William Carey University - ACC 222

Chapter 18 Process Costing

TRUE /FALSE  Questions

1)As companies become more automated overhead costs increase and direct labor costs decrease.

2. An equivalent unit measures the percentage of a completed unit's cost that is present in a partially finished unit.

3. Conversion costs include direct labor and overhead costs and direct materials associated with converting units so that they can be transferred out of Work-in-Process.

4. A process cost system is highly desirable when a company is producing mass produced, identical goods.

5. Direct materials and overhead may be referred to as conversion costs.

6. Debiting Work-in-Process in Department Two and crediting Work-in-Process in Department One represents costs transferred from Department Two to Department One.

7. A company may choose to use process costing or job costing but never both simultaneously.

8. Process costing provides information on a total and per-unit bases as well as the per-unit cost of performing each step in the production process.

9. United Construction Company, which manufactures residential buildings, would most likely use a process costing system.

10. A process cost system is suitable for a company with a large volume of standard products produced on a relatively continuous basis, for example, golf balls or petroleum.

11. Manufacturing overhead is not applied to products when a process cost system is used.

12. Costs flow through a process cost system in the same sequence as actual products move through the assembly process.

13. In most process cost systems, the number of units "in process" at any one time is usually significant relative to the total production output of the period.

14. As costs flow from one production department to the next in a process cost system, one Work-in-Process Inventory account shows all the changes to the units in production.

15. If there is no over or under applied overhead, equivalent units of production will equal the exact number of units actually produced.

16. Completing 3,000 units which were each 75% complete at the beginning of the period represents 2,250 equivalent full units of work during the current period.

17. Equivalent full units of production significantly differ from units completed and transferred during the period only when no significant differences exist between beginning and ending work in process.

18. In a process cost system that uses equivalent full units of production, the per-unit cost of direct materials equals the total cost of materials used in the current month divided by the number of units completed and transferred during the current month.

19. The number of equivalent full units of production during a period may be greater than, equal to, or smaller than the actual number of units completed and transferred to the finished goods warehouse.

Multiple Choice Questions

20. Process costing:
    1. Traces direct costs to a specific production process.
    2. Applies overhead using an activity base.
    3. Averages direct and indirect costs across mass-produced identical units.
    4. All of the above.

21. Process costing would be suitable for:
    1. Automobile repair.
    2. Production of television sets.
    3. Boat building.
    4. Kitchen remodeling.

22. All of the following are characteristics of the products of process costing except:
    1. High volume.
    2. Different amounts of direct materials.
    3. Identical amounts of direct materials.
    4. Repetitive operations.

23. A summary of work completed with related unit and total costs in a process costing system is called a(n):
    1. Equivalent unit’s production form.
    2. Cost requisition form.
    3. Summary of conversion costs.
    4. Production cost report.

24. The best cost system to use for a company producing a continuous stream of similar items would be a:
    1. Job order system.
    2. Process costing system.
    3. Production costing system.
    4. No cost system is required when jobs are similar.

25. Process cost systems:
    1. Are good when companies produce homogeneous units.
    2. May have work-in-process accounts for each department.
    3. Use equivalent units of production.
    4. All of the above.

26. If 8,000 units were in beginning inventory, 26,000 units were started and 6,000 units were in the ending inventory, how many units were completed and transferred out?

A. 40,000

B. 26,000

C. 28,000

D. 24,000

27. Equivalent units of production are:
    1. A measure representing the percentage of a unit's cost that has been completed.
    2. May be computed separately for each input added during production.
    3. May be assigned to beginning work-in-process or ending work-in-process.
    4. All of the above.

28. A typical production cost report will contain all of the following except:
    1. The number of equivalent units.
    2. The total cost of production.
    3. The costs per equivalent units.
    4. The costs assigned to each job.

29. Per-unit costs:
    1. Are relevant only when a company is engaged in manufacturing activities.
    2. Are determined in job order cost systems but cannot be computed when a process cost system is in use.
    3. Are relevant in manufacturing, merchandising, and service industries, regardless of the type of cost accounting system in use.
    4. Are determined by relating manufacturing costs to the number of units sold.

30. Which company would most likely use a process costing system?
    1. Bic Pens.
    2. Pepsi Cola.
    3. Mars Candy.
    4. All three.

31. In either a job order or a process cost system, credits to the Materials Inventory account represent:
    1. The cost of materials purchased during the period.
    2. The cost of materials relating to finished goods.
    3. The cost of unused materials returned to the inventory.
    4. The cost of materials placed into production.

32. When either a job order cost system or a process cost system is in use, the Direct Labor account is debited:
    1. When work is performed, even if not paid immediately.
    2. When direct labor charges are assigned to work in process.
    3. When employees are paid.
    4. Instead of using a Salaries Expense account.

33. When either a job order cost system or a process cost system is in use, the Direct Labor account is credited:
    1. When work is performed, even if not paid immediately.
    2. When direct labor charges are assigned to work in process.
    3. When employees are paid.
    4. Instead of using a Salaries Expense account.

34. Equivalent units are usually computed for:
    1. Only direct materials.
    2. Only direct labor.
    3. Only factory overhead.
    4. All three of the above.

35. Which of the following is not a characteristic of a process cost system?
    1. The costs incurred in each process are accumulated in separate Work-in-Process Inventory accounts.
    2. It is suitable for mass-produced operations.
    3. Costs are accumulated separately for each unit of production as it moves through the factory.
    4. The cost of a finished unit is the sum of the unit costs of performing each manufacturing process.

36. A process cost system differs from a job order cost system in that:
    1. There is no need for overhead application rates in process cost systems.
    2. Process cost systems are used primarily in service industries, whereas job order cost systems are used in manufacturing operations.
    3. Per-unit costs are not computed in process cost systems.
    4. Process cost systems are used when production involves large volumes of standardized products, whereas job cost systems are used when each job or batch of products is uniquely different.

37. Refer to the information above. In the production process described, what is the Work-in- Process Inventory: Packaging Department debited for?
    1. Costs transferred from the Work-in-Process Inventory: Mixing Department only.
    2. The cost of materials, direct labor, and overhead applicable to the packaging operation only.
    3. Costs transferred from the Work-in-Process Inventory: Mixing Department, as well as materials, direct labor, and overhead applicable to the packaging operation.
    4. Costs transferred to the Finished Goods Inventory.

38. Refer to the information above. In Duffy's operation, the Finished Goods Inventory account is debited for:
    1. The cost of units transferred directly from the Mixing Department.
    2. The cost of units transferred directly from the Packaging Department.
    3. The cost of units transferred directly from both the Mixing Department and the Packaging Department.
    4. The cost of the units sold.

39. In most process cost systems, per-unit costs are determined by:
    1. Dividing the number of units completed during the period by the total manufacturing costs incurred during the period.
    2. Dividing the total manufacturing costs incurred during the period by the number of units worked on during the period.
    3. Dividing the total manufacturing costs incurred during the period by the equivalent number of units completed during the period.
    4. Unit costs cannot be determined in a process cost system.

40. In a process cost system, costs flow from one Work-in-Process Inventory account to the next in the same sequence as:
    1. Units flow through production.
    2. In a LIFO periodic inventory system.
    3. Shipped to customers.
    4. In a job order cost system.

41. In a process cost system, the number of units started and completed for a period is equal to:
    1. Units transferred out less units in beginning work in process.
    2. Units transferred out less units in ending work in process.
    3. Units transferred out plus units of beginning work in process.
    4. Units transferred out plus units in ending work in process.

42. The number of equivalent full units of production:
    1. Is equal to the number of units completed by a department.
    2. May not be greater than the number of units completed by a department.
    3. Is used to complete the overhead application rate.
    4. May be less than, equal to, or greater than the number of physical units completed during the period.

43. Equivalent full units of production represent units of:
    1. Finished goods inventory.
    2. Units of work-in-process inventory.
    3. Work performed during the period.
    4. Sales generated during the period.

44. Companies that compute equivalent full units of production do so to:
    1. Comply with income tax regulations.
    2. Compute total manufacturing costs for the period.
    3. Determine a manufacturing overhead application rate.
    4. Determine departmental per-unit costs.

45. The computation of equivalent full units is generally not necessary when:
    1. Beginning work-in-process inventories are significantly larger than ending work-in- process inventories.
    2. Beginning and ending work-in-process inventories differ only slightly.
    3. The number of units in ending work-in-process exceeds the number of units completed and transferred to finished goods during the period.
    4. Per-unit costs become distorted as a result of not computing equivalent full units of production.

Use the following to answer questions 46-49:

Sue's Soup Products uses a process cost system with two processing departments: the Mixing Department and the Canning Department. Work-in-process inventories are reduced to zero each month. In March, the Mixing Department incurred manufacturing costs of $63,000 to mix 42,000 gallons of soup. The Canning Department incurred manufacturing costs of

$9,000. A total of 170,000 cans of soup were transferred to the finished goods warehouse during the month.

46. Refer to the information above. The journal entry to record the transfer of soup out of the Mixing Department during March would include:
    1. A debit to Work-in-Process Inventory, Mixing Department of $63,000.
    2. A credit to Work-in-Process Inventory, Canning Department of $72,000.
    3. A debit to Finished Goods Inventory of $72,000.
    4. A credit to Work-in-Process Inventory, Mixing Department of $63,000.

47. Refer to the information above. The journal entry to record the transfer of soup out of the Canning Department during March would include:
    1. A credit to Work-in-Process Inventory, Canning Department of $9,000.
    2. A credit to Work-in-Process Inventory, Canning Department of $63,000.
    3. A debit to Finished Goods Inventory of $72,000.
    4. A credit to Finished Goods Inventory, Mixing Department of $72,000.

48. Refer to the information above. The unit cost per gallon of soup transferred to the Canning Department during March was:

A. $1.50.

B. $1.62.

C. $1.71.

D. $1.83

49. Refer to the information above. The unit cost per can of soup transferred to the finished goods warehouse during March was:

A. $0.05.

B. $0.42.

C. $0.37.

D. $1.71.

Use the following to answer questions 50-52:

Evans Products uses a process cost system with two processing departments: the Mixing Department and the Finishing Department. In June, unit costs incurred by the Mixing Department amounted to $4.00 per unit. Unit costs transferred to the finished goods warehouse during the month amounted to $22. Work-in-process inventories are reduced to zero each month.

50. Refer to the information above. The transfer of 35,000 units of paint to the Finishing Department in June required:
    1. A debit to Finished Goods Inventory of $770,000.
    2. A credit to Work-in-Process Inventory, Mixing Department of $770,000.
    3. A credit to Work-in-Process Inventory, Finishing Department of $140,000.
    4. A debit to Work-in-Process Inventory, Finishing Department of $140,000.

51. Refer to the information above. The entry to record the sale of 3,500 units in June would include:
    1. A debit to Work-in-Process Inventory, of $77,000.
    2. A debit to Finished Goods Inventory of $77,000.
    3. A debit to Cost of Goods Sold of $77,000.
    4. A credit to Cost of Goods Sold of $77,000.

52. Refer to the information above. If 80% of all inventory was sold at $32 per unit and 3,500 units were sold, what is the cost of the finished goods inventory at year-end?

A. $16,800.

B. $77,000.

C. $19,250.

D. $96,250.

53. During July, the equivalent full units of direct materials added to the product worked on by Department A amounted to a total of 90,000 applied as follows: beginning inventory, 20,000 units; units started and completed in July, 60,000 units; and ending inventory, 10,000 units. Assuming that the cost of direct materials requisitioned by the department in July was

$135,000; the amount of the materials cost to be assigned to the ending inventory would be: A. $16,875.

B. $54,000.

C. $15,000.

D. $18,000.

54. The Finishing Department of Berle Industries works on only one product, and all costs are incurred uniformly while these units remain in the department. On March 1, 6,000 units were in process that were 45% completed. An additional 60,000 units were transferred into the Finishing Department during March. At March 31, there were 25,000 units in process that were 75% completed. Compute the equivalent full units of production for the Finishing Department during March.

A. 81,450.

B. 60,000.

C. 82,050.

D. 69,550.

55. Department X of a manufacturing company works on only one product, and all costs are incurred uniformly as the product goes along the assembly line. The 8,000 units in process on December 1 were 60% completed. An additional 50,000 units were placed in production during December. At December 31, the 10,000 units in process were 60% completed. The equivalent full units of production during December amounted to:

A. 59,200.

B. 60,800.

C. 57,200.

D. 58,800.

Aves Treats, Inc. produces bird seeds. All direct materials used in the production process are added at the beginning of the manufacturing process. Labor and overhead are added evenly thereafter, as each unit is mixed and packaged. Aves Treats uses process costing and had the following unit production information available for the months of June and July;

The units remaining in work-in-process at the end of June were 30% complete. During the month of July, all of the beginning work in process units w as completed and the units remaining in work-in-process at the end of the month were 60% complete.

56. Refer to the information above. For the month of June, the number of equivalent units of direct materials produced was:

A. 750.

B. 600.

C. 150.

D. Some other amount.

57. Refer to the information above. For the month of June, the number of equivalent units of labor and overhead produced was:

A. 750.

B. 600.

C. 645

D. 595.

58. Refer to the information above. For the month of July, the number of equivalent units of direct materials produced was:

A. 700.

B. 800.

C. 900.

D. 950.

59. Refer to the information above. For the month of July, the number of equivalent units of labor and overhead produced was:

A. 830.

B. 320.

C. 975.

D. Some other amount.

During May, the number of equivalent full units of materials applied to units produced by Department Q totaled 48,000, computed as follows: beginning inventory, 6,000 equivalent full units; units started and completed in May, 34,000 equivalent full units; and ending inventory, 7,680 equivalent full units.

60. Refer to the information above. Assuming that the cost of direct materials used by Department Q in May was $440,000, the materials cost assigned to unfinished units at May 31 would be:

A. $55,000.

B. $26,400.

C. $70,400.

D. Impossible to determine unless we know the percentage of completion for ending inventory units.

61. Refer to the information above. On the basis of this information only:
    1. The number of units transferred in May from Department Q to the next process or department was 34,000.
    2. There were more units in Department Q's ending inventory than in Department Q's beginning inventory for May.
    3. Department Q completed 48,000 units of product during May.
    4. Department Q used enough materials during May to produce 48,000 completed units.

62. During August, Department Z started and completed 90,000 units and also finished 18,000 units that were 75% completed on July 31. On August 31, Department Z's ending inventory consisted of 26,000 units that were 45% completed. All manufacturing costs are incurred at a uniform rate throughout Department Z's production process. The number of equivalent full units of production for Department Z during August is:

A. 106,200.

B. 90,000.

C. 94,500.

D. 117,800.

63. Refer to above. How many units were started in June? A. 92,000

B. 60,000

C. 160,000

D. 110,000

64. Refer to above. What are the equivalent units for materials? A. 92,000

B. 60,000

C. 160,000

D. 110,000

65. Refer to above. What are the equivalent units for direct labor and overhead?

A. 140,000

B. 80,000

C. 160,000

D. 130,000

66. Refer to above. If direct labor and overhead costs totaled $172,000, what would be the unit cost?

A. $1.23

B. $1.08

C. $1.56

D. $3.44

QUIZ A                                

Indicate the best answer for each question in the space provided.

                  1 The beginning inventory of Department No. 3 was zero. During May, 2,500 units were processed in the department at a cost of $5 per unit. All 2,500 of these units were transferred to Department No. 4 in May at a total cost of $17,500. The unit cost of goods transferred to Department No. 4 in May was:

a       $5.00.              b     $6.00.               c      $7.00.               d    $1.00.

                  2 In a given department, the beginning inventory of 8,000 units was 60% complete as to material, labor, and overhead. A total of 9,000 units were started and completed during the period, and the ending inventory of 10,000 units was 40% complete as to material, labor and overhead. The equivalent production for the period in units is:

a       12,200.            b     16,200.             c      17,800.             d    18,200.

                  3 Department A started 3,000 units in February. They completed and transferred to Department B 3,100 units in February and on February 28 had 300 units remaining in Work-in-Process. The number of units in Work-in-Process on February 1 w as

a       6,300.              b     400.                  c      100.                  d    0.

                  4 The assembly department has 750 units in work-in-process at the beginning of November. By the end of November they had completed and transferred 2,800 units to the paint department. On November 30 there were 400 units remaining in work-in- process. How many units were started in production in the assembly department during November?

a       3,650.              b     3,050.               c      2,450.               d    1,750.

QUIZ B                                

WoW Chemical Company uses a process cost system with two departments: (a) a Mixing Department, and (b) a Packing Department. During May, its first month of operations, the company generated $180,000 in revenue by manufacturing and selling 800 cases of chemicals. Related manufactured costs are as follows:

                 1       Refer to the above data. The unit cost of a case processed in the Mixing Department in May was:

a       $230.

b       $57.50.

c       $73.50.

d       Some other amount.

                 2       Refer to the above data. The unit cost of a case incurred by the Packing Department in May was:

a       $73.50.

b       $57.50.

c       $28.75

d       Some other amount.

                 3       Refer to the above data. The total cost of all cases transferred to finished goods in May was:

a       $74,200.

b       $69,000.

c       $63,600.

d       Some other amount.

                 4       Refer to the above data. The gross profit (sales minus cost of goods sold) on chemicals sold in May was:

a       $64,000.

b       $70,000.

c       $111,000.

d       Some other amount.

                 5       Refer to the above data. The unit cost of a case charged to cost of goods sold in May was:

a       $80.

b       $65.50.

c       $86.25.

d       Some other amount.

QUIZ C                                   

Prize Mustard uses a process cost system with two departments: (a) a Mixing Department, and (b) a Bottling Department. During May, Prize generated $120,000 in revenue by producing 40,000 gallons (10,000 cases) of mustard. The company reduces its work in process inventories to zero each month. Manufacturing costs for May are as follows:

                 1       Refer to the above data. The unit cost per gallon of mustard processed by the Mixing Department in May was $              .

                 2       Refer to the above data. The unit cost per case of mustard incurred by the Bottling Department in May was $              .

                 3       Refer to the above data. The total cost of the 10,000 cases transferred to finished goods in May was $                          .

                 4       Refer to the above data. Assume that 9,500 cases of mustard were sold in May. , the amount charged to cost of goods sold in May $           .

                  5 Refer to the above data. Assume that $9,000 of finished goods were on hand at May 1. Under the LIFO method of inventory valuation, finished goods inventory at May 31 was $       if 9,500 cases of mustard were sold in May.

CHAPTER 17 SELF-TEST QUESTIONS FROM TEXTBOOK

Choose the best answer for each of the following questions and insert the identifying letter in the space provided.

                  1   If Power Products uses process costing which of the following is likely to be :

1. 1. The production process are high volume.
   2. The products use different amounts of direct labor. c   The products are created with repetitive processes. d The products are created to customer specifications.

                 2       Which of the following businesses would most likely use process costing?

1. Law firm.
2. Maker of frozen orange juice.
3. A brewery.
4. An oil refinery.

                  3 Nut House manufactures and sells jars of peanut butter. All of the company’s output passes through five production processes, which are performed in sequential order. Identify all correct answers assuming that process costing is in use.

1. The processing departments may define “units of output” differently.
2. Costs transferred from one processing department are charged to the next processing department (or to finished goods).
3. The cost accounting system separately measures the per-unit cost of each manufacturing process.
4. Some portion of total manufacturing overhead should be charged to each processing department.

                 4       Indicate which of the following phrases correctly complete this sentence: “Equivalent units of production. . .” (Indicate all correct answers.)

1. Are a measure of the work done during a given accounting period.
2. Represent only those units completed during the period and transferred out of the Production Department.
3. Are used as the basis for determining per-unit manufacturing costs in a process cost accounting system.
4. Equivalent units are computed separately for each significant input consumed in the production process.

                 5       A production cost report contains which of the following parts:

1. Equivalent units for each significant category of resources consumed in making the product.
2. The total cost to account for.
3. The physical flow of production.
4. The overhead costs applied to each completed job.
5. The total costs accounted for.