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Managerial: Accounting by Elizabeth Davis, Charles E. Davis

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Focus On

images PROCESS COSTING

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After studying this focus unit, you should be able to meet the following learning objectives (LO).

  1. Identify the kinds of companies that use process costing systems.
  2. Explain how costs flow through the inventory accounts in a process costing system.
  3. Calculate and explain equivalent units.
  4. Assign costs to completed units and ending Work in Process Inventory.

The Pitch

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Kathy Stewart was completing her first month as CEO of Bradley Textile Mills. Prior to joining Bradley, she served as CEO of a small custom millwork company. While Kathy knew all about job order costing, she was still developing her understanding of Bradley's process costing system, so she was having trouble interpreting the monthly production report. (See Exhibit F2-3.)

Realizing she needed some help, Kathy called Production Manager Jonathan Grant. “Jonathan, this production report for last month doesn't make sense to me,” Kathy said. “I know that during the month we had 500,000 yards of jersey fabric working its way through the Weaving Department. But your report shows only 450,000 yards accounted for in the department. What happened to the other 50,000 yards? I hope it wasn't all defective.” ...

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