Question

23. In process costing, each predicting department is a

(a) Cost unit (b) Cost centre

(c) Investment centre (d) Sales centre

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Answer 1

Answer:

An equivalent unit of production is an expression of the amount of work done by a manufacturer on units of output that are partially completed at the end of an accounting period. ... Equivalent units are used in the production cost reports for the producing departments of manufacturers using a process costing system.

Answer 2

In process costing, each predicting department is a (b) Cost center.

• In a process costing system, the production process is divided into a series of interconnected departments or stages.
• Each department or stage is responsible for performing specific operations or processes on the product or service as it moves through the production process.
• Each department incurs costs associated with the operations it performs, such as labor, materials, and overhead.
• To determine the cost of each product or service that passes through the production process, the costs of each department or stage are accumulated and then allocated to the products or services that pass through that department.
• This is done using a predetermined overhead rate or a weighted average cost method.
• In this context, each department or stage in the production process is considered a cost center.
• A cost center is a unit or department in an organization that incurs costs but does not generate revenue directly. The costs of each cost center are accumulated and then allocated to the products or services that pass through that department.
• Therefore, in process costing, each producing department is considered a cost center, not a cost unit, investment center, or sales center.
• A cost unit is a product or service that is being produced or provided, an investment center is a department or unit that generates revenue and incurs costs, and a sales center is a department or unit that focuses on generating revenue through sales activities.

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