Chapter 6—Process Costing
TRUE/FALSE
1. Process costing accumulates costs by individual jobs.
2. Process costing is most appropriate for manufacturers of homogeneous products.
3. Process costing is appropriate for companies providing services.
4. Process costing is most useful in situations when relatively homogeneous products are produced.
5. Large manufacturing plants, such as chemical, food, and tire manufacturers, use process costing.
6. Parallel processing requires that units pass through one process before they can be worked on in the
next process.
7. In process costing, each producing department has its own work-in-process account.
8. A production report contains information on costs transferred in from prior departments as well as
costs added in the department such as direct materials, direct labor, and overhead.
9. Any product or service that is basically homogeneous and repetitively produced can take advantage of
a process-costing approach.
10. Firms that offer services cannot have work-in-process inventories.
11. Manufacturing firms may operate without significant work-in-process inventories.
12. Process-costing systems are specifically designed to support costing of mass-produced homogeneous
products.
13. The presence of beginning and ending work-in-process inventories leads to much of the complication
surrounding process costing.
14. The production report is the document that summarizes the manufacturing activity that takes place in a
process department for a given period of time.
15. The costs transferred from a prior process to a subsequent process are referred to as transferred-in
costs.
16. Transferred-in costs are a type of raw material cost.
17. The FIFO costing method separates work and costs of the equivalent units in beginning inventory from
work and costs of the equivalent units produced during the current period. Only current work and costs
are used to calculate this period’s unit cost.
18. The FIFO method is the only method used to calculate equivalent units in process costing.
19. To calculate the equivalent units of production, the number of physical units is multiplied by the
percentage of completion.
20. Equivalent units of output are the complete units that could have been produced given the total amount
of manufacturing effort expended during the period.
21. There are two approaches for dealing with the prior-period output and prior-period costs found in
beginning work in process: the weighted average method and the FIFO method.
22. The major benefit of the FIFO method is simplicity.
23. A production report provides information about the physical units processed in a department and also
about the manufacturing costs associated with them.
24. The unit information section of the production report has two major subdivisions: (1) units to account
for and (2) units accounted for.
25. The cost information section of the production report has two major subdivisions: (1) costs to account
for and (2) costs accounted for.
26. The weighted average costing method combines beginning inventory costs and work done with current
period costs and work to calculate this period’s unit cost.
27. In process costing, it is unreasonable to assume uniform application of material costs.
28. Different percentage completion figures for manufacturing inputs pose a problem for the calculation of
equivalent units, unit cost, and valuation of ending work in process.
29. The solution for different percentage completion figures for manufacturing inputs is to calculate
equivalent units as if there were uniform manufacturing inputs.
30. The usual approach is to treat transferred-in goods as a separate conversion category when calculating
equivalent units.
31. If changes occur in the prices of the manufacturing inputs from one period to the next, then the
weighted average method produces a more accurate unit cost than does the FIFO method.
32. Since FIFO excludes prior-period work and costs, it is necessary to create three categories of
completed units.
33. FIFO assumes that units in beginning work in process are completed last.
34. Under the FIFO method, for the beginning work-in-process units, the total associated manufacturing
costs are the sum of the prior-period costs plus the costs incurred in the current period to finish the
units.
MATCHING
Choose the most likely used costing system for the industries listed below.
a.
Process Costing
b.
Job Order Costing
1. Costing system used by a chemical manufacturer.
2. Costing system used by an architectural firm.
3. Costing system used by a home builder.
4. Costing system used by a manufacturer of custom furniture.
5. Costing system used by a tire manufacturer.
6. Costing system used by a food manufacturer.
Select the appropriate definition for each of the items listed below
a.
parallel processing
b.
sequential processing
c.
process costing
d.
weighted-average costing method
7. partially completed units can be worked on simultaneously in different processes then brought together
in a final process for completion
8. units pass through one process before they can be worked on in the next processes
9. works well whenever relatively homogeneous products pass through a series of processes and receive
similar amounts of manufacturing costs
10. combines beginning inventory costs and work done with current-period costs and work to calculate
this period’s unit cost
Match the five steps involved in creating the department production report with the steps below in the
proper order.
a.
step 1 in preparing a Production Report
b.
step 2 in preparing a Production Report
c.
step 3 in preparing a Production Report
d.
step 4 in preparing a Production Report
e.
step 5 in preparing a Production Report
11. calculation of equivalent units
12. cost reconciliation
13. physical flow analysis
14. computation of unit cost
15. valuation of inventories
Select the appropriate definition for each of the items listed below
a.
equivalent units of production
b.
transferred-in costs
c.
FIFO costing methods
d.
Production report
16. Complete units that could have been produced given the total amount of manufacturing effort
expended for the period under consideration.
17. The costs transferred from a prior process to a subsequent process.
18. Separates work and costs of the equivalent units in beginning inventory from work and costs of the
equivalent units produced during the current period.
19. The document that summarizes the manufacturing activity that takes place in a process department for
a given period of time.
COMPLETION
1. ___________________ requires that units pass through one process before they can be worked on in
the next process.
2. _________________ works well whenever relatively homogeneous products pass through a series of
processes and receives similar amounts of manufacturing costs.
3. Firms that have adopted a __________ approach try to reduce WIP inventories to very low levels.
4. The processing pattern in which partially completed units can be worked on simultaneously in
different processes and then brought together in a final process for completion is known as
____________________.
5. In process costing, each producing department has its own ________________ account.
6. Direct materials used in production, direct labor, and applied overhead are charged to the
_______________ account.
7. _________________________ are costs transferred from a prior process to a subsequent process.
8. The _______________________ is the document that summarizes the manufacturing activity that
takes place in a process department for a given period of time.
9. ___________ costs are a type of raw material cost.
10. __________________________ are the complete units that could have been produced given the total
amount of manufacturing effort expended for the period under consideration.
11. The _________________________ combines beginning inventory costs and work done with current-
period costs and work to calculate this period’s unit cost.
12. The number of physical units is multiplied by the _____________________ to calculate equivalent
units.
13. The _______________________ separates work and costs of the equivalent units in beginning
inventory from work and costs of the equivalent units produced during the current period.
14. The _____________________ provides an analysis of the physical flow of units.
15. If great accuracy in computing unit costs is desired, a company should use the _________ method to
determine unit cost.
16. _____________________ checks to see if the costs to account for are exactly assigned to inventories.
17. Under the _______________ method equivalent units of output are computed by adding units
completed to equivalent units in ending working-in–process.
18. When inputs are added _______________, equivalent units and unit cost are calculated for each
separate input category.
19. If changes occur in the ________ of the manufacturing inputs from one period to the next, then FIFO
produces a more accurate unit cost than does the weighted average method.
20. Under the _________________ method there are two categories of completed units; units started and
completed during the period and units from beginning inventory.
MULTIPLE CHOICE
1. Which type of costing system works best with a large number of homogeneous products?
a.
job-order costing
b.
process costing
c.
sequential costing
d.
parallel costing
2. Which of the following businesses is most likely to use process costing?
a.
chemical plant
b.
architectural firm
c.
dentist’s office
d.
manufacturer of fine furniture
3. Which of the following businesses is most likely to use process costing?
a.
custom home builder
b.
CPA firm
c.
chemical manufacturer
d.
custom machine tools manufacturer
4. Manufacturers that produce a large number of homogeneous products are most likely to use which of
the following?
a.
job-order costing
b.
process costing
c.
sequential costing
d.
parallel costing
5. Which of the following companies would be least likely to use a process costing system?
a.
an oil refinery
b.
a home-builder
c.
a fertilizer company
d.
a chemical company
6. What types of costs are normally found in a process accounting system?
a.
materials, labor and overhead
b.
materials and labor
c.
labor and overhead
d.
overhead, selling and administrative
7. The cost of units finished at the last (final) department will flow from work in process to:
a.
raw materials
b.
finished goods
c.
cost of goods sold
d.
accounts receivable
8. Which of the following best describes sequential processing?
a.
Units must pass through one process before they can be worked on in the next processes.
b.
Several sequences of production are applied to a product in the department.
c.
Only one process can be applied to a product in each department.
d.
Subcomponents can be worked on simultaneously in different processes and then brought
together in a final process for completion.
9. Which of the following best describes parallel processing?
a.
A large number of similar products pass through an identical set of processes.
b.
Units typically pass through a series of manufacturing or producing departments.
c.
Partially completed units can be worked on simultaneously in different processes and then
brought together in a final process for completion.
d.
Units must pass through one process before they can be worked on in the next processes.
10. Which is the best description of the production report?
a.
The production report provides information about the manufacturing costs incurred by the
department.
b.
The report provides information about the physical units processed by the department.
c.
The production report is the document that summarizes the manufacturing activity that
takes place in a process department for a given period of time.
d.
None of these.
11. Process accounting can be appropriate for
a.
service firms.
b.
manufacturing firms with JIT orientation.
c.
traditional manufacturing firms.
d.
All of these.
12. Process costing would be most appropriate for which of the following?
a.
soft drink bottler
b.
custom home builder
c.
caterer
d.
photocopy shop
13. In process costing, the cost of units finished in the last department will be transferred from work in
process to
a.
cost of goods sold.
b.
completed processes.
c.
finished goods.
d.
sales.
14. Process accounting is most probably used by a(n)
a.
paint manufacturer
b.
cement manufacturer
c.
oil change and lube shop
d.
All of these.
15. When should process costing techniques be used in assigning costs to products?
a.
Any time production is only partially completed during the accounting period.
b.
If the product is composed of mass-produced homogeneous products.
c.
If the product is manufactured according to customer specifications.
d.
All of these.
16. At the time they are used, raw materials, direct labor, and applied overhead costs are recorded in
a.
raw materials inventory
b.
finished goods
c.
work in process
d.
cost of goods sold
17. What does the accountant need to know to calculate unit cost?
a.
materials cost plus overhead
b.
the output for a period and the manufacturing costs for the department for that period
c.
prime costs
d.
total units produced by all departments
18. How is unit cost calculated?
a.
total units divided by total costs
b.
sum of all cost drivers
c.
total cost divided by equivalent units produced
d.
total of all costs incurred
19. A cost transferred from a prior process to a subsequent process is referred to as
a.
work in process transfer
b.
beginning work in process
c.
transferred in cost
d.
costs added in
20. Units transferred from a prior process to a subsequent process are referred to as
a.
transferred in units
b.
finished goods
c.
cost of goods sold
d.
beginning goods
21. Equivalent production expresses all activity of the period in terms of
a.
work in process
b.
materials labor and overhead
c.
fully completed units
d.
partially completed units
22. Two methods used to determine equivalent units of production in process costing are
a.
weighted average and FIFO
b.
FIFO and LIFO
c.
weighted average and LIFO
d.
weighted average and exact costing
23. Which of the following methods uses costs and work of beginning work in process?
a.
weighted average method
b.
FIFO method
c.
sequential processing method
d.
both the weighted average and FIFO method can be used
24. Which statement best describes the concept of equivalent units of production?
a.
Equivalent units are the measure of a period’s output.
b.
Equivalent units are the units completed in a department.
c.
Equivalent units are the total of the units produced by all departments.
d.
Equivalent units are the number of units completed at the end of the last process.
25. When computing equivalent units of production, the method that combines partially completed units in
beginning inventory with current period production is the
a.
FIFO method
b.
LIFO method
c.
weighted average method
d.
actual cost method
26. The Fox Company uses the weighted average method. The beginning work in process consists of
20,000 units (100% completed as to materials and 50% complete as to conversion costs). The number
of units completed was 80,000. The ending work in process consists of 10,000 units (100% complete
as to materials and 20% complete as to conversion costs). Calculate the equivalent units of production
for conversion costs.
a.
110,000
b.
82,000
c.
80,000
d.
90,000
27. Beginning inventory for the month contained 2,000 units that were 70% complete with respect to
materials. During the month, 60,000 units were completed and transferred out. Ending inventory
contained 3,000 units, 20% complete with respect to materials. The weighted average equivalent units
of production for materials for the month would be
a.
62,400
b.
63,000
c.
60,600
d.
60,000
28. Estimating the degree of completion of ending work in process requires:
a.
judgement and ethical behavior
b.
The degree of completion of beginning work in process
c.
adjusting the degree of completion of completed units
d.
use of the weighted average method
29. Beginning inventory for the month contained 3,000 units that were 60% complete with respect to
materials. During the month, 50,000 units were completed and transferred out. Ending inventory
contained 5,000 units, 30% complete with respect to materials. The weighted average equivalent units
of production for materials for the month would be
a.
50,000
b.
51,500
c.
50,300
d.
49,500
Units in ending work in process (5,000 30%)
51,500
30. The following information is provided:
Units
Work in process, June 1 (20% complete)
4,000
Started in June
32,000
Work in process, June 30 (30% complete)
12,000
Materials are added at the beginning of the process.
Equivalent units of production for conversion costs using the weighted average method would be
a.
35,600
b.
34,800
c.
36,000
d.
27,600
Units completed (4,000 + 32,000 − 12,000)
Units in ending work in process (12,000 30%)
27,600
31. The following information concerns Schroeder’s equivalent units in May:
Units
Beginning work-in-process (50% complete)
2,000
Units started during May
8,000
Units completed and transferred
7,500
Ending work-in–process (80% complete)
2,500
Using the weighted average method, what are Schroeder’s equivalent units for May?
a.
7,000
b.
9,500
c.
10,000
d.
19,500
Units completed
7,500
Ending WIP (2,500 .80)
Equivalent units
9,500
Figure 6-5.
For the current period, Haley Co. started 20,000 units and completed 8,000 units, leaving 12,000 units
in process 40% complete.
32. Refer to Figure 6-5. How many equivalent units of production did Haley Co. have for the period?
a.
13,500
b.
12,000
c.
12,800
d.
8,000
33. Refer to Figure 6-5. If Haley Co. incurred $31,800 in production costs what was Haley’s cost per
equivalent unit for the period?
a.
$2.48
b.
$3.00
c.
$2.75
d.
$3.25
34. The following information is provided:
Units
Work in process, May 1 (10% complete)
4,000
Started in May
17,000
Work in process, May 31 (20% complete)
3,000
Materials and conversion are incurred uniformly throughout the process.
Equivalent units of production for conversion using the weighted average method would be
a.
17,400
b.
18,600
c.
21,000
d.
22,000
Units completed (4,000 + 17,000 − 3,000)