3: Process Cost System

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Lumen Learning
Lumen Learning

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3.1: Chapter 3 Study Plan
This page outlines a study plan for process costing, covering key terms like equivalent units and conversion costs. It emphasizes differentiating between process and job costing, tracking cost flows from materials to finished goods, and understanding accounting flow in process costing. Students will develop skills in journal entries, calculating costs per unit, and preparing process cost summary reports.
3.2: Cost Behavior Vs. Cost Estimation
This page outlines four cost behavior patterns: fixed costs, which remain constant; variable costs, which fluctuate with production; mixed costs, containing both fixed and variable components; and step costs, which stay constant until production crosses specific thresholds. Managers often analyze mixed costs for better decision-making, recognizing that cost behaviors may not always be linear. Understanding these patterns is crucial for accurate financial estimates.
3.3: Fixed and Variable Costs
This page explains the distinction between fixed and variable costs. Fixed costs are constant in total but decrease per unit with increased production, while variable costs remain the same per unit but vary in total. Examples include rent and salaries for fixed costs, and direct labor and materials for variable costs. The text also includes links to related videos for additional insights.
3.4: Mixed Costs
This page discusses mixed costs, which include both fixed and variable components, exemplified by utilities and cell phone bills. It highlights the presence of a fixed monthly charge alongside variable costs incurred when usage limits are exceeded. Additionally, it indicates an upcoming discussion on how to estimate the fixed and variable portions of mixed costs for accounting purposes.
3.5: Accounting in the Headlines- Costs
This page explains the costs of car ownership, classifying them into fixed, variable, and mixed categories. Fixed costs are constant, including purchase price and insurance; variable costs change with mileage, such as fuel and maintenance; and mixed costs vary partially with mileage. Additionally, a Wall Street Journal article notes that consumers generally spend over $760 monthly on these expenses.
3.6: Cost-Volume-Profit Analysis In Planning
This page discusses cost-volume-profit (CVP) analysis, which aids companies in understanding the impact of price, cost, and volume changes on profits. It requires an understanding of fixed and variable costs, illustrated through charts showing the relationships among sales, costs, volume, and profit. An example details Video Productions' profit scenario with specific costs and selling prices.
3.7: Break – Even Point for a single product
This page explains the break-even point, where a company's sales revenue matches its costs, resulting in no profit or loss. It illustrates that Video Productions must sell 5,000 units at $20 each to break even, factoring in fixed and variable costs.
3.8: Break Even Point for Multiple Products
This page discusses cost-volume-profit (CVP) analysis in multi-product settings, highlighting how sales dollars serve as a volume measure. Using the example of Wonderfood, it explains how a contribution margin ratio of 40% results in a break-even figure of $125,000, given fixed costs of $50,000. The required sales for each product are influenced by their sales proportions, stressing the significance of accurately estimating product mix for financial forecasting.
3.9: Cost-Volume-Profit Analysis Summary
This page discusses cost-volume-profit (CVP) analysis, emphasizing its key assumptions like constant selling prices and fixed costs, which although criticized as unrealistic, facilitate analysis. It also mentions the importance of correctly classifying costs and managing product mix in multi-product situations. A video providing an overview of the CVP graph components is also available.
3.10: Accounting in the Headlines- Breakeven
This page discusses Sports Illustrated's 2015 decision to replace its six staff photographers with freelancers to reduce fixed costs and increase flexibility. While this move may help manage costs, it could raise the breakeven point and introduce challenges concerning consistency and reliability in the quality of photography compared to having a dedicated in-house team.
3.11: Chapter 3 Key Points
This page outlines the five essential steps of process costing for mass production of standardized products: 1) accumulating costs to determine totals; 2) tracking the physical flow of units; 3) calculating equivalent units for completed and in-process items; 4) determining cost per equivalent unit; and 5) assigning costs to completed and in-process units, ensuring accuracy in total accounted costs.
3.12: Glossary
This page offers definitions for key manufacturing cost system terms, explains equivalent units calculation methods (Average Cost and FIFO), discusses conversion costs, and details job and process costing systems. It outlines the production cost report's role in tracking unit and cost flow and defines transferred-in costs from prior processing centers.
3.13: Chapter 3- Exercises
This page covers process costing in accounting, contrasting it with job costing, and discusses its usage, particularly in contexts like production cost reports and cost allocation. It provides exercises on calculating equivalent units and real-world company examples.

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