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Chapter 20
PROCESS COST ACCOUNTING
1. The managers of process manufacturing systems focus on the series of processes needed to
complete the production of products.
2. Process manufacturing usually reflects a manufacturer that produces large quantities of
identical products.
3. To determine unit cost under a process cost accounting system, equivalent units produced
must be calculated if the company has goods in process inventories.
4. Equivalent units of production refer to the number of units that would be completed if all
effort during a period had been applied only to those units that were started and completed in
a period.
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5. In a process cost accounting system, a department’s production should be measured in
terms of equivalent units when its beginning or ending inventory includes goods in process.
6. Equivalent units of production are always the same as the total number of physical units
finished during the period.
7. Equivalent units of production need to be determined only if a processing department adds
materials and labor to its products at different rates.
8. Equivalent units of production is an engineering term used to describe the process by which
one company attempts to manufacture units of a product that are equivalent to the product
manufactured by a competitor.
9. The last step in the four-step accounting procedure for process costing is the calculation of
equivalent units of production.
10. The process cost summary is an important managerial accounting report produced by a
process cost accounting system.
11. A process cost summary is an accounting report that describes the costs charged to a
department, the equivalent units of production by the department, and how the costs were
assigned to the output.
12. A process cost summary includes the amounts of equivalent units of production for the
period.
13. A process cost summary shows the cost of a particular job manufactured in the reporting
period.
14. The FIFO method separates prior period costs from costs incurred during the current
period.
15. If a department that uses process costing starts the reporting period with 100,000 physical
units that were 20% complete with respect to direct labor, it must add 80% direct labor in the
current period to complete the units.
16. The FIFO method does not use the beginning inventory costs in computing the cost per
equivalent unit for the current period.
17. Process and job order manufacturing operations both combine materials, labor, and
overhead items in the process of producing products.
18. Process cost accounting systems are commonly used by companies that produce a large
volume of standardized units on a continuous basis.
19. Accountants use the term process cost accounting system because this system uses a
number of trained individuals and computers to process the collected cost information.
20. A production department is an organizational unit that has the responsibility for at least
partially processing a product.
21. In a process cost accounting system, with the exception of the first department, each
department receives output from the prior department as a partially processed product.
22. When defining direct costs and indirect costs in process costing, it is the process that is the
cost object.
23. Process costing is applied to operations with repetitive production and heterogeneous
products.
24. In process cost accounting, all labor that is applied exclusively in a single production
department is considered to be direct labor.
25. Process cost accounting systems consider overhead costs to include those costs that
cannot be traced to a specific process.
26. Companies that use a series of repetitive manufacturing processes to produce standardized
products should use a process cost accounting system.
27. Process cost accounting systems are used only by companies that manufacture physical
products; meaning that companies and other organizations that provide services to their
customers do not use process cost accounting.
28. Process cost accounting systems are commonly used by companies that manufacture
standardized products by passing them through a series of manufacturing steps.
29. The use of process costing is of little benefit to a service type of operation.
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30. In process cost accounting, the classification of materials as direct or indirect depends on
whether they are clearly linked with a specific process.
31. Direct costs in process cost accounting include only those costs that can be readily
identified with individual product units.
32. Process cost accounting systems consider direct costs to include those costs that can be
readily identified with a particular process.
33. In process cost accounting, materials are always classified as indirect if they are not
physically incorporated into the final product.
34. Hybrid systems contain aspects of both process and job order operations.
35. Hybrid costing systems can only be applied to auto manufacturing.
36. In a process cost accounting system, the purchase of raw materials is credited to the Raw
Materials Inventory.
37. In a process cost accounting system, the purchase of raw materials is debited to the Raw
Materials Inventory.
38. In a process cost accounting system, the entry to record cost of materials assigned to a
production department requires a debit to the Raw Materials Inventory account and a credit to
the Goods in Process Inventory account for that department.
39. A materials consumption report is a source document that summarizes the materials used
during a reporting period.
40. If Department A uses $10,000 of direct materials and Department B uses $15,000 of direct
materials, the following journal entry would be recorded by the process cost accounting
system:
Goods in Process Inventory, Department A …. 10,000
Goods in Process Inventory, Department B …. 15,000
Raw Materials Inventory…………………. 25,000
41. A unique feature of process costing systems is the use of a single Goods in Process
Inventory control account when more than one production department exists.
42. If Department Q uses $60,000 of direct materials and Department T uses $15,000 of direct
materials, the following journal entry would be recorded by the process cost accounting
system:
Goods in Process Inventory, Department Q …. 60,000
Goods in Process Inventory, Department T ….. 15,000
Raw Materials Inventory ………………………………………………… 75,000
43. After all process cost accounting journal entries are recorded and posted for a reporting
period, the Factory Payroll account should have a zero balance.
44. If the factory labor cost for a month was $123,000 (paid in cash), the following journal
entry would be recorded by the process cost accounting system:
Factory Payroll …………………………………………. 123,000
Cash…………………………………….. 123,000
45. In process cost accounting, direct labor includes only the labor that is applied directly to
the products.
46. In some circumstances, a process cost accounting system can classify wages paid to
maintenance workers as direct labor costs instead of factory overhead.
47. In a process costing system, factory labor costs incurred in a reporting period are
presented on the income statement as Factory Labor Expense.
48. The following journal entry would be made to record the use of $6,100 of direct labor in a
production department during the reporting period:
Factory Payroll …………………………………………………….. 6,100
Goods in Process Inventory…………………………. 6,100
49. If Department G uses $53,000 of direct labor and Department H uses $21,000 of direct
labor, the following journal entry would be recorded using a process cost accounting system:
Goods in Process Inventory, Department G …. 53,000
Goods in Process Inventory, Department H …. 21,000
Factory Payroll…………………………… 74,000
50. In a process cost accounting system, factory overhead costs can be allocated to production
departments by using a predetermined overhead allocation rate.
51. If the indirect materials cost for a reporting period was $37,500, the following journal
entry would be recorded in the process cost accounting system:
Factory Overhead ………………………………………. 37,500
Raw Materials Inventory………………… 37,500
52. In process costing there is never a balance remaining in Factory Overhead that needs to be
closed at period end.
53. In process costing, indirect materials are charged directly to Goods in Process Inventory.
54. A process cost accounting system records all factory overhead costs directly in the Goods
in Process Inventory accounts.
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55. If the predetermined overhead allocation rate is 350% of direct labor cost and the Painting
Department’s direct labor cost for the reporting period is $20,000, the following entry would
record the allocation of overhead to the products processed in this department:
Goods in Process Inventory, Painting Dept ….. 70,000
Factory Overhead. ………………………. 70,000
56. If the predetermined overhead allocation rate is 85% of direct labor cost, and the Painting
Department’s direct labor cost for the reporting period is $20,000, the following entry would
be made to record the allocation of overhead to the products processed in this department:
Factory Overhead 17,000
Goods in Process Inventory, Painting Dept 17,000
57. If the predetermined overhead allocation rate is 225% of direct labor cost, and the Mixing
Department’s direct labor cost for the reporting period is $10,000, the following entry would
be made to record the allocation of overhead to the products processed in this department:
Goods in Process Inventory, Mixing Dept …. 225,000
Factory Overhead……………………….. 225,000
58. The number of equivalent units of production assigned to ending goods in process
inventory should be equal to or less than the number of physical units in ending goods in
process inventory.
59. In the same time period, it is possible that a production department can produce 1,000
equivalent finished units with respect to direct materials and 1,200 equivalent finished units
with respect to direct labor.
60. If a production department has 100 equivalent units of production with respect to direct
materials in a given reporting period, the equivalent units of production with respect to direct
labor also must be 100.
61. Once equivalent units are calculated for materials, this number will also be used for direct
labor and factory overhead.
62. If a department that applies process costing starts the reporting period with 50,000
physical units that were 25% complete with respect to direct materials and 40% complete with
respect to direct labor, it must add 12,500 equivalent units of direct materials and 20,000
equivalent units of direct labor to complete them.
63. One section of the process cost summary describes the equivalent units of production for
the department during the reporting period and presents the calculations of the costs per
equivalent unit.
64. A process cost summary for a production department accounts for all costs assigned to
that department during the period plus costs that were in the department’s Goods in Process
Inventory account at the beginning of the period.
65. The process cost summary presents calculations of the cost of units completed during the
reporting period, but does not present any information about the ending goods in process
inventory.