool known as standard costing is where the standards for various cost
components are established. This results in the products in process costing passing through various
production phases by being definite and distinct from computing the expected and actual units and
cost. Additionally, standard costing determines direct material, direct labor, and manufacturing
overhead costs, all of which are crucial for determining EUP. This aids in determining the appropriate
cost for various cost components.

11. What is a hybrid costing system? In what circumstances are hybrid costing systems typically
employed?

Hybrid costing combines the characteristics of both job order and process costing systems.

Hybrid method is employed when the job order costing feature of tracing direct material to specific
jobs are needed to be combined with the process costing feature of averaging labor and overhead
costs over all homogeneous production to derive the total cost. Moreover, if the cost of materials for
a batch run would be tracked separately, but the batch's manufacturing process is repetitious
costing methods.

12. (Appendix 2) What is meant by the “method of neglect”? How does the use of this method affect
cost of good production?
Method of neglect excludes normal shrinkage and normal continuous losses cost (the spoiled units)
in EUP. The method affects cost of good production because by ignoring the spoilage, the smaller
the EUP you will get. If we will divide the production cost to a smaller EUP, there will be a raise in
cost per equivalent unit.

13. In a process costing system, how are normal and abnormal spoilage typically treated? Why are
normal and abnormal spoilage treated differently?

Normal spoilage is just that—normal—and is expected in the ordinary course of

manufacturing or business operations, especially for companies that make or handle
perishable products (i.e. food and beverage). Spoilage beyond what is historically
standard or expected is considered abnormal spoilage.
Normal spoilage is absorbed as part of the product cost and is included as a portion
of cost of goods sold, but abnormal spoilage costs is charged to expense as incurred.