Chapter 6 – Process Costing
1. Process costing accumulates costs by individual jobs.
a.
True
b.
False
False
Process costing accumulates costs by processing departments rather than by individual jobs.
2. Process costing is most appropriate for manufacturers of homogeneous products.
a.
True
b.
False
3. Process costing is appropriate for companies providing services.
a.
True
b.
False
4. Process costing is most useful in situations when relatively homogeneous products are produced.
a.
True
b.
False
5. Large manufacturing plants, such as chemical, food, and tire manufacturers, use process costing.
a.
True
b.
False
6. Parallel processing requires that units pass through one process before they can be worked on in the next process.
a.
True
b.
False
False
7. In process costing, each producing department has its own work-in-process account.
a.
True
b.
False
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.
a.
True
b.
False
9. Any product or service that is basically homogeneous and repetitively produced can take advantage of a process-costing
approach.
a.
True
Chapter 6 – Process Costing
b.
False
10. Firms that offer services cannot have work-in-process inventories.
a.
True
b.
False
False
11. Manufacturing firms may operate without significant work-in-process inventories.
a.
True
b.
False
12. Process-costing systems are specifically designed to support costing of mass-produced homogeneous products.
a.
True
b.
False
13. The presence of beginning and ending work-in-process inventories leads to much of the complication surrounding
process costing.
a.
True
b.
False
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.
a.
True
b.
False
15. The costs transferred from a prior process to a subsequent process are referred to as transferred-in costs.
a.
True
b.
False
16. Transferred-in costs are a type of raw material cost.
a.
True
b.
False
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.
a.
True
b.
False
Chapter 6 – Process Costing
18. The FIFO method is the only method used to calculate equivalent units in process costing.
a.
True
b.
False
False
The FIFO method is one of the methods 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.
a.
True
b.
False
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.
a.
True
b.
False
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.
a.
True
b.
False
22. The major benefit of the FIFO method is simplicity.
a.
True
b.
False
False
The major benefit of the weighted average 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.
a.
True
b.
False
24. The unit information section of the production report has two major subdivisions: (1) units to account for and (2) units
accounted for.
a.
True
b.
False
25. The cost information section of the production report has two major subdivisions: (1) costs to account for and (2) costs
accounted for.
a.
True
b.
False
Chapter 6 – Process Costing
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.
a.
True
b.
False
27. In process costing, it is unreasonable to assume uniform application of material costs.
a.
True
b.
False
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.
a.
True
b.
False
29. The solution for different percentage completion figures for manufacturing inputs is to calculate equivalent units as if
there were uniform manufacturing inputs.
a.
True
b.
False
False
30. The usual approach is to treat transferred–in goods as a separate conversion category when calculating equivalent
units.
a.
True
b.
False
False
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.
a.
True
b.
False
False
32. Since FIFO excludes prior-period work and costs, it is necessary to create three categories of completed units.
a.
True
b.
False
False
33. FIFO assumes that units in beginning work in process are completed last.
a.
True
b.
False
False
Chapter 6 – Process Costing
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.
a.
True
b.
False
35. ___________________ requires that units pass through one process before they can be worked on in the next process.
Sequential processing
36. _________________ works well whenever relatively homogeneous products pass through a series of processes and
receive similar amounts of manufacturing costs.
Process costing
37. Firms that have adopted a __________ approach try to reduce WIP inventories to very low levels.
38. 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 ____________________.
parallel processing
39. In process costing, each producing department has its own ________________ account.
WIP
40. Direct materials used in production, direct labor, and applied overhead are charged to the _______________ account.
work-in-process
41. _________________________ are costs transferred from a prior process to a subsequent process.
Transferred-in costs
42. The _______________________ is the document that summarizes the manufacturing activity that takes place in a
process department for a given period of time.
production report
43. ___________ costs are a type of raw material cost.
Transferred-in
44. __________________________ are the complete units that could have been produced given the total amount of
manufacturing effort expended for the period under consideration.
Equivalent units of output
45. The _________________________ combines beginning inventory costs and work done with current-period costs and
work done to calculate this period’s unit cost.
Chapter 6 – Process Costing
weighted average costing method
46. The number of physical units is multiplied by the _____________________ to calculate equivalent units.
percentage of completion
47. 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.
FIFO costing method
48. The _____________________ provides an analysis of the physical flow of units.
physical flow schedule
49. If great accuracy in computing unit costs is desired, a company should use the _________ method to determine unit
cost.
50. _____________________ checks to see if the costs to account for are exactly assigned to inventories.
Cost reconciliation
51. Under the _______________ method equivalent units of output are computed by adding units completed to equivalent
units in ending working–in-process.
weighted average
52. When inputs are added _______________, equivalent units and unit cost are calculated for each separate input
category.
53. 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.
54. Under the _________________ method there are two categories of completed units; units started and completed
during the period and units from beginning inventory.
55. 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
56. 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
Chapter 6 – Process Costing
57. 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
58. 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
59. 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
60. 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
61. 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
62. 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.
63. Which of the following best describes parallel processing?
a.
A large number of similar products pass through an identical set of processes.
Chapter 6 – Process Costing
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.
c
64. 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.
c
65. Process accounting can be appropriate for
a.
service firms.
b.
manufacturing firms with JIT orientation.
c.
traditional manufacturing firms.
d.
All of these.
66. Process costing would be most appropriate for which of the following?
a.
soft drink bottler
b.
custom home builder
c.
caterer
d.
photocopy shop
a
67. 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.
c
68. 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.
69. 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.
Chapter 6 – Process Costing
c.
If the product is manufactured according to customer specifications.
d.
All of these.
70. 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
71. 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
72. 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
73. 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
74. 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
75. 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
Chapter 6 – Process Costing
76. 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
a
77. 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 methods
78. Which statement best describes the concept of equivalent units of production?
a.
Equivalent units are a 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.
a
79. 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
c
80. 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
Units completed
Ending work in process (10,000 × 20%)
81. 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
Chapter 6 – Process Costing
b.
63,000
c.
60,600
d.
60,000
Units completed
60,000
Ending work in process (3,000 × 20%)
Total equivalent units
60,600
82. 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
a
83. 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 completed
50,000
Units in ending work in process (5,000 × 30%)
1,500
Total equivalent units
51,500
84. 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)
24,000
Units in ending work in process (12,000 × 30%)
3,600
Total equivalent units—conversion
27,600
85. The following information concerns Schroeder’s equivalent units in May:
Units
Chapter 6 – Process Costing
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%)
2,000
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.
86. 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
8,000 units + (12,000 units × 40%) = 12,800 equivalent units
87. 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
$31,800 / 12,800 equivalent units = $2.48 per equivalent unit
88. 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
Chapter 6 – Process Costing
Figure 6-6.
The Martin Company uses the weighted average method. The beginning work in process consists of 6,000 units (100%
completed as to materials and 50% complete as to conversion costs). The number of units completed was 120,000. The
ending work in process consists of 10,000 units (100% complete as to materials and 20% complete as to conversion
costs).
89. Refer to Figure 6-6. What are the equivalent units of production for conversion costs?
a.
120,000
b.
132,000
c.
122,000
d.
135,000
Equivalent units = 120,000 + (10,000 × 0.20) = 122,000
90. Refer to Figure 6-6. Calculate the number of units started during the period.
a.
124,000
b.
100,000
c.
120,000
d.
130,000
Units started during the period = 120,000 + 10,000 – 6,000 = 124,000
91. Simplicity is the main advantage of which of the following process costing methods?
a.
LIFO
b.
FIFO
c.
weighted average
d.
exact cost method
c
92. Which of the following does not appear in the production report?
a.
costs transferred from prior departments
b.
costs added in the department
c.
physical units passing through the department
d.
retail value of the units produced
93. A production report is divided into two sections:
a.
work in process and completed goods.
b.
a unit information section and a cost information section.
c.
finished goods and cost of goods sold.
d.
goods produced and goods in process.
Units completed (4,000 + 17,000 − 3,000)
Units in ending work in process (3,000 × 20%)
Total equivalent units—conversion
Chapter 6 – Process Costing
94. The production report
a.
is a subsidiary to the work in process account.
b.
provides information about the manufacturing costs incurred by the department.
c.
provides information about the physical units processed by the department.
d.
All of these.
95. What is the major advantage of the weighted average cost method?
a.
simplicity
b.
accuracy
c.
it is the required method
d.
it is the preferred method
a
96. Burgundy Manufacturing uses a process cost system and computes cost using the weighted average method. During
the current period, the beginning work-in-process inventory cost was $13,525. Manufacturing cost added was $57,000. If
Burgundy’s ending work–in-process inventory was valued at $15,100, then cost of goods transferred must have been
a.
$70,525
b.
$55,425
c.
$84,625
d.
$58,575
$70,525 − $15,100 = $55,425
97. Which step is cost reconciliation in the general pattern of a process-costing production report?
a.
as part of the physical flow analysis
b.
before calculation of equivalent units
c.
before the computation of unit cost
d.
the last step
1.
physical flow analysis
2.
calculation of equivalent units
3.
computation of unit cost
4.
valuation of inventories (goods transferred out and ending work in process)
5.
cost reconciliation
98. Which step is physical flow analysis in the general pattern of a process-costing production report?
a.
the first step
b.
after calculation of equivalent units
c.
after the computation of unit cost
Chapter 6 – Process Costing
d.
the last step
1.
physical flow analysis
2.
calculation of equivalent units
3.
computation of unit cost
4.
valuation of inventories (goods transferred out and ending work in process)
5.
cost reconciliation
99. The following amounts were selected from the production report of Chandon Corporation:
Actual units in production
42,000
Equivalent units (materials)
42,000
Equivalent units (conversion)
39,000
Cost per equivalent unit (materials)
$1.10
Cost per equivalent unit (conversion)
$0.90
Chandon uses the weighted average method in preparing its production reports. Chandon’s total production cost to be
accounted for must have been
a.
$89,100.
b.
$84,000.
c.
$81,300.
d.
$72,900.
(42,000 × $1.10) + (39,000 × $0.90) = $81,300
100. Garcia Company uses the weighted average method in its costing system. For the month of May in the Assembly
Department, the equivalent units for conversion costs amounted to 35,000. There were 5,000 units in beginning work-in–
process that were 50% complete. During the month, 33,000 units were started and 31,400 were completed and transferred.
The ending work in process consists of
a.
5,000 units.
b.
7,000 units.
c.
3,600 units.
d.
6,600 units.
Ending inventory = (5,000 + 33,000) − 31,400 = 6,600 units
101. 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%)
1,500
Total equivalent units
51,500
Chapter 6 – Process Costing
Figure 6-3.
Kelley Inc., manufactures a product that passes through two processes: mixing and molding. All manufacturing costs are
added uniformly in the mixing department.
Information for the mixing department for October follows:
Work in process, October 1:
Units (55% complete)
6,000
Direct materials
$35,000
Direct labor
$42,000
Overhead
$12,000
During October, 32,000 units were completed and transferred to the molding department. The following costs were
incurred by the mixing department during October:
Direct materials
$120,000
Direct labor
$160,000
Overhead
$50,000
By October 31, 3,000 units that were 75% complete remained in Mixing. Kelley uses the weighted average method.
102. Refer to Figure 6-3. Kelley’s equivalent units of production using the weighted average method would be
a.
34,250.
b.
32,000.
c.
35,000.
d.
24,740.
Units completed
Units in ending work in process (3,000 × 75%)
2,250
Total equivalent units
103. Refer to Figure 6-3. Kelley’s total costs to account for would be
a.
$304,000.
b.
$264,000.
c.
$419,000.
d.
$155,000.
Costs to account for:
Conversion
Materials
Beginning work in process
$35,000
$54,000
$89,000
Incurred during the period
$120,000
$210,000
$330,000
Total costs to account for
$155,000
$264,000
$419,000
104. Refer to Figure 6-3. Kelley’s total cost per equivalent unit of production would be
a.
$12.23.
b.
$10.76.
c.
$11.26.
d.
$8.52.
Units completed
Units in ending work in process (3,000 × 75%)
2,250
Chapter 6 – Process Costing
Conversion
105. Refer to Figure 6-3. Kelley’s cost of goods transferred to the molding department during October would be
a.
$310,000.
b.
$261,050.
c.
$391,360.
d.
$294,000.
Conversion
106. Refer to Figure 6-3. Kelley’s cost of October’s ending work in process for the mixing department would be
a.
$27,500.
b.
$29,200.
c.
$22,520.
d.
$27,518.
Conversion
Chapter 6 – Process Costing
2,250 EWIP × $12.23 = $27,517.50
Figure 6-4.
The following information is available for Department X for August:
Work in process, August 1:
Materials
$ 8,000
Conversion costs
$15,000
Costs added during August:
Materials
$28,000
Conversion costs
$25,000
Equivalent units of production (weighted average):
Materials
4,000
Conversion
5,000
107. Refer to Figure 6-4. Department X’s cost per equivalent unit for materials using the weighted average method would
be
a.
$2.00.
b.
$7.00.
c.
$8.00.
d.
$9.00.
Beginning work in process, materials
$ 8,000
Material costs incurred during period
Total costs to account for
$36,000
Cost per equivalent unit for materials
($36,000 / 4,000)
$9.00
108. Refer to Figure 6-4. Department X’s cost per equivalent unit for conversion using the weighted average method
would be
a.
$8.00.
b.
$5.00.
c.
$3.00.
d.
$9.00.
Beginning work in process, conversion
$15,000
Conversion costs incurred during period
Total costs to account for
$40,000
Cost per equivalent unit for conversion
($40,000 / 5,000)
$8.00
Figure 6-7.
Geller Manufacturing uses a process cost system to manufacture sensors for the security industry. The following
information pertains to operations for the month of March.
Units
Chapter 6 – Process Costing
Beginning work-in-process inventory, March 1
12,000
Started in production during March
110,000
Completed production during March
88,000
Ending work-in-process inventory, March 31
34,000
The beginning inventory was 70% complete for materials and 30% complete for conversion costs. The ending inventory
was 90% complete for materials and 50% complete for conversion costs.
Costs pertaining to the month of March are as follows:
Beginning inventory costs are: materials, $44,400; conversion cost $30,500.
Costs incurred during March are: materials used, $588,000; conversion cost $624,000.
109. Refer to Figure 6-7. Using the weighted average method, the unit cost of materials, rounded to 2 decimal places, for
March is
a.
$4.50.
b.
$5.33.
c.
$5.00.
d.
$5.46.
Completed
88,000
Ending WIP
30,600
Equivalent units of Production
118,600
Unit direct materials cost = ($44,400 + $588,000) / 118,600 = $5.33
110. Refer to Figure 6-7. Using the weighted average method, the equivalent unit conversion cost, rounded to 2 decimal
places, for March is
a.
$5.95.
b.
$6.00.
c.
$5.13.
d.
$6.23.
Completed
88,000
Ending WIP
30,600
Equivalent units of Production
118,600
Unit conversion cost = ($30,500 + $624,000) / 105,000 = $6.23
111. Refer to Figure 6-7. Using the weighted average method the total equivalent units of production for direct materials
is
a.
120,000.
b.
118,600.
c.
116,000.
Chapter 6 – Process Costing
d.
105,000.
Completed
88,000
88,000
Ending WIP
30,600
17,000
Equivalent units of Production
118,600
105,000
112. Refer to Figure 6-7. Using the weighted average method, the total cost of the units in the ending work-in-process
inventory at March 31 is
a.
$253,960.
b.
$269,008.
c.
$250,000.
d.
$256,960.
Completed
Ending WIP
Equivalent units of Production
Unit direct materials cost = ($44,400 +$588,000) / 118,600 = $5.33
Unit conversion cost = ($30,500 + $624,000) / 105,000 = $6.23
113. Assuming conversion costs represent a single category, how many input categories would a department receiving
transferred-in goods normally have?
a.
4
b.
5
c.
3
d.
2
c
114. Conversion costs include:
a.
direct labor and overhead.
b.
direct materials, direct labor and overhead.
c.
direct materials and overhead.
d.
selling and administrative.
a
Figure 6-2.
The Bing Corporation produces a product that passes through two processes. During June, the first department transferred
60,000 units to the second department. The cost of the units transferred was $90,000. Materials are added uniformly in the
second process. The following information was provided about the second department’s operations during June:
Units, beginning work in process
5,000
Units, ending work in process
13,000