Exam 2 – Study Guide
Managerial Accounting – Chapters 5–8
Chapter 5 – Process Costing
Focus on the following topics
• Differences between the flow of costs in Process Costing and Job Costing
○ When to use each system (unique goods/small batches vs. large quantities of identical
units)
○ Flow of costs through multiple Work in Process Inventory accounts (one per
process/department)
○ Costs accumulate as units move from process to process (the “snowball” concept)
• Two cost categories used in automated production processes
○ Direct Materials
○ Conversion Costs (Direct Labor + Manufacturing Overhead)
• Computing Equivalent Units
○ Number of physical units × Percentage of completion = Equivalent units
○ Separate equivalent unit computations for Direct Materials and Conversion Costs
• Using process costing in the first production department: the five steps (weighted-average
method)
○ Step 1: Summarize the flow of physical units
○ Step 2: Compute output in terms of equivalent units
○ Step 3: Summarize total costs to account for
○ Step 4: Compute the cost per equivalent unit
○ Step 5: Assign total costs to units completed and to units in ending WIP Inventory
• Average cost per completed unit and per partially completed unit
• Preparing journal entries for a process costing system
○ Requisition and use of direct materials
○ Direct labor used in a department
○ Allocating Manufacturing Overhead (predetermined rate × actual activity)
○ Transferring costs out of one department into the next
• Using process costing in a second or later production department
○ Transferred-in costs as a separate cost category
○ Applying the same five steps with three cost columns (Transferred-in, DM, Conversion)
○ Journal entries to record costs incurred and the transfer to Finished Goods Inventory
• Production Cost Reports (summarizing the entire five-step process)
• Unit costs and gross profit calculations across departments
• Go through the session slides carefully
Chapter 6 – Cost Behavior
Focus on the following topics
• Key characteristics and graphs of various cost behaviors
Managerial Accounting – Chapters 5–8
Chapter 5 – Process Costing
Focus on the following topics
• Differences between the flow of costs in Process Costing and Job Costing
○ When to use each system (unique goods/small batches vs. large quantities of identical
units)
○ Flow of costs through multiple Work in Process Inventory accounts (one per
process/department)
○ Costs accumulate as units move from process to process (the “snowball” concept)
• Two cost categories used in automated production processes
○ Direct Materials
○ Conversion Costs (Direct Labor + Manufacturing Overhead)
• Computing Equivalent Units
○ Number of physical units × Percentage of completion = Equivalent units
○ Separate equivalent unit computations for Direct Materials and Conversion Costs
• Using process costing in the first production department: the five steps (weighted-average
method)
○ Step 1: Summarize the flow of physical units
○ Step 2: Compute output in terms of equivalent units
○ Step 3: Summarize total costs to account for
○ Step 4: Compute the cost per equivalent unit
○ Step 5: Assign total costs to units completed and to units in ending WIP Inventory
• Average cost per completed unit and per partially completed unit
• Preparing journal entries for a process costing system
○ Requisition and use of direct materials
○ Direct labor used in a department
○ Allocating Manufacturing Overhead (predetermined rate × actual activity)
○ Transferring costs out of one department into the next
• Using process costing in a second or later production department
○ Transferred-in costs as a separate cost category
○ Applying the same five steps with three cost columns (Transferred-in, DM, Conversion)
○ Journal entries to record costs incurred and the transfer to Finished Goods Inventory
• Production Cost Reports (summarizing the entire five-step process)
• Unit costs and gross profit calculations across departments
• Go through the session slides carefully
Chapter 6 – Cost Behavior
Focus on the following topics
• Key characteristics and graphs of various cost behaviors
