Accounting 202 - Chapter 5.3

Process costing is the correct answer for this question. Process costing is a system used to assign costs to products that are made in a continuous process. This method is commonly used in industries such as chemical, food, and beverage manufacturing, where products go through multiple stages of production. In process costing, costs are allocated to each process or department, and then averaged out over the total number of units produced. This allows for a more accurate determination of the cost per unit and helps in analyzing the efficiency of the production process.

The cost per equivalent unit is calculated by dividing the total costs to account for by the total equivalent units. This calculation allows for determining the average cost per unit produced during a given period. By dividing the total costs by the total equivalent units, it provides a more accurate representation of the cost incurred for each unit produced, taking into account the costs associated with both the beginning and ending work-in-progress inventories.

The entry to record actual manufacturing overhead costs incurred in a process department would include a debit to manufacturing overhead. This is because manufacturing overhead represents the indirect costs incurred in the production process, such as rent, utilities, and depreciation. By debiting manufacturing overhead, we are increasing the balance in this account to reflect the actual costs incurred.

When preparing calculations for equivalent units, we consider both direct materials and conversion costs. Equivalent units are used to measure the amount of work done on partially completed units, and these calculations take into account the materials used as well as the costs incurred during the conversion process. Therefore, both direct materials and conversion costs are important factors in determining the equivalent units.

In a process costing system, manufacturing costs are typically divided into two main categories: direct materials and conversion costs. Direct materials refer to the raw materials that are directly used in the production process, while conversion costs include the cost of labor and other expenses incurred to convert the raw materials into finished products. This categorization allows for a more accurate calculation of the total manufacturing costs and helps in determining the cost per unit of production.

The entry to record the use of direct materials in production would include a debit to WIP inventory. This is because when direct materials are used in production, they are transferred from the raw materials inventory to the work-in-progress (WIP) inventory. The WIP inventory account represents the cost of partially completed goods and is increased when materials are added to the production process. Therefore, a debit entry is made to the WIP inventory to reflect the increase in the cost of materials used in production.

Conversion costs refer to the costs incurred in the process of converting raw materials into finished goods. This includes both direct labor costs, which are the wages and benefits paid to workers directly involved in the production process, and manufacturing overhead costs, which include indirect labor, utilities, and other expenses related to production. Therefore, the sum of direct labor costs and manufacturing overhead costs equals conversion costs.

A transfer of $24,000 from the assembly department to the packaging department indicates that the assembly department is transferring partially completed goods to the packaging department. This transfer reduces the work-in-progress (WIP) inventory in the assembly department, as the goods are no longer being worked on there. Therefore, a credit entry is made to the WIP inventory-assembly account to reflect the decrease in inventory.