Elements of manufacturing cost

Sample Solution

In job order cost accounting, each job is unique and the costs associated with each job are tracked separately. This is because the products or services produced in a job order costing system are typically customized for each customer. As a result, it is important to track the costs of each job in order to bill the customer accurately.

In process cost accounting, the products or services produced are standardized and are not customized for each customer. As a result, it is not necessary to track the costs of each individual unit produced. Instead, the costs of all units produced in a period are averaged and assigned to each unit. This is done by using the cost per equivalent unit.

Full Answer Section

In a process cost system, direct labor and factory overhead applied are debited to a Work in Process (WIP) account. This account accumulates the costs of all units that are currently being processed. As units are completed, the costs are transferred from the WIP account to a Finished Goods account.

The reason why direct labor and factory overhead are not debited to individual jobs in a process cost system is because it is not possible to track the costs of each individual unit produced. Instead, the costs are averaged over all units produced.

3. Why is the cost per equivalent unit often determined separately for direct materials and conversion costs?

The cost per equivalent unit is often determined separately for direct materials and conversion costs because these two types of costs behave differently during the production process. Direct materials are typically added at the beginning of the production process, while conversion costs are added evenly throughout the production process.

As a result, the amount of direct materials used in a unit of product will be the same regardless of whether the unit is partially completed or fully completed. However, the amount of conversion costs used in a unit of product will increase as the unit moves closer to completion.

4. What is the purpose for determining the cost per equivalent unit?

The purpose of determining the cost per equivalent unit is to assign costs to the units produced in a period. The cost per equivalent unit is used to value the inventory of finished goods and work in process. It is also used to calculate the cost of goods sold.

In addition, the cost per equivalent unit can be used to set prices for products or services. It can also be used to make decisions about production, such as whether to continue producing a product or to discontinue it.