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1. Goods are transferred from a predecessor department to a successor department.
b. Therefore, Department B will have an additional cost category, Transferred-in Costs. This
3. Successor departments may change the unit of measure from that of predecessor departments.
4. A Cost of Production Report for a successor department from the candle manufacturer example
method.
5. An example of a multidepartment application is also provided in the demonstration problem at the
end of the chapter.
LO.5: Why would a company use a hybrid costing system?
E. Hybrid Costing Systems
2. A hybrid costing system is a costing system that combines certain characteristics of both job
order and process costing.
costs and process costing techniques to account for the conversion costs.
3. Hybrid systems can provide a more accurate accounting picture of the actual type of
LO.6: (Appendix 1) What alternative methods can be used to calculate equivalent units of
production?
1. Weighted average EUP may be calculated as follows:
Units transferred out (whole units)
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2. FIFO EUP may be calculated as follows:
Weighted average EUP
– Beginning WIP (equivalent units)
3. The distinct relationship between the WA and FIFO methods can also be used in another manner
to generate EUPs:
a. Weighted average method:
Total units to account for
b. Alternatively, EUP under the FIFO method may be calculated as follows:
Weighted average EUP
FIFO EUP
c. These EUP calculations for both the weighted average and FIFO methods for the candle
company example are also provided in the appendix.
G. Process Costing with Standard Costs
actual costing.
costing.
period.
4. The standard costs for the candle product discussed earlier are provided in the text (p. 211).
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LO.8: (Appendix 3) How are normal and abnormal spoilage losses treated in an EUP schedule?
H. Spoilage
1. Spoilage represents units from the production process that fail to meet specifications.
2. Losses in a production process may occur continuously or at a specific point in the production
process.
3. Several methods may be used to account for units lost during production.
b. Normal continuous losses
i. The costs of normal shrinkage and normal continuous losses are handled through the
This results in smaller EUP and raises the cost per equivalent unit. Therefore, the
ii. The cost of normal continuous losses is a product cost.
c. Normal discrete losses
d. Abnormal losses
i. Abnormal losses, both continuous and discrete, are expensed in the current period.
e. Text Exhibit 6.14 (p. 215), provides production cost data for Hanks Inc. which is used to
i. Text Exhibit 6.15 (p. 216) presents the cost of production report. Note that the normal
ii. The abnormal spoilage of 3,300 units is included in the EUP calculation but is expensed
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Multiple Choice Questions
1. (LO.1) Which of the following would least likely use a process costing system?
a. Manufacturer of custom furniture
b. Manufacturer of soft drinks
3. (LO.1) Select the incorrect statement regarding equivalent units of production (EUP).
a. Two units 50% complete are equivalent to one unit 100% complete.
b. Except in very rare instances, only one EUP calculation is needed per department.
4. (LO.2) The steps in process costing are listed below:
1 – Calculate physical units to be accounted for
2 – Calculate physical units accounted for
What is the missing step?
5. (LO.2) Which of the following is true about the weighted average method of process costing?
a. The calculation of EUP must take into consideration the units in both beginning and ending
inventory.
b. The cost per EUP will include prior period costs if the department had beginning inventory.
which units remain in inventory.
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Z Company employs a process costing system for its manufacturing operations. All direct
materials are added at the beginning of the process and conversion costs are added
proportionately. The production quantity schedule for April is reproduced below:
Units
Units started during April 5,000
Total units to account for 6,000
Beginning inventory costs: (DM, $54,600; Conversion, $35,560) $ 90,160
Costs incurred during April (DM, $468,000; Conversion $574,060) $1,042,060
6. (LO.2) Using the weighted average method, the equivalent units for direct materials for April
are:
a. 6,000 units.
7. (LO.2) Using the weighted average method, the equivalent units for conversion costs for April
are:
a. 6,000 units.
8. (LO.2) Using the weighted average method, the equivalent unit materials cost for April is:
a. $78.00.
9. (LO.2) Using the weighted average method, the 4,000 units completed during April will be
transferred out at an EUP unit cost of:
a. $188.69.
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Use the following information for the next two questions.
L Company uses a process cost system to account for its manufacturing operations. All direct
materials are added at the beginning of the process and conversion costs are added
proportionately. The production quantity schedule for June is reproduced below:
Units
Work in process on June 1 (20% complete as to conversion costs) 16,000
Units completed and transferred out from beginning inventory 16,000
Units started and completed during June 76,000
Costs pertaining to the month of June are as follows:
Beginning inventory costs: (DM, $54,600; Conversion, $35,560) $ 90,160
10. (LO.3) Using the FIFO method, the equivalent units for direct materials for June are:
a. 116,000 units.
a. 116,000 units.
b. 100,000 units.
completed during June is:
a. $6.16.
successor (downstream) department.
b. Transferred out costs of the predecessor department become transferred in costs of the
successor department.
14. (LO.7: Appendix 2) Which of the following statements is true concerning process costing?
a. Companies my substitute standard costs for actual costs.
b. EUP calculations for standard process costing are identical to those of FIFO process costing.
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c. hybrid method of process costing.
d. last-in, first out method of process costing.
16. (LO.6: Appendix 1) Which of the following is a common variation of the weighted average EUP
calculation presented in the chapter?
c. FIFO EUP / 2
d. Whole units transferred out – Beginning units
17. (LO.8: Appendix 3) In process costing, the cost of normal continuous losses is handled through
the method of neglect, which
per equivalent unit.
b. includes the spoiled units in the equivalent unit computation, thereby increasing the cost per
equivalent unit.
c. excludes the spoiled units from the equivalent unit computation, thereby decreasing the cost
per equivalent unit.
equivalent unit.
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Multiple Choice Solutions
1. a
2. c
3. b
4. d
5. b
6. a (CMA Adapted)
7. c (CMA Adapted)
Conversion: Units EUPs
Beginning inventory 1,000 × 100% = 1,000
8. b (CMA Adapted)
Material EUP Cost: Material Conversion
9. b (CMA Adapted)
$87.10 + 138.55 = $225.65
10. b (CMA Adapted)
Materials: Units EUPs
Beginning inventory 16,000 × 0% = 0
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11. c (CMA Adapted)
Conversion: Units EUPs
Beginning inventory 16,000 × 80% = 12,800
12. d (CMA Adapted)
Material
Added during period 468,000
13. d
14. d
15. c
16. a
17. a