Solutions Managerial Accounting

A company usually has a small number of processing departments, whereas a job-order costing system often must keep track of the costs of undress or even thousands of jobs. In a process costing system, a Work in Process account IS maintained for each separate processing department. 4-5 The journal entry would be: work in process, Firing XX Work in Process, Mixing . The costs that might be added in the Firing Department include: (1 ) costs transferred in from the Mixing Department; (2) materials costs added in the Firing Department; (3) labor costs added in the Firing Department; and (4) overhead costs added in the Firing Department.
Under the weighted-average method, equivalent units Of production consist Of units rendered to the next department (or to fin- each unit transferred out of the department is counted as one equivalent unit-?regardless of in what period the work was done to complete the units. Under the FIFO method, only the work done in the current period is counted. Units transferred out are divided into two parts. One part consists Of the units in the beginning inventory. Only the work needed to complete these units is shown as part of the equivalent units for the current period.
The other part of the units transferred out consists of the units started and completed during the current period. -10 The weighted-average method mixes costs from the current period with costs from the prior period. Thus, under the headquartering method, the department’s apparent performance in the current period is influenced to some extent by what happened in a prior period. In contrast, the FIFO method cleanly separates the costs and work of the current period from those of the prior period.

This makes the FIFO method superior to the weighted-average method for cost control because current performance should be measured in relation to costs of the current period only. 4-11 Operating departments are the units in n organization within which the central purposes of the organization are carried out; these O The McGraw-Hill Companies, Inc. , 2008. All rights reserved. Solutions Manual, Chapter 4 departments usually generate revenue. By contrast, service departments provide support or assistance to the operating departments.
Examples of service departments include laundry services in a hotel or hospital, internal auditing, airport maintenance services (ground crews), cafeteria, personnel, cost accounting, and so on. 4-12 Service department costs are allocated to products and services in two stages. Service apartment costs are first allocated to the operating departments. These allocated costs are then included in the Operating departments’ overhead rates, which are used to cost products and services. 4-14 Under the direct method, interdepartmental services are ignored; service department costs are allocated directly to operating departments. -15 under the step-down method, the costs of the service department performing the greatest amount of service for the other service deep retests are allocated first, the costs of the service department performing the next greatest amount of service are allocated next, and so Roth through all the service departments. Once a service departments costs have been allocated, costs are not reallocated back to it under the step-down method. 4-13 Interdepartmental services exist whenever two service departments provide services to each other. O The McGraw-Hill Companies, Inc. , 2008.

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