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UCONN - ACCT 2101 - Class Notes - Week 3

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UCONN - ACCT 2101 - Class Notes - Week 3

School: University of Connecticut
Department: Accounting
Course: ACCT 2101
Professor: Cliff Nelson
Term: Spring 2019
Tags: Managerial Accounting Notes
Name: ACCT 2101/BADM 2710 Class Notes Chapter 3
Description: Product Costing and Cost Accumulation in Batch Production Environment
Uploaded: 02/09/2019
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background image Product Costing and Cost Accumulation in Batch Production Environment 
 
Product and Service Costing 
Product cost:  ​the assignment of production costs to all output of the organization, whether items  manufactured, goods merchandised (resold), or services delivered.   Product-costing system:  ​accumulate the cost incurred in a production process and assigns those costs to  the organization's outputs  Product -  ​refers to physical items manufactured or merchandised  Services -  ​outputs that are less tangible in nature  Use in Managerial Accounting  Help managers with planning and provide them with high-quality data for decision making   
Flow Costs in Manufacturing 
Manufacturing costs consist of direct material, direct labor, and manufacturing overhead  As production takes place  All manufacturing costs are added (debited) to the Work-in-Process (WIP) acct  WIP is a partially completed inventory  A debit to the account increases the cost-based valuation of the assets represented by 
the unfinished products 
As soon as products are completed  Product costs transfer from WIP to Finished-Goods Inventory (FGI)  Accomplished by a reduction (credit to WIP) and increase (debit to FGI)  When the finish goods are sold  The product cost of the inventory sold is removed (credited) from FGI and added (debited) Cost 
of Goods Sold (COGS) - an expense on the period in which the sale occurred 
To formally summarize income and capture all of the items that will be recorded on the income 
statement - COGS is closed into the Income summary account (debit income summary, credit 
COGS) at the end of the acct period 
   
 
 
 
 
 
 
 
 
background image Example of Manufacturing Cost Flows  DM - 30k  DL - 20k  MO - 40k  During 2020, products costing $60k were finished and products cost $25k were sold for $32k     
Types of Product-Costing Systems 
Job-Order Costing Systems  Job-order Costing:  ​costs are assigned to batches or job orders of production. Used by firms that  have relatively small numbers of dissimilar products.   Each batch of production is called a job or job order  The cost-accounting procedures are designed to assign costs to each job  The costs assigned to each job are averages over the units of production in the job to 
get an average cost per unit 
Ex.    Used for companies with job-shop or batch-production manufacturing processes  Job shop - ​ products are manufactured in very low volumes, one at a time  Ex. Film production, custom house building, aircraft manufacture, custom 
machining operations, agricultural equipment, industrial pump 
Batch-production environments -  ​multiple units of identical products are produced in a  single production batch, after which the production resources are then used to produce 
a batch of different products 
Ex. furniture manufacture, printing, commercial baking, injection molding of 
plastic object 
These batch environments would us job-order costing as well  Process-Costing Systems 
background image Process-costing system: ​ production costs are averaged over a large number of product  units. Used by firms that produce large numbers of similar units. - in a continuous-flow 
manufacturing process 
Ex. firms that produce chemicals, gas, electricity  Some batch-production environments use process costing  Occurs when the manufacturing process requires that the product be 
produced in discrete batches rather than continuous, but batch after 
batch of identical products are produced.  
Ex. microchips, beer, processed food    Distinction between job-order and process costing  ​hinges on the type of production process  involved  Job-order costing assigns cost to distinct production jobs that are significantly different, 
then average cost is computed for each unit of product in each job 
Process-costing average costs over a large number of identical units of product   
Accumulating Costs in a Job-Order Costing System 
 
Focus - Blue River Paddle Boards  Costs of direct material, direct labor, and m.o.h are assigned to each production job  These cost comprise the inputs of the product-costing system  As costs are incurred, they’re added to the WIP Inventory account  Job-cost record: ​ to keep track of the manufacturing costs assigned to each job, a subsidiary  ledger is maintained  Job-Cost Record  Ex.   

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School: University of Connecticut
Department: Accounting
Course: ACCT 2101
Professor: Cliff Nelson
Term: Spring 2019
Tags: Managerial Accounting Notes
Name: ACCT 2101/BADM 2710 Class Notes Chapter 3
Description: Product Costing and Cost Accumulation in Batch Production Environment
Uploaded: 02/09/2019
8 Pages 173 Views 138 Unlocks
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  • 24/7 Homework help
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