Chapter 17 - Process Costing

Process-Costing Cost categories

1. Direct materials 2. Conversion costs

In a process-costing system average unit costs are calculated _________. A) by dividing total costs in a given accounting period by total units produced in that period B) by multiplying total costs in a given accounting period by total units produced in that period C) by dividing total costs in a given accounting period by units started in that period D) by multiplying total costs in a given accounting period by units started in that period

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

Which of the following statements best describes conversion costs? A) Conversion costs are all manufacturing and nonmanufacturing cost. B) Conversion costs are all manufacturing costs other than direct materials costs. C) Conversion costs are all nonmanufacturing costs including marketing costs. D) Conversion costs are all nonmanufacturing costs other than fixed selling and distribution costs.

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

Which of the following statements is true? A) In a job-costing system, average production cost is calculated for all units produced. B) In a process-costing system, each unit uses approximately the same amount of resources C) In a job-costing system, overheads are allocated to all units equally. D) In a process-costing system, individual jobs use different quantities of production resources.

B) In a process-costing system, each unit uses approximately the same amount of resources.

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________. A) clothing manufacturer B) corporation whose sole business activity is processing the customer deposits of several banks C) manufacturer of custom houses D) manufacturer of large TVs

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

In a process-costing system, the calculation of equivalent units is used for calculating_________. A) the dollar amount of sales affect during the period B) the dollar amount of the cost of goods sold for the accounting period C) the dollar price earned for a particular job D) the dollar amount of revenue for the period including the revenue estimated to be received from the sale of equivalent units

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

process costing system

Costing system that is used when companies produce a large quantity of identical or very similar goods or services.

1. Summarize the flow of physical units (of output). 2. Compute output in terms of equivalent units. 3. Summarize total costs to account for. 4. Compute the cost per equivalent-unit. 5. Assign total costs to units completed and to ending work in process.

Five steps to calculate the cost of fully assembled units during the month.

In process costing, why are costs often divided into two main classifications?

Process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process. Often, only two cost classifications, direct materials and conversion costs, are necessary. Direct materials are frequently added at the start or end of the process and conversion costs are often added throughout the process.

Transferred-in costs are treated as if they are:

a separate direct material added at the beginning of the process

If there was no beginning work in process and no ending work in process for the process-costing method, the number of equivalent units for direct materials, if direct materials were added at the start of the process, would be___________.

equal to the units completed during the period

The main difference in job costing and process-costing systems

the extent of averaging