Cost Accounting, 15e Global Edition (Horngren/Datar/Rajan)
Chapter 17 Process Costing
Objective 17.1
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
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
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
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.
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.
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
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 costs.
8) Job-costing systems separate costs into cost categories according to when costs are introduced into the
process of manufacture.
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.
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.
11) Estimating the degree of completion for the calculation of equivalent units is usually easier for
conversion costs than it is for direct materials.
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.
13) Conversion costs include direct materials and direct labor but excludes all other manufacturing and
non-manufacturing costs.
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.
15) There are basically two distinct methods of calculating product costs.
Required:
Compare and contrast the two methods.
16) Why do we need to accumulate and calculate unit costs in process costing (and also job costing)?
17) The president of the Gulf Coast Refining Corporation wants to know why his golfing partner, who is
the chief financial officer of a large construction company, calculates his costs by the job, but his own
corporation calculates costs by large units rather than by individual barrel of oil.
18) Describe the differences between process costing and job costing. Discuss some typical products
which would be more likely to use process costing as compared to some which would be more likely to
use job costing.
Objective 17.2
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
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) $100
B) $90
C) $70
D) $30
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
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.
Objective 17.3
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
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
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
Answer the following questions using the information below:
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
4) 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
5) 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
Answer the following questions using the information below:
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
8) 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?
A) Work in Process—Assembly
Wages Payable Control
B) Accounts Payable Control
Work in Process—Assembly
C) Work in Process—Assembly
Accounts Payable Control
D) Accounts Payable Control
Cash
Answer the following questions using the information below:
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
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.
14) Underestimating the degree of completion of ending work in process leads to increase in operating
income.
15) The last step in a process-costing system is to compute cost per equivalent unit.
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.
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.
18) In a process-costing system, there is always a separate Work-in-Process account for each different
process.
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.
20) When calculating the equivalent units, we should only focus on dollar amounts of inventory.
21) The accounting entry to record the conversion cost of the Assembly Department is:
Work in Process-Assembly Department
Accounts Payable Control
22) Big Bernard Corporation was recently formed to produce a semiconductor chip that forms an
essential part of the personal computer manufactured by a major corporation. The direct materials are
added at the start of the production process while conversion costs are added uniformly throughout the
production process. June is Big Bernard’s first month of operations, and therefore, there was no beginning
inventory. Direct materials cost for the month totaled $935,000, while conversion costs equaled $4,552,000.
Accounting records indicate that 475,000 chips were started in June and 425,000 chips were completed.
Ending inventory was 50% complete as to conversion costs.
Required:
a. What is the total manufacturing cost per chip for June?
b. Allocate the total costs between the completed chips and the chips in ending inventory.
23) The Esther Valve Corporation was recently formed to produce a brass valve that forms an essential
part of a compressor manufactured by a major corporation. The direct materials are added at the start of
the production process while conversion costs are added uniformly throughout the production process.
September is Parson’s first month of operations, and therefore, there was no beginning inventory. Direct
materials cost for the month totaled $2,800,000, while conversion costs equaled $3,600,000. Accounting
records indicate that 1,600,000 valves were started in September and 1,400,000 valves were completed.
Ending inventory was 20% complete as to conversion costs.
Required:
a. What is the total manufacturing cost per valve for September?
b. Allocate the total costs between the completed valves and the valves in ending inventory.
24) Sodius Chemical Inc. placed 220,000 liters of direct materials into the mixing process. At the end of the
month, 5,000 liters were still in process, 30% converted as to labor and factory overhead. All direct
materials are placed in mixing at the beginning of the process and conversion costs occur evenly during
the process. Sodius uses weighted-average costing.
Required:
a. Determine the equivalent units in process for direct materials and conversion costs, assuming there
was no beginning inventory.
b. Determine the equivalent units in process for direct materials and conversion costs, assuming that
12,000 liters of chemicals were 40% complete prior to the addition of the 220,000 liters.
25) Bright Colors Company placed 315,000 gallons of direct materials into the mixing process. All direct
materials are placed in mixing at the beginning of the process and conversion costs occur evenly during
the process. Bright Colors uses weighted-average costing. The initial forecast for the end of the month
was to have 75,000 gallons still in process, 15% converted as to labor and factory overhead.
Required:
a. Determine the total equivalent units (in process and transferred out) for direct materials and for
conversion costs, assuming there was no beginning inventory.
b. With the installation of a new paint processing filtration device, the forecast for the end of the month
was to have 50,000 gallons still in process, 70% converted as to labor and factory overhead. In this event,
determine the equivalent units (in process and transferred out) for direct materials and for conversion
costs, assuming there was no beginning inventory.
26) Jordana Woolens is a manufacturer of wool cloth. The information for March is as follows:
Beginning work in process
Units started
Units completed
Beginning work-in-process direct materials
Beginning work-in-process conversion
Direct materials added during month
Direct manufacturing labor during month
Factory overhead
Beginning work in process was half converted as to labor and overhead. Direct materials are added at the
beginning of the process. All conversion costs are incurred evenly throughout the process. Ending work
in process was 60% complete.
Required:
Prepare a production cost worksheet using the weighted-average method. Include any necessary
supporting schedules.
Work in process, beginning
Started during period
To account for
Units completed
Work in process, ending
Accounted for
Work in process, beginning
$ 6,000
Costs added during period
Total costs to account for
$36,000
Divided by equivalent units
Equivalent unit costs
Costs transferred out (25,000 × $1.90)
Work in process, ending
Direct materials (5,000 × $1.20)
Conversion (5,000 × $0.70 × 0.60)
Costs accounted for
27) List and describe the five steps in process costing.
28) Marv and Vicki own and operate a vegetable canning plant. In recent years, their business has grown
tremendously and, at any point in time, they may have 30 to 35 different vegetables being processed.
Also, during the peak summer months there are several thousand bushels of vegetables in some stage of
processing at any one time. With the company’s growth during the past few years, the owners decided to
employ an accountant to provide cost estimations on each vegetable category and prepare monthly
financial statements. Although the accountant is doing exactly as instructed, Marv and Vicki are confused
about the monthly operating costs. Although they process an average of 50,000 canned units a month, the
monthly production report fluctuates wildly.
Required:
Explain how the production report can fluctuate wildly if they process a constant amount of vegetables
each month.
Objective 17.4
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
Answer the following questions using the information below:
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 ________.
A) 600 units
B) 800 units
C) 700 units
D) 500 units
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