Exam 2 Review Chapter 5- 7 * Job order costing – used for relatively small quantities of distinct products or unique services that conform to specifications designated by the purchaser * Process costing- used for large quantities of homogeneous goods * Three alternative valuation methods: Actual, Normal, Standard * Actual- Job order and process costing assign cost based on actual cost; actual DM, DL, and OH * Normal – Job order costing assign cost based on actual DM, DL, and OH is applied using predetermined rate at completion. Process Costing assign cost based on actual DM, DL, and OH is applied using predetermine rate using either FIFO or WA * Standard – Job order costing assigns cost based on the standard cost for DM,DL, and OH is applied using predetermined rate when goods are completed. Process costing is assigned using standard cost for DM, DL, and OH is standard using predetermined rate always FIFO * Job order cost sheet- is a source document that provides virtually all financial information about a particular job. This is for all incomplete jobs compose the WIP inventory subsidiary ledger. Includes job number, job description, customer identification, scheduling information delivery instructions, and contract price * Material requisition form – is prepared so material can be released from inventory, or purchased, and sent to production. Indicates types, quantities, usually prenumbered * Shrinkage- losses that are inherent in the manufacturing process such as evaporation, leakage, or oxidation * Defects - production process errors, rejection at inspection for failure to meet appropriate quality standards or designated product specifications * Spoilage – units that cannot be reworked and sold that were production errors * Normal loss- tolerance level that is expected during production * Loss is put to MOH if it is anticipated * Loss is put to WIP if specific to job * Abnormal loss – loss in excess of the set expectation level of loss * Put to loss/expense account * Companies that manufacture identical products or perform identical services will typically use process costing system. They will choose this because it will give an average cost assignment to all units produced. * Equivalent units of production (EUP) – approximations of the number of whole units of output that could have been produced during a period from the actual resources expended during the period. They are needed to know how many units would have been produced had they finished one unit before starting another. * Weighted Average (WA) – computes a single average cost per unit of the combined Beg. WIP inventory and current period production * First in, First out (FIFO) – separates Beg. WIP inventory current period production as well as their cost so that current period cost per unit can be calculated * Cost of production report indicates the actual flow of goods and dollar amounts through the general ledger accounting system.
FG Inventory XXX
WIP Inventory XXX * Standard cost system is used to track both standard and actual costs in accounting records * Bill of materials – document that specifies materials, including quality and quantity, are compiled.