Chapter 17

Which of the following companies is most likely to use process costing?

Red Paste Inc., a company manufacturing and selling toothpaste on a large scale

Costing systems that are used for the costing of like or similar units of products in mass production are called

process-costing systems

In a process-costing system, the calculation of equivalent units is used for calculating

the dollar amount of the cost of goods sold for the accounting period

Process costing should be used to assign costs to products when

the units produced are similar

Charlie Chairs Inc., manufactures plastic moldings for car seats. Its costing system utilizes two cost categories, direct materials and conversion costs. Each product must pass through Department A and Department B. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production. Data for Department A for February 2015 are: Work in process, beginning inventory, 40% converted 200 units Units started during February 800 units Work in process, ending inventory 100 units Costs for Department A for February 2015 are: Work in process, beginning inventory: Direct materials $150,000 Conversion costs $200,000 Direct materials costs added during February $600,000 Conversion costs added during February $425,000 What is the unit cost per equivalent unit of beginning inventory in Department A? A) $750 B) $1,750 C) $2,800 D) $3,250 How many units were completed and transferred out of Department A during February? A) 300 units B) 800 units C) 900 units D) 1,000 units

D) Direct materials per unit ($150,000 / 200 units) = $750 Conversion costs per unit ($200,000 / (200 × 0.40) units) = 2,500 Total costs per unit =$3,250 C) Number of units completed and transferred out = 200 units + 800 units - 100 units = 900 units

Which of the following statements is true of conversion costs?

Estimating the degree of completion is usually easier for direct material costs than for conversion costs.

Which of the following statements is true of conversion costs?

In process costing, they are usually considered to be added evenly throughout the production process.

When a Bakery transfers goods from the Mixing Department to the Baking Department, the accounting entry is

Work in Process — Baking Department Work in Process — Mixing Department

Which of the following entries is used to record direct materials purchased and used in production during a month in the Assembly department, before transferring the goods to Testing department?

Work in Process—Assembly Accounts Payable Control

The purpose of the equivalent-unit computation is to

assist the business in determining the cost assigned to ending inventory and work-in-process inventory

In a process-costing system average unit costs are calculated

by dividing total costs in a given accounting period by total units produced in that period

An example of a business which would have no beginning or ending inventory but which could use process costing to compute unit costs would be a

corporation whose sole business activity is processing the customer deposits of several banks

Dessa Cabinetry, Inc., manufactures standard sized modular cabinet units for kitchens and other applications within the home. Its costing system utilizes two cost categories, direct materials and conversion costs. Each product must pass through the rough cut department and the finish department. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production. Data for Finishing Department for March 2015 are: Work in process, beginning inventory, 25% converted 1,000 units Units started during February 1,200 units Work in process, ending inventory 500 units Costs for Finishing department for March 2015 are: Work in process, beginning inventory: Direct materials $200,000 Conversion costs $200,000 Direct materials costs added during February $420,000 Conversion costs added during February $1,400,000 6) What is the unit cost per equivalent unit of the beginning inventory in the Finishing Department? A) $200 B) $400 C) $800 D) $1,000 7) How many units were completed and transferred out of the Finishing Department during March? A) 1,000 units B) 1,200 units C) 1,700 units D) 2,000 units

6) D - $1,000 C) Number of units completed and transferred out = 1,000 units + 1,200 units - 500 units = 1,700 units

Stefan Ceramics is in the business of selling ceramic vases. It has two departments - molding and finishing. Molding department purchases tungsten carbide and produces ceramic vases out of it. Ceramic Vases are then transferred to finishing department, which designs it as per the requirement of the customers. During the month of July, molding department purchased 500 kgs of tungsten carbide at $60 per kg. It started manufacture of 4,000 vases and completed and transferred 3,200 vases during the month. It has 800 vases in the process at the end of the month. It incurred direct labor charges of $1,000 and other manufacturing costs of $500, which included electricity costs of $200. Stefan had no inventory of tungsten carbide at the end of the month. It also had no beginning inventory of vases. The ending inventory was 50% complete in respect of conversion costs. 9) The journal entry to record tungsten carbide purchased and used in production during July is A) Work in Process—Molding $2,400 Accounts Payable Control $2,400 B) Work in Process—Molding $3,000 Accounts Payable Control $3,000 C) Accounts Payable Control $2,400 Work in Process—Molding $2,400 D) Accounts Payable Control $3,000 Work in Process—Molding $3,000 10) The journal entry to record direct labor for July is ________. A) Work in Process—Molding $3,000 Accounts Payable Control $3,000 B) Work in Process—Molding $1,000 Overhead Control $1,000 C) Work in Process—Molding $1,000 Wages Payable Control $1,000 D) Work in Process—Molding $1,000 Work in Process—Finishing $1,000 11) What is the total conversion costs for the month of July? A) $1,700 B) $1,500 C) $1,300 D) $1,000 12) What is the cost of tungsten carbide that will be assigned to vases finished and transferred to the finishing department for the month of July? A) $30,000 B) $28,000 C) $26,000 D) $24,000

9) B) 500 kg × $60 =$3,000 10) C) 11) B) Total conversion cost = $1,000 + $500 = $1,500 12) D) Tungsten carbide cost per unit = [(500 × 60) / 4,000] = $0.75 per unit Cost of Tungsten carbide that will be assigned to vases finished and transferred to the finishing department = $7.5 × 3,200 units = $24,000

Which of the following statements best describes conversion costs?

Conversion costs are all manufacturing costs other than direct materials costs.

Vital Industries manufactured 1,200 units of its product Huge in the month of April. It incurred a total cost of $120,000 during the month. Out of this $120,000, $45,000 comprised of direct materials used in the product and the rest was incurred because of the conversion cost involved in the process. Ryan had no opening or closing inventory. What will be the total cost per unit of the product, assuming conversion costs contained $10,000 of indirect labor? A) $100 B) $90 C) $70 D) $30

Total cost per unit = $120,000 / 1,200 = $100

Serile Pharma places 900 units in production during the month of January. All 900 units are completed during the month. It had no opening inventory. Direct material costs added during January was $81,000 and conversion costs added during January was $9,000.What is the total cost per unit of the product produced during January? A) $100 B) $90 C) $80 D) $10

Total cost per unit = [($81,000 + $9,000) / 900] = $100

In a process-costing system, each unit uses approximately the same amount of resources. True or False?

True