Introduction to Month-end Reporting

What you will learn to do: account for costs assigned to each process

The actual accounting systems and procedures in place to accommodate process costing aren’t much different than those used to implement job costing. In fact, it would be possible for a company to run both processes at the same time. For instance, a boat builder may mass-produce a sailboat and may offer customized versions of that boat as well.

In short, you’ve seen the costs accumulate and flow from one department to another, culminating in a unit cost in finished goods that is then shifted to cost of goods sold when the items are sold:

A graphic titled Process Costing System is shown. On the left is a yellow area containing direct materials, direct labor and manufacturing overhead. To the right are three orange areas labeled Work In Process Inventory, which are further identified as Mixing, Molding, and Packaging. Arrows point from the yellow area to all three orange areas. Arrows also point from Mixing to Molding to Packaging. To the right of Packaging is an arrow pointing to a green area labeled as Finished Goods Inventory. To the right of that is an arrow pointing to a purple area labeled as Cost of Goods Sold. The Work in Process and Finished Goods Inventory areas are labeled as being on the Balance Sheet, and the Cost of Goods Sold area is labeled as being on the Income Statement.

In this section, you’ll take a closer look at the mechanisms that capture and record these costs as we recreate Dad’s Perfect Pies financial accounting records for the month of January and tie them back to the Production Cost Reports.

When you are done with this section, you will be able to:

  • Prepare journal entries for a process costing system
  • Use a production cost report for decision-making

Learning Activities

The learning activities for this section include the following:

  • Reading: Journal Entries
  • Self Check: Journal Entries
  • Reading: Decision-making
  • Self Check: Decision-making