Job Order and Process Costing Systems - Quiz Essay

Furthermore, according to the 2016 Annual Report, Woolworths’ cost of inventories is determined on a weighted average basis. The weighted average method is perceived to assume that items are of similar nature (Carlon et al. 2016). This method would lead to identical goods being allocated to the same price using the weighted average unit cost, which can then be applied to calculate the cost of ending inventory (Carlon et al. 2016). For this particular case, Woolworths Limited, as a commercial entity, regards the cost of inventory to be difficult to measure due to the high turnover rates and accessibility costs of different products.

Process order cost systems are based on multiple work in process accounts and determine total manufacturing costs at the end of a time period. Multiple outsourced

Process order cost systems are based on multiple work in process accounts and determine total manufacturing costs at the end of a time period. Multiple outsourced

inventory using the cost method and did not change the method used during the current

330-10-30330-10-30-1 The primary basis of accounting for inventories is cost, which has been defined generally as the price paid or consideration given to acquire an asset. As applied to inventories, cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location. It is understood to mean acquisition and production cost, and its determination involves many considerations. 330-10-30330-10-30-2 Although principles for the determination of inventory costs may be easily stated, their application, particularly to such inventory items as work in process and finished goods, is difficult because of the variety of considerations in the allocation of costs and charges.

Since material cost is one of the key cost drivers for the production of the units, it is best to take

“Companies can choose to use the accounting job order costing method when they have a single product line or numerous products to manufacture. However, it is less costly and less time-consuming if they elect to use process costing when calculating the manufacturing of a single product line. With similarities

ished goods) during the period plus the equivalent units in the department’s ending work in

3. Briefly describe how the current production cost assignment system works. What are the consumption ratios (activity percentages) for assigning manufacturing overhead to each product at present?

In the current situation, the order is set to every Monday which means a total number of 50 orders for the whole period, and the average Inventory calculated from the given data is 5 units. Therefore, total cost of the current situation calculation will be as follows:

b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or

| | | | | | | | | | | | | |75000 | |100000 | |125000 | |150000 | |175000 | |200000 | | |  | |  | |  | |  | |  | |  | |Direct Labor |4.00 |  |3.90 |  |3.80 |  |3.70 |  |3.80 |  |4.00 | |Material |2.00

Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Each process applies direct materials, labor and manufacturing overhead to the production cost total. Management accountants take the total number of goods leaving the process and divide the total process cost by this number. This creates a simple average cost for each item produced. Another advantage is that business owners use process costing because it creates a flexible production process. Companies needing to refine their process can simply add or remove a process as necessary. This also allows companies to lower their production cost for each good. Adding a process allows companies to produce slightly different goods or improve product quality. This flexibility ensures companies can produce at the most competitive cost in the economic marketplace. Also process costing provides an approach to allocate costs to

The computation of equivalent units under FIFO method differs from weighted average method in two ways. First the units transferred out figure are divided into two parts. One part consists of the units from beginning inventory that were completed and transferred out, and the other part consists of the units that were both started and completed during the current period. Second full consideration is given to the amount of work expended during the current period on units in the beginning work in process inventory as well as units the ending inventory. Thus, under the FIFO method, it is necessary to convert both beginning and ending inventories to an equivalent unit basis. For the beginning inventory, the equivalent units represent the work done to complete the units; for the ending inventory, the equivalent units represent the work done to bring the units to a stage of partial completion at the end of the period (the same as with the weighted average method). The formula for computing equivalent units of production is more complex under FIFO method than under weighted average