ACCT 2102 1st Edition Lecture 7 Outline of Last Lecture II Refining Manufacturing Overhead III Departmental Overhead Rates IV Activity Based Costing Outline of Current Lecture V Process Costing VI Conversion Costs VII Equivalent Units Current Lecture Process Costing In this chapter we are using process costing which is used for mass productive companies with one POHR for allocating Manufacturing Overhead to production With process costing the initial cost object is the first department As you allocate costs the ending inventory of the first department is transferred over to the next department You repeat this pattern until you hit the final department which transfers its ending inventory to Finished Goods Conversion Costs Like previous chapters in the Work In Process area we included Direct Materials Direct Labor and Manufacturing Overhead into account Direct Material is a separate account however Direct Labor and Manufacturing Overhead can be grouped into a category called Conversion Costs They are called this because they are used to convert the Direct Material into the good that will eventually be placed in Finished Goods Equivalent Units These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Equivalent Units are used to make sure costs are fairly distributed for both finished and unfinished goods The formula for EU is the actual physical units times the percentage of completion This formula is used for determining the costs for the categories of Direct Material Conversion Costs and Transferred In units if this was the second third etc department
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