Chapter 18 – Costing Systems- Process Costing
TRUE/FALSE
1. In a process costing system, each product is assigned the same amount of costs.
2. In a process costing system, product costs are traced to individual products.
3. A company that manufactures potato chips would probably use a process costing system.
4. Conversion costs per equivalent unit will be same under both FIFO and average costing methods.
5. A process costing system is used by companies that manufacture large amounts of similar products or
liquid products.
6. Average costing method tries to match cost flow with physical flow of production.
7. Average cost method assigns an average cost to all products made during an accounting period
8. Average costing method treats the ending inventory exactly in the same way as the FIFO costing
method.
9. Average costing method disregards the previous period cost of units started last period.
10. In process costing system, the average costing method assumes that cost flows do follow the logical
physical flow of production.
11. For a company having two or more production departments, at the end of the accounting period a
separate process cost report for each department is prepared.
12. The most commonly used method to assign costs to products in process costing is the FIFO costing
method.
13. The FIFO costing method is a costing method in which the cost flow follows the logical product flow.
14. Because process costing is normally associated with a continuous production flow, products that are in
process at the beginning of the period are assumed to be the first completed during the current period.
15. In order to be classified as a process costing system, the product flow must represent a series of
processes in which only one process has input into the next process.
16. Production processes that lend themselves to the use of process cost analysis usually have a FIFO
product flow within the process.
17. Only one Work in Process Inventory account is used with the process costing system.
18. It is difficult to track costs to individual products in a continuous flow manufacturing process.
19. The number of possible combinations of product flows and production processes is limitless.
20. The FIFO approach to process costing assumes that items in beginning inventory were started and
completed in the current period.
21. Because process costing is normally associated with a continuous production flow, products that are in
process at the beginning of the period are assumed to be the first products completed during the current
period.
22. In a process costing system, products flow in a LIFO manner, from department to department.
23. In a process costing system, all production costs are assigned to departments.
24. In a process costing system, each department’s production costs are transferred to the next department
and ultimately to the Finished Goods Inventory account.
25. The product unit cost is the sum of the cost elements added in all production department processes.
26. Regardless of the cost approach used, in a process costing system, costs attached to units in beginning
inventory are included in the computation of costs per equivalent unit.
27. The amount of equivalent production units for direct materials is always the same as that for
conversion costs.
28. In process costing, all costs incurred by a department or production process are divided by the
equivalent units produced during the period to determine the average cost per unit produced.
29. When the FIFO costing method is used in process costing, the number of units in beginning inventory
is multiplied by 100 percent to determine the equivalent units.
30. When the FIFO cost flow assumption is used, the equivalent units will always equal the actual units in
beginning work in process inventory, plus the actual units started and completed during the current
period plus the percent of ending work in process inventory completed during the current period.
31. Equivalent units are defined as the number of units completed and transferred out of work in process
inventory during the current period.
32. In many instances, direct materials are added at the beginning of the process.
33. Separate equivalent units of production usually are calculated for materials and conversion costs.
34. The number of equivalent units of production may be larger than the number of completed units during
the period.
35. The FIFO process costing method assumes that the items in ending work in process inventory were
started and completed during the current period.
36. Equivalent production is a measure of productive output of units for a period of time, expressed in
terms of fully completed or equivalent whole units produced.
37. The number of equivalent units produced for direct materials cost using the FIFO costing procedure is
the sum of the units in beginning work in process inventory, units started and completed during the
period, and the productive effort applied to ending work in process inventory.
38. Conversion costs are defined as the combined total of direct materials costs and direct labor costs
incurred by a production department.
39. If 45,000 units of ending work in process inventory are 60 percent complete as to conversion costs,
27,000 equivalent units of conversion costs must be incurred to complete these units during the next
period.
40. Under the FIFO cost flow assumption, separate unit cost analyses are not used for each accounting
period because costs of different periods are averaged.
41. Unit costs are determined by dividing the total costs of the period by the equivalent units.
42. One of the steps in preparing the process cost report under FIFO method requires dividing current
costs charged to the Work in Process Inventory account of each department or production process by
equivalent units to calculate the cost per equivalent unit.
43. The basis used in computing unit cost for the process costing system is made up of certain specific
jobs worked on during the fiscal year.
44. Regardless of beginning inventory levels, the unit costs are determined by dividing the equivalent units
by the total costs of the period.
45. In a process costing system, the amount of total costs to be accounted for is made up of direct
materials and conversion costs incurred during the current period plus those costs included in the
beginning Work in Process Inventory account.
46. The equivalent units of production must be computed before the value of ending inventory can be
determined in a process costing system.
47. One reason for preparing a process cost report for a particular department is to determine the amount
of costs to transfer to the next department or to the Finished Goods Inventory account at the end of the
period.
48. It is not necessary to ascertain the portion of ending Work in Process Inventory applicable to direct
materials costs versus conversion costs.
49. Process costing information can inform managers about the amounts and types of products ordered by
specific customers.
50. Under the average costing method in process costing system, the costs in beginning inventory are
combined with current period costs to compute an average product unit cost.
51. In a process cost report, accounting for physical units excludes the physical units in beginning
inventory to arrive at “units to be accounted for.”
MULTIPLE CHOICE
1. A company should use process costing rather than job order costing if
a.
production is only partially completed during the accounting period.
b.
the product is produced in batches only as orders are received.
c.
the product is composed of mass-produced homogeneous units.
d.
the product goes through single stage of production.
2. Which of the following items most likely would be manufactured using a process costing system?
a.
Income tax services
b.
Soup
c.
A hotel
d.
Wedding invitations
3. Process costing is applicable to production operations that
a.
utilize several processes, departments, or work cells in a series.
b.
do not assign overhead costs to operations.
c.
produce large and unique machines.
d.
are found in only a few industries.
4. A process costing system accounts for product costs
a.
for a specific period of time.
b.
almost always in a single Work in Process Inventory account.
c.
without regard to the process that created the cost.
d.
for specific orders.
5. Which of the following is not a characteristic of a process costing system?
a.
A specific time period is used.
b.
Several Work in Process Inventory accounts are used.
c.
Product costs are grouped by processes, departments, or work cells.
d.
Customized products are manufactured.
6. Which of the following entities probably would use a process costing system?
a.
An oil refinery
b.
A yacht builder
c.
A custom furniture company
d.
A custom screw manufacturer
7. Which of the following cost flow assumptions most closely follows the logical product flow in a
process costing environment?
a.
Average
b.
LIFO
c.
FIFO
d.
HIFO
8. In a process costing system, the cost of ending work in process inventory for a period can be verified
by reference to supporting analysis in
a.
materials requisitions and labor time tickets.
b.
cost recap included in the statement of production.
c.
cost recap included in the process cost report.
d.
none of the above.
9. If a company uses a process costing system to account for costs in its four production departments,
how many Work in Process accounts will it use?
a.
5
b.
3
c.
1
d.
4
10. In a process costing system, some of the increases to Department B’s Work in Process Inventory
account would come from Department A’s
a.
Finished Goods Inventory account.
b.
Materials Inventory account.
c.
Cost of Goods Sold account.
d.
Work in Process Inventory account.
11. Direct materials for 6,800 units were added at the beginning of the second process during November.
During the month, 7,100 units were completed and transferred to the third process. On November 1,
there were 600 units in beginning inventory, and on November 30, there were 300 units still remaining
in the process. Compute the equivalent units for direct materials for the second process for November
using the FIFO costing method.
a.
7,400
b.
6,800
c.
7,100
d.
7,700
12. Use the following data from a company using a process costing system to answer the question(s)
below.
Beginning Work in Process Inventory on June 1:
1,000 units—100 percent complete as to direct materials
80 percent complete as to conversion costs
Units Started During June:
6,500 units
Ending Work in Process Inventory on June 30:
1,200 units—100 percent complete as to direct materials
40 percent complete as to conversion costs
The FIFO process costing method is used by the company.
Units completed and transferred out of the department during the month totaled
a.
6,700.
b.
6,500.
c.
6,300.
d.
5,300.
13. Use the following data from a company using a process costing system to answer the question(s)
below.
6,500 units
The FIFO process costing method is used by the company.
Equivalent units for direct materials during the month totaled
a.
6,500.
b.
8,700.
c.
6,700.
d.
7,700.
14. Use the following data from a company using a process costing system to answer the question(s)
below.
6,500 units
The FIFO process costing method is used by the company.
Equivalent units for conversion costs during the month totaled
a.
8,020.
b.
7,780.
c.
6,980.
d.
5,980.
15. The Taylor Company uses a process costing system. Assume that direct materials are added at the
beginning of the period and that direct labor and overhead are added continuously throughout the
process. The company uses the FIFO costing method. The following data are available for one of its
accounting periods:
Units
Beginning work in process
26,000
(70 percent complete for conversion
costs)
Units started
180,000
Units transferred out
191,000
Ending work in process
15,000
(60 percent complete for conversion
costs)
Equivalent units for direct materials are
a.
180,000.
b.
202,000.
c.
176,000.
d.
191,000.
16. The Taylor Company uses a process costing system. Assume that direct materials are added at the
beginning of the period and that direct labor and overhead are added continuously throughout the
process. The company uses the FIFO costing method. The following data are available for one of its
accounting periods:
Units
Beginning work in process
26,000
(70 percent complete for conversion
costs)
Units started
180,000
Units transferred out
191,000
Ending work in process
15,000
(60 percent complete for conversion
costs)
Equivalent units for conversion costs are
a.
207,800.
b.
192,200.
c.
181,800.
d.
200,000.
17. The Taylor Company uses a process costing system. Assume that direct materials are added at the
beginning of the period and that direct labor and overhead are added continuously throughout the
process. The company uses the FIFO costing method. The following data are available for one of its
accounting periods:
Units
Beginning work in process
26,000
(70 percent complete for conversion
costs)
Units started
180,000
Units transferred out
191,000
Ending work in process
15,000
(60 percent complete for conversion
costs)
Assume that you have calculated a direct materials cost per unit of $4 and a conversion cost per unit of
$7. Under this assumption, the ending balance for Work in Process Inventory would be
a.
$82,000.
b.
$165,000.
c.
$99,000.
d.
$123,000.
18. Which of the following is not included in conversion costs?
a.
Indirect labor
b.
Direct labor
c.
Direct materials
d.
Overhead
19. The Finishing Department of Garr Company has the following information available for 20xx:
Units
Complete
Beginning work in process inventory
5,000
40 percent
Ending work in process inventory
2,500
80 percent
Units completed during 20xx
32,000
100 percent
Assuming that Garr Company uses the FIFO process costing method, what are the equivalent units for
conversion costs for 20xx?
a.
31,000
b.
36,000
c.
37,000
d.
32,000
20. Measures of equivalent production are necessary in process costing because
a.
job order costing procedures cannot be applied.
b.
unit costs are computed by departments or processes at fixed time intervals.
c.
perpetual inventories are not employed in process plants.
d.
production methods are more complex than in job order costing systems.
21. During March, Department A started 300,000 units of product in a particular production process. The
beginning work in process inventory was 50,000 units, and the ending inventory was 40,000 units.
Direct materials are introduced at the start of processing, and beginning and ending inventories are
considered to be 40 percent complete with respect to conversion costs. Department A uses the FIFO
costing method.
Units transferred out during March were
a.
310,000.
b.
290,000.
c.
320,000.
d.
350,000.
22. During March, Department A started 300,000 units of product in a particular production process. The
beginning work in process inventory was 50,000 units, and the ending inventory was 40,000 units.
Direct materials are introduced at the start of processing, and beginning and ending inventories are
considered to be 40 percent complete with respect to conversion costs. Department A uses the FIFO
costing method.
The number of units started and completed during March was
a.
300,000.
b.
260,000.
c.
324,000.
d.
276,000.
23. During March, Department A started 300,000 units of product in a particular production process. The
beginning work in process inventory was 50,000 units, and the ending inventory was 40,000 units.
Direct materials are introduced at the start of processing, and beginning and ending inventories are
considered to be 40 percent complete with respect to conversion costs. Department A uses the FIFO
costing method.
The number of equivalent units produced with respect to conversion costs was
a.
296,000.
b.
306,000.
c.
336,000.
d.
316,000.
24. Why are equivalent units of production used in process costing?
a.
To allocate overhead costs
b.
To determine the value of work in process and finished goods inventories
c.
To aid in determining costs per unit and costs of inventories in each process
d.
To determine the cost per finished unit
25. Lopez Company uses the FIFO process costing method to determine the product unit cost. The
company began the period with 1,800 units in beginning inventory. During the period, 32,000 units
were started and completed. There were 4,000 units in ending inventory at the end of the period. If all
direct materials are added at the beginning of the process, the number of equivalent units for direct
materials for the period is
a.
29,800.
b.
28,000.
c.
32,000.
d.
36,000.
26. Equivalent units of production usually are determined for
a.
direct materials costs only.
b.
direct materials and conversion costs.
c.
direct materials and direct labor costs only.
d.
conversion costs only.
27. The following unit data were assembled for the heating process of Morgan Processing, Inc., for the
month of August. Direct materials are added at the beginning of the process. Conversion costs are
added uniformly over the production process. The company uses the FIFO process costing method.
Units
Beginning work in process inventory
(30 percent complete)
5,000
Units started in August
44,000
Ending work in process
(60 percent complete)
4,500
The number of equivalent units produced with respect to conversion costs is
a.
43,700.
b.
45,700.
c.
48,200.
d.
50,200.
28. The following unit data were assembled for the heating process of Morgan Processing, Inc., for the
month of August. Direct materials are added at the beginning of the process. Conversion costs are
added uniformly over the production process. The company uses the FIFO process costing method.
Units
Beginning work in process inventory
(30 percent complete)
5,000
Units started in August
44,000
Ending work in process
(60 percent complete)
4,500
The number of equivalent units produced with respect to direct materials costs is
a.
39,500.
b.
44,000.
c.
49,000.
d.
48,500.
29. The reason for combining direct labor and overhead costs together and calling them “conversion costs”
is that
a.
they both are direct costs of production.
b.
the equivalent unit amount for direct materials will be the same as that for direct labor and
overhead costs.
c.
both types of costs usually are incurred uniformly throughout the production process.
d.
the costs for direct labor and overhead are not accounted for separately.
30. A measure of productive output of units for a period of time, expressed in terms of completed whole
units, is the definition of
a.
conversion costs.
b.
ending work in process inventory.
c.
equivalent units.
d.
units started and completed.
31. Which of the following statements is true?
a.
The Work in Process Inventory account is the focal point of process costing.
b.
Labor costs are accounted for differently from overhead costs in a process costing system.
c.
Equivalent units usually are computed for direct materials and overhead combined.
d.
To compute unit costs using the FIFO process costing approach, total costs of direct
materials, direct labor, and overhead that have been accumulated in the Work in Process
Inventory account or accounts are divided by the units worked on during the period.
32. In a process costing system, percentage–of-completion factors normally are obtained from
a.
accounting records.
b.
job order cost cards.
c.
supervisors in the production departments.
d.
time cards.
33. When computing the cost per equivalent unit, the FIFO process costing method considers
a.
current costs only.
b.
current costs plus ending work in process inventory costs.
c.
current costs less ending work in process inventory costs.
d.
current costs plus beginning work in process inventory costs.
34. Direct materials costs and conversion costs for the current period on a process cost report are divided
by their respective units of equivalent production to arrive at the
a.
ending inventory unit cost.
b.
transferred-in cost per unit.
c.
beginning inventory cost per unit.
d.
cost per equivalent unit.
35. In a process costing system, unit cost is computed
a.
on the basis of productive output for a period of time.
b.
for each job worked on.
c.
for direct materials costs only.
d.
only for the last production process.
36. The use of the FIFO method would result in a company’s process cost report showing
a.
units transferred out as one amount with no distinction made for beginning inventory.
b.
units transferred out as two amounts: one for beginning inventory and the other for units
started and completed during the month.
c.
units transferred out as two amounts: one for units completed during the period and one
for ending inventory.
d.
units transferred out as three amounts: one for beginning inventory, one for units started
and completed during the period, and one for ending inventory.
37. Fantastic Fabricating uses the FIFO method in its process costing system. Beginning inventory in the
mixing processing center consisted of 4,000 units, 75 percent complete with respect to conversion
costs. Ending work in process inventory consisted of 3,000 units, 60 percent complete with respect to
conversion costs. If 11,200 units were transferred to the next processing center during the period, the
equivalent units for conversion costs would be
a.
12,400 units.
b.
10,000 units.
c.
11,200 units.
d.
12,200 units.
38. The following data were taken from the accounting records of a company that uses the FIFO method in
its process costing system:
Beginning work in process inventory: 20,000 units (materials 100% complete, conversion costs 60%
complete)
Started in process during the period: 80,000 units
Ending work in process inventory: 30,000 units (materials 100% complete, conversion
costs 70% complete)
The equivalent units are
a.
materials, 90,000 units; conversion costs, 89,000 units.
b.
materials, 100,000 units; conversion costs, 91,000 units.
c.
materials, 60,000 units; conversion costs, 53,000 units.
d.
materials, 80,000 units; conversion costs, 79,000 units.
39. D.Q. Company uses the FIFO method in its process costing system. Beginning inventory in the mixing
department consisted of 6,000 units that were 75 percent complete with respect to conversion costs.
Ending work in process inventory consisted of 5,000 units that were 60 percent complete with respect
to conversion costs. If 12,000 units were transferred to the next processing department during the
period, the equivalent units for conversion costs would be
a.
12,500 units.
b.
10,500 units.
c.
13,500 units.
d.
13,000 units.
40. During October, Department A started 320,000 units of product in a particular manufacturing process.
The beginning work in process inventory was 50,000 units, and the ending inventory was 30,000 units.
Direct materials are introduced at the start of processing, and beginning and ending inventories are
considered to be 50 percent complete with respect to conversion costs. Department A uses the FIFO
costing method.
Units transferred out during October were
a.
335,000.
b.
370,000.
c.
325,000.
d.
340,000.
41. During October, Department A started 320,000 units of product in a particular manufacturing process.
The beginning work in process inventory was 50,000 units, and the ending inventory was 30,000 units.
Direct materials are introduced at the start of processing, and beginning and ending inventories are
considered to be 50 percent complete with respect to conversion costs. Department A uses the FIFO
costing method.
The number of units started and completed during October was
a.
350,000.
b.
360,000.
c.
290,000.
d.
320,000.
42. During October, Department A started 320,000 units of product in a particular manufacturing process.
The beginning work in process inventory was 50,000 units, and the ending inventory was 30,000 units.
Direct materials are introduced at the start of processing, and beginning and ending inventories are
considered to be 50 percent complete with respect to conversion costs. Department A uses the FIFO
costing method.
The number of equivalent units for conversion costs was
a.
345,000.
b.
330,000.
c.
360,000.
d.
375,000.
43. Nader, Inc., has the following information available:
Costs from
Beginning
Inventory
Costs from
Current Period
Direct materials
$2,300
$ 21,252
Conversion costs
6,200
150,536
At the beginning of the period, there were 500 units in process that were 40 percent complete as to
conversion costs and 100 percent complete as to direct materials costs. During the current period,
4,300 units were started and completed. Ending inventory contained 320 units that were 80 percent
complete as to conversion costs and 100 percent complete as to direct materials costs. (Assume that the
company uses the FIFO costing method.)
The equivalent units of production for direct materials and conversion costs, respectively, were
a.
5,120 for direct materials and 5,056 for conversion costs.
b.
4,480 for direct materials and 4,544 for conversion costs.
c.
4,120 for direct materials and 4,056 for conversion costs.
d.
4,620 for direct materials and 4,856 for conversion costs.
44. Nader, Inc., has the following information available:
Costs from
Beginning
Inventory
Costs from
Current Period
Direct materials
$2,300
$ 21,252
Conversion costs
6,200
150,536
At the beginning of the period, there were 500 units in process that were 40 percent complete as to
conversion costs and 100 percent complete as to direct materials costs. During the current period,
4,300 units were started and completed. Ending inventory contained 320 units that were 80 percent
complete as to conversion costs and 100 percent complete as to direct materials costs. (Assume that the
company uses the FIFO costing method.)
The cost of completing a unit during the current period was
a.
$39.50.
b.
$35.60.
c.
$35.21.
d.
$35.79.
45. Nader, Inc., has the following information available:
Costs from
Beginning
Inventory
Costs from
Current Period
Direct materials
$2,300
$ 21,252
Conversion costs
6,200
150,536
At the beginning of the period, there were 500 units in process that were 40 percent complete as to
conversion costs and 100 percent complete as to direct materials costs. During the current period,
4,300 units were started and completed. Ending inventory contained 320 units that were 80 percent
complete as to conversion costs and 100 percent complete as to direct materials costs. (Assume that the
company uses the FIFO costing method.)
The total costs that will be transferred into the Finished Goods Inventory account during the current
period are
a.
$153,080.
b.
$170,880.
c.
$171,788.
d.
$189,600.
46. Information for the current month for Process 3 is shown below.
Direct Materials
Conversion Costs
Beginning work in process
$ 3,600
$ 930
Current month’s costs
55,800
48,204
Equivalent units based on the FIFO
costing method
62,000
61,800
Units completed—60,000
Units in ending work in process—6,000
Direct materials are added at the beginning of the process. Beginning work in process is 30 percent
complete as to conversion costs; ending work in process inventory is 50 percent complete. The cost of
ending work in process inventory totaled
a.
$7,740.
b.
$4,224.
c.
$5,400.
d.
$8,700.
47. Information for the current month for Process D is shown below.
Direct Materials
Conversion Costs
Beginning work in process inventory
$ 6,400
$ 9,600
Current month’s costs
31,740
51,100
Equivalent units based on the FIFO costing
method
69,000
70,000
Direct materials are added at the beginning of the process. Beginning work in process is 50 percent
complete as to conversion costs; ending work in process inventory is 40 percent complete. Determine
the cost of ending work in process inventory.
a.
$7,040
b.
$5,120
c.
$3,200
d.
$3,760
48. Information for the current month for Process 5 is shown below.
Direct Materials
Conversion Costs
Beginning work in process
$ 4,600
$ 2,060
Current month’s costs
46,400
42,375