1. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8 Process-Costing Systems

2. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-2 Learning Objective 1

3. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-3 Production environment Homogenous units Mass produced Automated Continuous flow Process Costing

4. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-4 Costing procedure  Costs are recorded for a department.  Department costs are assigned equally to units produced. Production environment Homogenous units Mass produced Automated Continuous flow Process Costing

5. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-5 Learning Objective 2

6. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-6 To determine balance sheet inventory To evaluate production efficiency To evaluate products To help set prices How are unit costs used? Why Process Costing Is Useful

7. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-7 Direct Materials Type of Product Cost Dollar Amount Direct Labor Manufacturing Overhead Direct labor costs are usually small in comparison to other product costs in process cost systems. (high level of automation) Process Costing – The Cost Inputs

8. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-8 So, direct labor and manufacturing overhead are often combined into one product cost called conversion. Direct Materials Type of Product Cost Dollar Amount Conversion Direct labor costs are usually small in comparison to other product costs in process cost systems. (high level of automation) Process Costing – Conversion Costs

9. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-9 Job costing Costs accumulated by the job. Work in process has a job cost record for each job. Many unique, high cost jobs. Jobs built to customer order. Process costing Costs accumulated by department or process. Work in process has a production report for each batch of products. A few identical, low cost products. Units continuously produced for inventory in automated process. Comparing Job Costing and Process Costing

10. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-10 Work in process contains individual jobs in a job cost system. Direct Materials Finished Goods Cost of Goods Sold Direct Labor Manufacturing Overhead Jobs Comparing Job Costing and Process Costing

11. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-11 Finished Goods Cost of Goods Sold Products Work in process contains homogenous products in a process cost system. Direct Labor & Overhead ( Conversion) Direct Materials Comparing Job Costing and Process Costing

12. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-12 Same objective: determine the cost of products Same Inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method: predetermined rate times actual activity Same objective: determine the cost of products Same Inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method: predetermined rate times actual activity Comparing Job Costing and Process Costing

13. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-13 Learning Objective 3

14. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-14 Same objective: determine the cost of products Same Inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method: predetermined rate times actual activity No beginning or ending Work in Process Inventory Common when a company is successful at just-in-time production Department With No Beginning or Ending WIP Inventory Cost per unit = Manufacturing costs for a period Units produced for the period

15. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-15 Spirit Beverages produces a sport drink. During October, the Blending Department had the following manufacturing costs: Spirit started and completed 8,000 four-bottle packages during October. Spirit had no beginning work in process inventory. Compute the manufacturing unit costs for October. Department With No Beginning or Ending WIP Inventory

16. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-16 Department With Ending WIP Inventory Same objective: determine the cost of products Same Inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method: predetermined rate times actual activity No beginning Work in Process Inventory Ending Work in Process Inventory consists of incomplete units at the end of the period. We must now deal with the concept of equivalent units.

17. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-17 Same objective: determine the cost of products Same Inventory accounts: raw materials, work in process, and finished goods Same overhead assignment method: predetermined rate times actual activity Equivalent units is a concept expressing partially complete units as a smaller number of fully complete units. Cost per equivalent unit = Manufacturing costs for a period Equivalent units for the period We must now deal with the concept of equivalent units. Department With Ending WIP Inventory

18. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-18 + = So, 10,000 units 70 percent complete are equivalent to 7,000 complete units. Two one-half filled cups are equivalent to one full cup. Equivalent Units Example

19. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-19 Let’s look at the five-step process for assigning costs to units produced, followed by an example using the five steps. Assigning Costs to Products

20. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-20  Summarize the flow of physical units (number of units completed and number of units remaining in process).  Compute the number of equivalent units produced.  Summarize the total costs to be accounted for (costs in beginning work in process inventory and the costs incurred in the current period).  Compute costs per equivalent unit.  Assign unit costs from  to units completed and to units in ending work-in-process inventory.  Summarize the flow of physical units (number of units completed and number of units remaining in process).  Compute the number of equivalent units produced.  Summarize the total costs to be accounted for (costs in beginning work in process inventory and the costs incurred in the current period).  Compute costs per equivalent unit.  Assign unit costs from  to units completed and to units in ending work-in-process inventory. Assigning Costs to Products – The Five-step Process

21. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-21 Spirit incurred the following manufacturing costs in October (same data as before): Spirit started 8,000 units and completed 6,000 units in October. Spirit had no beginning work in process inventory. All direct materials had been added to each unit still in process, but only 20 percent of conversion costs had been incurred for the 2,000 units still in process. Complete the five-step process to assign costs to units produced in October. Department With Ending WIP Inventory

22. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-22 Department With Ending WIP Inventory – Equivalent Units

23. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-23 Units completed and transferred are 100% complete for both material and conversion. Department With Ending WIP Inventory – Equivalent Units

24. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-24 All material had been added to units remaining in process. Department With Ending WIP Inventory – Equivalent Units

25. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-25 20% of 2,000 units Department With Ending WIP Inventory – Equivalent Units

26. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-26 Department With Ending WIP Inventory – Assigning Costs

27. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-27 $16,000 ÷ 8,000 equivalent units $5,600 ÷ 6,400 equivalent units Department With Ending WIP Inventory – Assigning Costs

28. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-28 6,000 equivalent units @ $2.00 6,000 equivalent units @ $0.875 Department With Ending WIP Inventory – Assigning Costs

29. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-29 2,000 equivalent units @ $2.00 400 equivalent units @ $0.875 Department With Ending WIP Inventory – Assigning Costs

30. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-30 Learning Objective 4

31. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-31 Primary question to be answered: Which units were completed first during the period? (How you answer this question will affect the Total EU for the period.) Primary question to be answered: Which units were completed first during the period? (How you answer this question will affect the Total EU for the period.) Department with Beginning & Ending WIP Inventory When there is Beginning WIP, the determination of equivalent units becomes somewhat more complicated.

32. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-32 Weighted Average vs. FIFO Weighted- Average All units and costs are considered together to determine average cost per EU, regardless of whether the costs were incurred last period or currently. Weighted- Average All units and costs are considered together to determine average cost per EU, regardless of whether the costs were incurred last period or currently. FIFO Costs are accounted for by layer. Cost per EU for this period is computed separately from the Cost per EU for last period. FIFO Costs are accounted for by layer. Cost per EU for this period is computed separately from the Cost per EU for last period. Department with Beginning & Ending WIP Inventory

33. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-33 Weighted- Average All units and costs are considered together to determine average cost per EU, regardless of whether the costs were incurred last period or currently. Weighted- Average All units and costs are considered together to determine average cost per EU, regardless of whether the costs were incurred last period or currently. Weighted- Average is the most commonly used method. Weighted Average vs. FIFO Department with Beginning & Ending WIP Inventory

34. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-34 Let’s revisit Spirit in December where we have a beginning inventory from the previous month. Assigning Costs Using Weighted-Average Costing The weighted average method... Makes no distinction between work done in the prior period and work done in the current period. Blends together units and costs in beginning inventory with units and costs in the current period. The FIFO method is covered in Appendix A. The weighted average method... Makes no distinction between work done in the prior period and work done in the current period. Blends together units and costs in beginning inventory with units and costs in the current period. The FIFO method is covered in Appendix A.

35. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-35 Spirit had the following cost and unit data for December: Complete the five-step process to assign costs to units completed and to units left in process for December. Beginning and Ending Inventory Weighted-Average Costing

36. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-36 First let’s look at a flow chart showing the blending of units in beginning work in process inventory with units started during the month. Beginning and Ending Inventory Weighted-Average Costing

37. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-37 Beginning Inventory 2,000 units 12,000 units started Ending Inventory 4,000 units 14,000 units 10,000 units completed Now let’s examine the five-step process. Beginning and Ending Inventory Weighted-Average Costing

38. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-38 Beginning and Ending Inventory Weighted-Average Costing

39. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-39 Units completed and transferred are 100% complete for both material and conversion. Beginning and Ending Inventory Weighted-Average Costing

40. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-40 25% of 4,000 units60% of 4,000 units Beginning and Ending Inventory Weighted-Average Costing

41. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-41 Beginning and Ending Inventory Weighted-Average Costing

42. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-42 $22,000 ÷ 11,000 equivalent units $8,000 ÷ 12,400 equivalent units Beginning and Ending Inventory Weighted-Average Costing

43. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-43 10,000 equivalent units @ $2.00 10,000 equivalent units @ $0.6452 Beginning and Ending Inventory Weighted-Average Costing

44. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-44 1,000 equivalent units @ $2.00 2,400 equivalent units @ $0.6452 Beginning and Ending Inventory Weighted-Average Costing

45. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-45 Learning Objective 5

46. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-46 Costs Transferred in from Prior Departments Multiple departments in a process result in units and costs that are transferred from a prior department to the current department. These transferred-in costs are treated exactly like a direct material that is added at the beginning of a production process. Let’s revisit Spirit. with the addition of transferred-in units and costs. We will use the December information and the weighted-average method. Multiple departments in a process result in units and costs that are transferred from a prior department to the current department. These transferred-in costs are treated exactly like a direct material that is added at the beginning of a production process. Let’s revisit Spirit. with the addition of transferred-in units and costs. We will use the December information and the weighted-average method.

47. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-47 Complete the five-step process for Spirit to assign costs to units completed and to units left in process for December. Costs Transferred in from Prior Departments

48. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-48 Costs Transferred in from Prior Departments

49. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-49 Costs Transferred in from Prior Departments 100% complete for material, conversion, and transferred-in units.

50. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-50 Costs Transferred in from Prior Departments 25% of 4,000 units 60% of 4,000 units Transferred-in units are 100% complete

51. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-51 Costs Transferred in from Prior Departments

52. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-52 $22,000 ÷ 11,000 equivalent units Costs Transferred in from Prior Departments $8,000 ÷ 12,400 equivalent units $57,000 ÷ 14,000 equivalent units

53. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-53 10,000 equivalent units @ $2.00 10,000 equivalent units @ $0.6452 Costs Transferred in from Prior Departments 10,000 equivalent units @ $4.0714

54. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-54 1,000 equivalent units @ $2.00 Costs Transferred in from Prior Departments 2,400 equivalent units @ $0.6452 4,000 equivalent units @ $4.0714

55. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-55 Learning Objective 6

56. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-56 Accounting for Spoilage Costs Spoilage represents the amount of resources that go into the process, but DO NOT result in finished product. Managers face key problems related to spoilage: 1. Identifying whether it exists. 2. Determining whether it can be eliminated. 3. Deciding whether eliminating it is worthwhile. 4. Determining the cost of spoilage. The 5-step approach discussed earlier can be modified by including spoilage Spoilage represents the amount of resources that go into the process, but DO NOT result in finished product. Managers face key problems related to spoilage: 1. Identifying whether it exists. 2. Determining whether it can be eliminated. 3. Deciding whether eliminating it is worthwhile. 4. Determining the cost of spoilage. The 5-step approach discussed earlier can be modified by including spoilage

57. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-57 Accounting for Spoilage Costs Abnormal spoilage is the result of unusual operating problems. Abnormal spoilage is in addition to normal spoilage, and is recorded as a loss of the period. Normal spoilage occurs as a part of the regular operations of an efficient process. We will illustrate the spoilage using the December data for Spirit Beverages, but without the transferred-in costs.

58. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-58 Accounting for Spoilage Costs Spoilage is found at an inspection when 20% of the material has been added and the conversion is 50% complete.

59. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-59 Beginning Inventory 2,000 units 12,000 units started Spoilage 500 units 14,000 units 10,000 units completed Accounting for Spoilage Costs Complete the five-step process to assign costs to units completed and to units left in process for December. Ending Inventory 3,500 units

60. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-60 Accounting for Spoilage Costs

61. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-61 Accounting for Spoilage Costs Units completed and transferred are 100% complete for both material and conversion.

62. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-62 Accounting for Spoilage Costs 20% of 500 units 50% of 500 units

63. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-63 25% of 3,500 units60% of 3,500 units Accounting for Spoilage Costs

64. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-64 Accounting for Spoilage Costs

65. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-65 $22,000 ÷ 10,975 equivalent units $8,000 ÷ 12,350 equivalent units Accounting for Spoilage Costs

66. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-66 10,000 equivalent units @ $2.0046 10,000 equivalent units @ $0.6478 Accounting for Spoilage Costs

67. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-67 100 equivalent units @ $2.0046 250 equivalent units @ $0.6478 Accounting for Spoilage Costs

68. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-68 875 equivalent units @ $2.0046 2,100 equivalent units @ $0.6478 Accounting for Spoilage Costs

69. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-69 Let’s conclude our discussion of process costing by examining the cost flows in a two- department process, A and B. We will use T-accounts and start with materials. Process Cost Flows

70. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-70 Other Overhead Factory Overhead WIP Dept. A Direct Materials WIP Dept. B Purchases Direct Materials Materials Inventory Process Cost Flows

71. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-71 Other Overhead Factory Overhead Indirect Materials WIP Dept. A Direct Materials WIP Dept. B Indirect Materials Purchases Materials Inventory Direct Materials Process Cost Flows

72. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-72 Next let’s add labor and manufacturing overhead to the process cost flows. Are you with me? Process Cost Flows

73. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-73 Other Overhead Factory Overhead Wages Payable Indirect Labor WIP Dept. A Direct Materials WIP Dept. B Indirect Labor Indirect Materials Process Cost Flows

74. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-74 Other Overhead Factory Overhead Overhead Applied to Work in Process Wages Payable Direct Labor Indirect Labor WIP Dept. A Direct Materials Conversion Direct Materials Conversion WIP Dept. B Indirect Labor Indirect Materials Process Cost Flows

75. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-75 Next let’s transfer work from Department A to Department B. Are you ready? Process Cost Flows

76. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-76 Transferred to Dept. B Transferred from Dept. A WIP Dept. A Direct Materials Conversion Direct Materials Conversion WIP Dept. B Process Cost Flows

77. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-77 Now let’s complete the goods in Department B and sell them. Still with me? Process Cost Flows

78. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-78 Finished Goods Cost of Goods Mfd. Cost of Goods Sold WIP Dept. B Direct Materials Conversion Transferred from Dept. A Process Cost Flows

79. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-79 Finished Goods Cost of Goods Sold Cost of Goods Mfd. Cost of Goods Sold Cost of Goods Mfd. Cost of Goods Sold WIP Dept. B Direct Materials Conversion Transferred from Dept. A Process Cost Flows

80. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-80 Learning Objective 7

81. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-81 Cost Assignment to Products Using FIFO The weighted-average inventory method mixes previous period costs with those of the present period. FIFO assumes that units in the beginning inventory were completed. Count production in this period only when calculating equivalent units. This allows managers to identify and manage current period costs.

82. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-82 Learning Objective 8

83. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-83 Comparing Weighted-Average and FIFO Costing Methods Using FIFO to isolate current period costs is useful when the beginning inventory balance is very large. Otherwise, the smaller the beginning inventory balance, the closer the unit cost results under both methods. Though either method is acceptable for external reporting, separating the costs with FIFO is preferable.

84. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-84 Learning Objective 9

85. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-85 Operation Costing A hybrid of job-order and process costing. Applied to production activities: with repetitive operations (so conversion costs do not change). when different materials may be used (so materials costs could change). Examples: Fabrics used in shirt manufacturing Engines used in similar cycle bodies

86. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8-86 End of Chapter 8