Question

1. We know from Chapter 3 that we accumulate and report costs in Job Order Costing by each job and costs are accumulated on a Job Cost Sheet. What do we accumulate costs by in Process Costing?

2. How many Work-In-Process Inventory accounts are there in a Process Costing system?

3. What do we mean by "equivilent units of production (EUP), and why is calculating EUP important in Process Costing?

Answer 1

1. In process costing the costs are transferred from one process to the next till the product is fully manufactured. The costs from the beginning of the manufacture process till the end of it are accumulated and added to the finished goods.

2. There is one work in process inventory account for each separate process.

3. Equivalent units of production are total of fully manufactured units and partially manufactured units and are expressed as fully completed units based on the percentage of completion. It is important to compute Equivalent units of production to allocate the process costs and compute costs of finished goods to be transferred to the next process.