Principles of Accounting Chapter 20: Process Cost Systems

Equivalent units of production are

The number of production units that could have been completed within a given accounting period, given the resources consumed.

Whole units are

The number of units in production during a period, whether completed or not.

cost per equivalent unit is

The rate used to allocate costs between completed and partially completed production.

The four steps for preparing a cost of production report are:

1: Determine the units to be assigned costs. 2: Compute equivalent units of production. 3: Determine the cost per equivalent unit. 4: Allocate costs to units transferred out and partially completed units.

manufacturing cells are

A grouping of processes where employees are cross-trained to perform more than one function.

Lean manufacturing is

A management approach organized around manufacturing cells with emphasis on high quality, low cost, fast response, and immediate availability.

A process manufacturer is

A manufacturer that produces products that are indistinguishable from each other using a continuous production process.

Yield is

A measure of materials usage efficiency, computed as the quantity of material output divided by the quantity of material input.

The weighted average cost method is

A process costing method that assigns costs to products transferred out and in process based on a weighted average of accumulated costs in the department.

First-in, first-out (FIFO) method

A process costing method that assumes that items and their associated costs flow out of a process in the same order that they came into the process.

The cost of production report is

A report prepared periodically by a processing department, summarizing the production and cost data for the department.

The cost accounting system used by process manufacturers is called the process cost system it is

A type of cost system that accumulates costs for each of the various departments or processes within a manufacturing facility.

Which of the following manufactured products would use a process cost system? a. Ocean liners b. Movie production c. Gasoline d. Custom homes

c. Gasoline A process cost system produces products that are indistinguishable from one another, such as one gallon of gasoline from another.

The following production data were taken from the records of the Finishing Department for July: Inventory in process, June 1, 30% completed 5,400 units Transferred to finished goods during June 41,500 units Ending work in process during June, 25% completed 4,600 units Determine the total equivalent units for conversion costs, assuming that the first-in, first-out method is used to cost inventories. Assume that all direct materials are placed in process at the beginning of production. a. 41,030 units b. 41,500 units c. 40,700 units d. 46,100 units

a. 41,030 units

The cost for indirect materials is recorded in which of the following accounts? a. Factory Overhead b. Finished Goods c. Work in Process d. Materials

a. Factory Overhead The cost for indirect materials and other factory overhead such as depreciation is recorded in the factory overhead account.

Step 4 in preparing the cost of production report is a. allocate costs to units transferred out and partially completed units. b. determine the cost per equivalent unit. c. determine the units to be assigned costs. d. compute equivalent units of production.

a. allocate costs to units transferred out and partially completed units.

Equivalent units of production are a. the portion of whole units that are completed with respect to materials or conversion costs. b. the number of units in production during a period, whether completed or not. c. the number of units still in process at the end of a period. d. the portion of whole units that are completed with respect to materials or selling costs.

a. the portion of whole units that are completed with respect to materials or conversion costs. Equivalent units of production are the portion of whole units that are completed with respect to materials or conversion costs.

Which of the following measures would NOT help managers to control and improve operations? a. Unit production b. Commission paid per time period c. Cost changes for specific products d. Product yields

b. Commission paid per time period Commission paid per time period is a selling cost and would not help managers control manufacturing costs.

Lean operations attempt to significantly a. increase inspection time and moving time. b. eliminate waste and simplify operations. c. increase the push-through effect of inventory management. d. increase inventory and simplify operations.

b. eliminate waste and simplify operations.

Of these two cost flow assumptions, __________ and __________, __________ is the same as the physical flow of units through the production process. a. LIFO; FIFO; LIFO b. job order; process; job order c. LIFO; FIFO; FIFO d. job order; process; process

c. LIFO; FIFO; FIFO LIFO and FIFO are two cost flow assumptions, but FIFO is the same as the physical flow of units through the production process.

In a process cost system, the amount of work in process inventory at the end of a period is valued by summing a. estimated costs budgeted for the inventory during the period. b. the costs remaining in each department account at the end of the period. c. all direct materials costs for the period. d. all actual costs that flowed through the department from the beginning to the end of the period.

b. the costs remaining in each department account at the end of the period. In a process cost system, the work in process at the end of the period is the sum of the costs remaining in each department account at the end of the period.

For which of the following businesses would a process cost system be appropriate? a. Specialty printer b. Auto repair service c. Beverage producer d. Custom furniture manufacturer

c. Beverage producer Beverages are mass produced and thus would use a process cost system.

In a process cost system, the cost of units sold is transferred from __________ to __________. a. Factory Overhead; Cost of Goods Sold b. Cost of Goods Sold; Finished Goods. c. Finished Goods; Cost of Goods Sold d. Work in Process; Finished Goods.

c. Finished Goods; Cost of Goods Sold In a process cost system, the cost of units sold is transferred from Finished Goods to Cost of Goods Sold.

The correct formula for conversion cost per equivalent unit is a. Total Equivalent Units of Conversion Costs for the Period ÷ Total Conversion Costs for the Period. b. Total Conversion Costs for the Period ÷ Total Equivalent Units of Direct Materials Cost for the Period. c. Total Conversion Costs for the Period ÷ Total Equivalent Units of Conversion Costs for the Period. d. Total Direct Materials Cost for the Period ÷ Total Equivalent Units of Conversion Costs for the Period.

c. Total Conversion Costs for the Period ÷ Total Equivalent Units of Conversion Costs for the Period. The cost of production report includes total conversion costs for the period divided by total equivalent units of conversion costs for the period.

Which of the following best describes the effect on direct labor when management adopts a lean environment? a. Each employee runs a single machine. b. Workers typically perform one function. c. Workers are typically trained to perform more than one function. d. The environment becomes more labor intensive.

c. Workers are typically trained to perform more than one function. Lean philosophy's goal is to increase efficiency, and training workers on multiple functions is one way to reach this goal.

Step 1 in preparing the cost of production report is a. allocate costs to units transferred out and partially completed units. b. compute equivalent units of production. c. determine the units to be assigned costs. d. determine the cost per equivalent unit.

c. determine the units to be assigned costs

When a firm adopts a lean manufacturing operating environment, a. new, more efficient machinery and equipment must be purchased and installed in the original layout. b. employees are retrained on different equipment, but the plant layout generally is unchanged. c. processing functions are combined into work centers, sometimes called manufacturing cells. d. new machinery and equipment must be purchased from franchised lean dealers.

c. processing functions are combined into work centers, sometimes called manufacturing cells. Combining functions is a goal of lean manufacturing in order to increase efficiencies.

The following production data were taken from the records of the Finishing Department for July: Inventory in process, July 1, 40% completed 4,100 units Transferred to finished goods during July 40,500 units Ending work in process during July, 20% completed 4,000 units Determine the total equivalent units for direct materials, assuming that the first-in, first-out method is used to cost inventories. Assume that all direct materials are placed in process at the beginning of production. a. 39,660 units b. 42,860 units c. 44,500 units d. 40,400 units

d. 40,400 units Started and completed are completed units minus beginning = 40,500 - 4,100 = 36,400 ** 4,100 × (1.00 - 0.40) = 2,460 *** 4,000 × 0.20 = 800

Assume 6,000 pounds of direct materials entered the Packaging Department and 5,500 pounds were packaged. Determine the yield. a. 8.33% b. 100% c. 108.33% d. 91.67%

d. 91.67% Yield = Quantity of Material Output ÷ Quantity of Material Input = 5,500 ÷ 6,000 = 91.67%

When materials are requisitioned and transferred in, all of the following accounts may be included in the journal entry EXCEPT a. Factory Overhead. b. Materials. c. Work in Process. d. Finished Goods.

d. Finished Goods. Finished Goods would not be included in the journal entry when materials are requisitioned and transferred in. When goods are completed, the costs are transferred out of Work in Process and into Finished Goods.

Guardino Company manufactures a single product by a continuous process, involving three production departments. The records indicate that direct materials, direct labor, and applied factory overhead for Department 1 were $101,000, $128,000, and $155,000, respectively. The records further indicate that direct materials, direct labor, and applied factory overhead for Department 2 were $51,000, $65,000, and $74,000, respectively. In addition, work in process at the beginning of the period for Department 1 totaled $77,000, and work in process at the end of the period totaled $65,000.The journal entry for the flow of costs into Department 1 during the period for direct materials is a. Materials 101,000 Dr. and Work in Process—Department 1; 101,000 Cr. b. Materials 51,000 Dr. and Work in Process—Department 1; 51,000 Cr. c. Work in Process—Department 1; 51,000 Dr. and Materials 51,000 Cr. d. Work in Process—Department 1; 101,000 Dr. and Materials 101,000 Cr.

d. Work in Process—Department 1; 101,000 Dr. and Materials 101,000 Cr. Work in Process is debited $101,000 for materials coming in to increase the account, and Materials is credited $101,000 to decrease the account.

Step 2 in preparing the cost of production report is a. allocate costs to units transferred out and partially completed units. b. determine the units to be assigned costs. c. determine the cost per equivalent unit. d. compute equivalent units of production.

d. compute equivalent units of production. Step 2 in preparing the cost of production report is compute equivalent units of production.

According to the lean manufacturing philosophy, a. finished goods should always be available in case a customer wants something. b. the product is "pushed through" the system in order to increase inventory. c. employees should be expert at one function rather than be cross-trained for multiple functions. d. employees should be cross-trained for multiple functions.

d. employees should be cross-trained for multiple functions. Cross-training is one method of increasing efficiency in a lean manufacturing system.