Chapter 17 Process Costing
1) 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
13) Which of the following statements is true of conversion costs? A) Estimating the degree of completion is usually easier for direct material costs than for conversion costs. B) The calculation of equivalent units is relatively easy for the textile industry. C) The conversion cost needed for a completed un0it and the conversion cost in a partially completed unit can be measured accurately. D) If conversion costs are added evenly during the assembly we can conclude that there are more than one indirect-cost category.
A
2) Which of the following best describes transferred-in costs in process costing? A) These costs are incurred in previous departments that are carried forward to subsequent departments. B) These costs are transferred in to the company by an external vendor. C) These costs are incurred in transferring raw materials and labor from the place of availability to the factory. D) These costs cannot be controlled by an organization as they are transferred to the organization from the market participants.
A
3) Process costing should be used to assign costs to products when ________. A) the units produced are similar B) cost reduction is the top most priority C) the units produced are dissimilar D) cost reduction is not the primary objective
A
5) In the computation of the cost per equivalent unit, the weighted-average method of process costing considers all the costs ________. A) entering work in process from the units in beginning inventory plus the costs for the work completed during the current accounting period B) costs that have entered work in process from the units started or transferred in during the current accounting period C) that have entered work in process during the current accounting period from the units started or transferred in minus the costs associated with ending inventory D) that have entered work in process during the current accounting period from the units started or transferred in plus the costs associated with ending inventory
A
Assembly department of Zahra Technologies had 100 units as work in process at the beginning of the month. These units were 50% complete. It has 200 units which are 25% complete at the end of the month. During the month, it completed and transferred 500 units. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production. Zahra uses weighted-average process-costing method. 2) The number of equivalent units of work done during the month for direct materials is ________. 3) Calculate the total equivalent units in ending inventory for assignment of conversion costs? A) 25 units B) 50 units C) 150 units D) 200 units
A Explanation: A) Equivalent units for direct material = 500 units + 200 units - 100 units = 600 units B) Equivalent units in ending inventory = 200 units × 25% = 50 units
2) 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 Explanation: A) Total cost per unit = $120,000 / 1,200 = $100
3) 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
A Explanation: A) Total cost per unit = [($81,000 + $9,000) / 900] = $100
1) The purpose of the equivalent-unit computation is to ________. A) convert completed units into the amount of partially completed output units that could be made with that quantity of input B) assist the business in determining the cost assigned to ending inventory and work-in-process inventory C) predict the future production capabilities of the organization D) satisfy the GAAP requirements which requires all partially completed goods to be reported as equivalent-units
B
2) In a process-costing system, the calculation of equivalent units is used for calculating ________. A) the dollar amount of sales affected 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
25) A distinct feature of the FIFO process-costing method is that the ________. A) work done on beginning inventory before the current period is blended with the work done during the current period in the calculation of equivalent units B) work done on beginning inventory before the current period is kept separate from the work done during the current period in the calculation of equivalent units C) work done on ending inventory is kept separate from the work done during the current period in the calculation of equivalent units and is usually not included in the calculation D) FIFO process-costing method is only minimally different from the weighted-average process-costing method
B
27) An assumption of the FIFO process-costing method is that ________. A) the units in beginning inventory are not necessarily assumed to be completed by the end of the period B) the units in beginning inventory are assumed to be completed first C) ending inventory will always be completed in the next accounting period D) no calculation of conversion costs is possible
B
4) 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
6) 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
6) If there was no beginning work in process and no ending work in process under the weighted-average process costing method, the number of equivalent units for direct materials, if direct materials were added at the start of the process, would be ________. A) more than the units started or transferred in during the period B) equal to the units completed during the period C) less than the units completed during the period D) equal to total of units started and units completed during the period
B
7) 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 cost
B
1) In a process-costing system when goods move from department to department, the accounting for such transfers is relatively simple under ________. A) standard costing B) FIFO costing C) weighted-average costing D) operations costing
C
1) Which of the following companies is most likely to use an operation-costing system? A) a company involved in manufacture of ball bearing on a large scale B) a company that has been awarded a contract to construct a bridge for the government C) a company that makes suits for which the basic design is same, but depending on specifications, each batch of suits varies somewhat from other batches D) a furniture making company which makes furnitures as per the specifications of the customers
C
2) Which of the following companies is likely to use a hybrid-costing system? A) Best Fit Corp., which manufactures pharmaceuticals B) Rida Corp., which processes and sells, after import, a single variant of Turkish marble to real estate companies C) Fast run, which sells a limited range of televisions, which go through similar manufacturing process D) Karoline Corp., which manufactures and sells a single model of cap
C
3) Managers find operation costing useful in cost management because it ________. A) often results in profit maximization B) results in cost minimization C) focuses on control of physical processes of a given production system D) uses job costing to account for the conversion costs and process costing for the material and customizable components
C
3) When a Bakery transfers goods from the Mixing Department to the Baking Department, the accounting entry is ________. A) Work in Process — Mixing Department Work in Process — Baking Department B) Work in Process — Baking Department Accounts Payable C) Work in Process — Baking Department Work in Process — Mixing Department D) Work in Process — Mixing Department Accounts Payable
C
38) A major advantage of using the FIFO process-costing method is that ________. A) FIFO makes the unit cost calculations simpler B) in contrast with the weighted-average method, FIFO is considered GAAP C) FIFO provides managers with information about changes in the costs per unit from one period to the next D) in the period of rising prices, it leads to lower operating income and lower tax payments, saving the company cash and increasing the company's value
C
5) Which of the following statements is true of conversion costs? A) In process costing, they include all the factors of production. B) They include all manufacturing costs including direct materials, direct labor, and other direct and indirect manufacturing costs. C) In process costing, they are usually considered to be added evenly throughout the production process. D) They include only direct materials and excludes all other manufacturing and non-manufacturing costs.
C
7) Under the weighted-average method, the stage of completion of beginning work in process ________. A) is relevant in determining the equivalent units B) must be combined with the work done during the current period to determine the equivalent units C) is irrelevant in determining the equivalent-unit calculation D) can almost always be determined with a high degree of precision
C
1) Costing systems that are used for the costing of like or similar units of products in mass production are called ________. A) inventory-costing systems B) job-costing systems C) process-costing systems D) weighted-average costing systems
C) Process-costing system
2) Which of the following companies is most likely to use process costing? A) Crimpson Color, a company selling customized garments for niche customers B) Effel & Associates, a consulting firm providing various audit and related services C) Red Paste Inc., a company manufacturing and selling toothpaste on a large scale D) Grimpy Corp., a company manufacturing furniture for customers as per their requirements
C) Red Paste
1) The weighted-average process-costing method calculates the equivalent units by ________. A) considering only the work done during the current period B) the units started during the current period minus the units in ending inventory C) the units started during the current period plus the units in ending inventory D) the equivalent units completed during the current period plus the equivalent units in ending inventory
D
26) On occasion, the FIFO and the weighted-average methods of process costing will result in the same dollar amount of costs being transferred to the next department. Which of the following scenarios would have that result? A) when the beginning and ending inventories are equal in terms of unit numbers B) when the beginning and ending inventories are equal in terms of the percentage of completion for both direct materials, and conversion costs C) when there is no ending inventory D) when there is no beginning inventory
D
3) Transferred-in costs are treated as if they are ________. A) conversion costs added at the beginning of the process B) costs of beginning inventory added at the beginning of the process C) direct labor costs added at the beginning of the process D) a separate direct material added at the beginning of the process
D
36) Which of the following is true of weighted-average process-costing? A) It does not represent the average cost of units when inputs prices fluctuates markedly from month to month. B) It facilitates period-to-period comparisons and hence is very useful in analyzing the performances of managers for different periods. C) It arrives at the same unit costs as arrived under FIFO method, but the computations are easier under weighted-average process-costing. D) It calculates the cost per equivalent unit of all work done to date, regardless of the accounting period in which it was done.
D
37) Which of the following is an assumption under FIFO process-costing method? A) It assumes some of the higher-cost units are placed in ending work in process. B) It assumes that all the lower-cost units from the previous period in beginning work in process are the first to be completed and transferred out of the process. C) It assumes that unit inputs costs are constant and do not fluctuate in the short run. D) It assumes that the ending work in process consists of only the lower-cost current-period units.
D
39) A disadvantage of the weighted-average method compared to the FIFO process-costing method is that ________. A) FIFO is computationally simpler B) FIFO provides better management information for planning and control purposes C) when unit cost per input prices fluctuate markedly from month to month, its per unit cost is less representative than FIFO D) the information it provides about changes in unit prices from one period to the next is less useful than the information provided by FIFO
D
40) Which of the following statements is true of process costing? A) In the period of rising prices, weighted-average process-costing method will result in higher operating income as compared to FIFO process-costing method. B) The operating income and the tax payments of a company are not affected by the method of processcosting being followed by the company. C) In the period of rising prices, weighted-average process-costing method will result in lower cost of goods sold as compared to FIFO process-costing method. D) In a period of falling prices, weighted-average process-costing method will increase tax payments as compared to FIFO process-costing method.
D
11) Estimating the degree of completion for the calculation of equivalent units is usually easier for conversion costs than it is for direct materials.
F
13) Conversion costs include direct materials and direct labor but excludes all other manufacturing and non-manufacturing costs.
F
14) Job-costing and process-costing are mutually exclusive, hence a hybrid costing system that combines elements of both job and process costing cannot be used.
F
14) Underestimating the degree of completion of ending work in process leads to increase in operating income.
F
15) The last step in a process-costing system is to compute cost per equivalent unit.
F
20) When calculating the equivalent units, we should only focus on dollar amounts of inventory.
F
46) In the weighted-average costing method, the costs of direct materials in beginning inventory are NOT included in the cost per unit calculation since direct materials are almost always added at the start of the production process.
F
6) A hybrid-costing system is a variant of process-costing that allows it to incorporate benefits of standard costing and activity-based costing.
F
8) When calculating the costs to be transferred using the FIFO method, we should not include costs assigned in the previous period to units that were in process at the beginning of the current period but are now included in the units transferred.
F
9) The principal difference between process costing and job costing is that in job costing an averaging process is used to compute the unit costs of products or services.
F
9) Transferred-in costs are always 100 percent complete at the beginning of the process in the new department.
F
10) If manufacturing labor costs are added to the process at a different time compared to other conversion costs, an additional cost category—direct manufacturing labor costs—would be needed to assign these costs to products.
T
10) Transferred-in costs are costs incurred in previous departments that are carried forward as the product's cost when it moves to a subsequent process in the production cycle.
T
12) If two different direct materials—such as the circuit board and microphone—are added to the process at different times, a company will need two different direct-materials categories to assign direct materials cost
T
16) The equivalent unit concept is a means by which a process costing system can compare partially completed work done in each of the various process categories to obtain a total measure of work done
T
17) The accuracy of the completion estimate of conversion costs depends on the care, skill, and experience of the estimator and also the nature of the conversion process.
T
18) In a process-costing system, there is always a separate Work-in-Process account for each different process.
T
19) A production cost worksheet is used to summarize total costs to account for, compute cost per equivalent unit, and assign total costs to units completed and to units in ending work-in-process.
T
4) When a company has no opening or ending inventory during the month, the cost per unit is calculated by dividing the total costs incurred in the period by the total units produced during the period
T
47) Partially completed units in ending work in process are 100 percent complete with regard to their direct materials costs if the direct materials are introduced at the beginning of the process.
T
48) The weighted-average cost is the total of all costs entering the Work-in-Process account (whether they are from beginning work-in-process or from work started during the current period) divided by total equivalent units of work done to date.
T
7) An operation-costing system is a hybrid-costing system applied to batches of similar, but NOT identical, products.
T
7) In a series of interdepartmental transfers, each department is regarded as separate and distinct for accounting purposes.
T
8) Job-costing systems separate costs into cost categories according to when costs are introduced into the process of manufacture.
T