Understanding Process Costing: Key Concepts and Methods
School
Las Pinas City National Science High School**We aren't endorsed by this school
Course
BUSINESS 101
Subject
Accounting
Date
Dec 10, 2024
Pages
15
Uploaded by ElderTitaniumVulture26
TRUE OR FALSE:1.The process costing method is used for homogenous products.2.Equivalent units are computed to assign to completed units3.The fifo method combines beginning inventory and current production to compute costper unit of production4.The weighted average method separates beginning inventory and current production tocompute cost per unit of production.5.The numerator in the formula for equivalent units includes all beginning inventory costwhen using the weighted average costing assumption6.The FIFO costing method assumes that units in beginning inventory are the first unittransferred.7.Using FIFO costing, equivalent units of production can be determined by subtractingEUP's in Beginning work in process from weighted average EUP.8.Continuous production losses are assumed to occur uniformly throughout the process.9.Discrete production losses are assumed to occur throughout the process.10. Abnormal continuous losses are absorbed by all units in the ending inventory andtransport out on a eup basis11. The cause of production report details are manufacturing quantities and cost showscomputation of eup and indicates cost assignments to good manufacture12. The two methods of accounting for cost flows in process costings are FIFO and LIFO13. The number of completed units that could have been produced from the inputs applied isreferred to as equivalent units14. Causeofnormalshrinkageandnormalcontinuouslossesinaprocessconstyenvironment are handled by method of neglect15. Process cost accumulation procedure is most applicable in continuous mass productionmanufacturing environment.MULTIPLE CHOICE1. Anequivalent unit of material or conversion cost is equal to:A.the prime costB.the amount of material or conversion cost necessary to complete one unit of productionC. a unit of work in process inventoryD. the amount of material or conversion cost necessary to start a unit of production intowork in processE.50% of the material or conversion cost of a unit of finished goods inventory, assuming alinear production pattern
2. Theproduct flow format where certain portions of the work are done simultaneously and thenbrought together for completion is called:A.appliedB.parallelC. standardD. selectiveE.sequential3. Anitem that does not appear on a cost of production report is:A.work in process—beginning inventoryB.cumulative costs through the end of departmental productionC. finished goods—ending inventoryD. materials used in the departmentE.unit costs added by the department4. Goode Manufacturing has three producing departments in its factory. The ending inventory inthe Milling Department consisted of 3,000 units. These units were 60% complete with respect tolabor and factory overhead. Materials are applied at the end of the milling process. Unit costs forthe complete process in the Milling Department are: materials, $1; labor, $2; and factoryoverhead, $3. The appropriate unit cost for each unit in the ending inventory is:A.$2B.$5C. $3D. $6E.$45. Whenaddedmaterialsinsubsequentdepartmentsresultinanincrease of the unitsproduced, the unit transferred-in costs will:A.be reclassified as new materialsB.be increased to provide for the additional unitsC. be accounted for under the fifo costing methodD. be decreased as they are spread over more unitsE.remain unchanged6. GyroProducts transferred 10,000 units to one department. An additional 3,000 units ofmaterials were added in the department. At the end of the month, 7,000 units were transferredto the next department. There was no beginning inventory. The costs for units transferred inwould be effectively allocated over:
A.17,000 unitsB.3,000 unitsC. 10,000 unitsD. 7,000 unitsE.13,000 units7. Acharacteristic of a process costing system is that:A.costs are accumulated by orderB.it is used by a company manufacturing custom machineryC. standard costs are not applicableD. it requires a lot more detailed accounting than does a job order systemE.work in process inventory is restated in terms of completed units8. Transferred-in costs as used in a process cost accounting system are:A.supervisory salaries that are transferred from an overhead cost center to a productioncost centerB.ending work in process inventory of a previous process that will be used in a succeedingprocessC. labor that is transferred from another department within the same plant instead of hiringtemporary workers from the outsideD. costs of the product of a previous internal process that is subsequently used in asucceeding internal processE.none of the above9. Ina process costing system, how is the unit cost affected in a production cost report whenmaterials are added in a department subsequent to the first department and the added materialsresult in additional units?A.The first department's unit cost is increased, but it does not necessitate an adjustment ofthe transferred-in unit cost.B.The first department's unit cost is decreased, but it does not necessitate an adjustmentof the transferred-in unit cost.C. The first department's unit cost is not affected.D. The first department's unit cost is increased, which necessitates an adjustment of thetransferred-in unit cost.E.The first department's unit cost is decreased, which necessitates an adjustment of thetransferred-in unit cost.10. Assumingthat there was no beginning work in process inventory and the ending work inprocess inventory is 50% complete as to conversion costs, the number of equivalent units as toconversion costs would be:
A.less than the units completedB.more than the units completedC. the same as the units placed in processD. the same as the units completedE.less than the units placed in process11. Anerror was made in the computation of the percentage of completion of the current year'sending work in process inventory. The error resulted in assigning a lower percentage ofcompletion to each component of the inventory than actually was the case. What is the effect ofthis error upon:(1) the computation of equivalent units in total(2) the computation of costs per equivalent unit(3) costs assigned to cost of goods completed for the periodA.understate, overstate, overstateB.understate, understate, overstateC. overstate, understate, understateD. overstate, overstate, understateE.none of the above12. Read, Inc. instituted a new process in October. During October, 10,000 units were started inDepartment A. Of the units started, 7,000 were transferred to Department B, and 3,000remained in work in process at October 31. The work in process at October 31 was 100%complete as to material costs and 50% complete as to conversion costs. Materials costs of$27,000 and conversion costs of $39,950 were charged to Department A in October. What werethe total costs transferred to Department B?A.$46,900B.$53,600C. $51,800D. $57,120E.none of the above13. In accounting for beginning inventory costs, the method that allows the addition of beginninginventory costs with costs incurred during the period is referred to as:A.first-in, first-outB.additionC. last-in, first-outD. averageE.first-in, last-out
14. ChicagoProcessing Co. uses the average costing method and reported a beginninginventory of 5,000 units that were 20% complete with respect to materials in one department.During the month, 11,000 units were started; 8,000 units were finished; ending inventoryamounted to 8,000 units that were 60% complete with respect to materials. Total materials costduring the period for work in process should be spread over:A.7,200 unitsB.16,000 unitsC. 11,200 unitsD. 13,200 unitsE.12,800 units15. Indetermining the cost of goods transferred in from a previous department under theaverage cost method:A.a simple average of unit costs is usedB.beginning inventory costs are separated from costs transferred in during the periodC. a first-in, first-out approach is usedD. equivalent production in ending inventory is separated from other transferred-in costsE.a weighted average of unit costs is used16. The average and fifo process costing methods differ in that the average method:A.can be used under any cost flow assumptionB.is much more difficult to apply than the fifo methodC. requires that ending work in process inventory be stated in terms of equivalent units ofproductionD. considers the ending work in process inventory only partially completeE.does not consider the degree of completion of beginning work in process inventory whencomputing equivalent units of production17. The first step in applying the average cost method is to:A.add the beginning work in process costs to the current period's production costsB.divide the current period's production costs by the equivalent unitsC. subtract the beginning work in process costs from the current period's production costsD. A and BE.B and C18. Beginningwork in process was 60% complete as to conversion costs, and ending work inprocess was 45% complete as to conversion costs. The dollar amount of the conversion costincluded in ending work in process (using the average cost method) is determined by multiplyingthe average unit conversion costs by what percentage of the total units in ending work inprocess?
A.60%B.55%C. 45%D. 52.5%E.100%19. DoverCorporation'sproductioncyclestartsintheMixingDepartment. The followinginformation is available for April:Work in process, April 1 (50% complete)..........40,000 unitsStarted in April...............240,000 unitsWork in process, April 30 (60% complete)..................25,000 unitsMaterials are added at the beginning of the process in the Mixing Department. Using theaverage cost method, what are the equivalent units of production for the month of April?A.255,000 materials, 255,000 conversionB.270,000 materials, 280,000 conversionC. 280,000 materials, 270,000 conversionD. 305,000 materials, 275.000 conversionE.240,000 materials, 250.000 conversion20. Information concerning Department A of Neeley Company for June is as follows:Beginning work in process ..17,000 units,$12,800 materials costs- Started in June.............82,000 units,$69,700 materials costs- Units completed.....85,000 units- Ending work in process..............14,000 unitsAll materials are added at the beginning of the process. Using the average cost method, thecost per equivalent unit for materials is:A.$0.825B.$0.833C. $0.85D. $0.97E.$1.0121. KennedyCompanyaddsmaterialsinthebeginningoftheprocessintheFormingDepartment, which is the first of two stages of its production cycle. Information concerning thematerials used in the Forming Department in October is as follows:Work in process, October 1..........6,000 units,$3,000 materials cost
Units started......50,000 units,$25,560 materials costUnits completed and transferred out........44,000 unitsUsing the average cost method, what was the materials cost of work in process at October 31?A.$3,000B.$6,120C. $3,060D. $5,520E.$6,00022. Roger Company manufactures Product X in a two-stage production cycle in Departments Aand B. Materials are added at the beginning of the process in Department B. Roger uses theaverage costing method. Conversion costs for Department B were 50% complete as to the6,000 units in beginning work in process and 75% complete as to the 8,000 units in ending workin process. A total of 12,000 units were completed and transferred out of Department B duringFebruary. An analysis of the costs relating to work in process and production activity inDepartment B for February follows:transferred-in. materials.conversionWork in process, February 1:Costs attached...........$12,000 ,$2,500 ,$1,000February activity:Costs added.......$29,000 ,$5,500$5,000The total cost per equivalent unit transferred out for February of Product X, rounded to thenearest penny, was:A.$2.82B.$2.85C. $2.05D. $2.75E.$2.7823. Simpson Co. adds materials at the beginning of the process in Department M. The followinginformation pertains to Department M's work in process during April:Work in process on April 1 (60% complete as to conversion cost).......3,000 unitsStarted in April..............25,000 unitsCompleted in April.......20,000 unitsWork in process on April 30 (75% complete as to conversion cost) ..8,000 unitsUnder the average costing method, the equivalent units for conversion cost are:
A.26,000B.25,000C. 24,000D. 21,800E.none of the above24. DuringMarch, Quig Company's Department Y equivalent unit product costs, computedunder the average cost method, were as follows:Materials......$2Conversion.........$3Transferred-in........$5Materials are introduced at the end of the process in Department Y. There were 4,000 units(40% complete as to conversion costs) in work in process at March 31. The total costs assignedto the March 31 work in process inventory should be:A.$36,000B.$28,800C. $27,200D. $24,800E.none of the above25. If a company reports two different unit costs for goods transferred to the next department, itis reasonable to assume that:A.the department accounts for lost units at the end of the processB.a fifo costing method is usedC. lost unit costs are computed separatelyD. an average costing method is usedE.errors must have occurred in recording costs26. In order to compute equivalent units of production using the fifo method of process costing,work for the period must be broken down to units:A.started and completed during the periodB.completed during the period and units in ending inventoryC. completed from beginning inventory, started and completed during the month, and unitsin ending inventory.D. started during the period and units transferred out during the periodE.processed during the period and units completed during the period
27. Thefirst-in, first-out method of process costing will produce the same cost of goodsmanufactured amount as the average cost method when:A.there is no beginning inventoryB.there is no ending inventoryC. beginning and ending inventories are each 50% completeD. beginning inventories are 100% complete as to materialsE.goods produced are homogeneous28. Thefifo method of process costing differs from the average cost method of process costingin that fifo:A.allocates costs based on whole units, but the average cost method uses equivalent unitsB.considers the stage of completion of beginning work in process in computing equivalentunits of production, but the average cost method does notC. does not consider the stage of completion of beginning work in process in computingequivalent units of production, but the average cost method doesD. is applicable only to those companies using the fifo inventory pricing method, but theaverage cost method may be used with any inventory pricing methodE.none of the above29. ConnorCompany computed the flow of physical units completed for Department M for themonth of March as follows:Units completed:From work in process on March 1....15,000 unitsFrom March production…45,000 unitsTotal..............60,000 unitsMaterials are added at the beginning of the process. The 12,000 units of work in process atMarch 31 were 80% complete as to conversion costs. The work in process at March 1 was 60%completeastoconversion costs. Using the fifo method, the equivalent units for Marchconversion costs were:A.60,600B.57,000C. 55,200D. 54,600E.63,60030.The Hilo Company computed the physical flow of units for Department A for the month ofApril as follows:
Units completed:From work in process on April 1.................................................................................10,000From April production.................................................................................................30,000Total.........................................................................................................................40,000Materials are added at the beginning of the process. Units of work in process at April 30 were8,000. The work in process at April 1 was 80% complete as to conversion costs, and the work inprocess at April 30 was 60% complete as to conversion costs. What are the equivalent units ofproduction for the month of April using the fifo method?Materials. Conversion CostsA.48,000.48,000B.40,000.47,600C. 36,800.38,000D. 38,000.36,800E.48,000.44,80031. Department A is the first stage of Mann Company's production cycle. The followinginformation is available for conversion costs for the month of April:....................................................................................................................................UnitsBeginning work in process (60% complete).....................................................................20,000Started in April.............................................................................................. .................340,000Completed in April and transferred to Department B...................................................320,000Ending work in process (40% complete)..........................................................................40,000Using the fifo method, the equivalent units for the conversion cost calculation are:A.336,000B.360,000C. 328,000D. 320,000E.324,000PROBLEM1.Cost of Production Report. Fort Myers Corporation manufactures a product that isprocessed in two departments: Mixing and Cooking. At the beginning and end of May,
there were no inventories of unfinished work. During May, 50,000 units of this productwere completed. Materials used during May cost $28,000, of which one half were usedin the Mixing Department and one half were used in the Cooking Department. Directlabor wages totaled $60,000, with $40,000 applicable to Mixing and $20,000 to Cooking.The amounts for direct factory overhead incurred for each department and for generalfactory overhead apportioned to each department were:Mixing.CookingDepartment.DepartmentFactory overhead incurred........................................................$7,500$9,000General factory overhead apportioned......................................5,0006,000Required: Prepare a partial cost of production report, showing the total cost to beaccounted for in each department.2.Computation of Equivalent Production. Hanrahan Company uses process costing toaccountforthecostsofitsonlyproduct,X.Productiontakesplaceintwodepartments—Sanding and Polishing. On December 31, the inventory for Product X wasas follows:No unused materialsWork in process—Sanding Department.............................................800 units (3/4 complete as to labor)Polishing Department.....................1,000 units (1/2 complete as to materials and 3/4complete as to direct labor)Finished Goods...............................................................600 unitsRequired:(1) ComputetheequivalentunitsofmaterialsinallinventoriescombinedatDecember 31.(2) Compute the equivalent units of the Sanding Department's direct labor in allinventories at December 31.3.Calculation of Unit Costs Average Costing Method. Barcelona Beach Products reportsthe following data for the first department in its production process:Units in process at beginning of period(all materials; 3/4 labor and factory overhead)..........................................................5,000Units started in process.................................................................................35,000Units transferred out..........................................................................33,000Units still in process(all materials; 1/2 labor and factory overhead).....................................5,000Units completed but not yet transferred to Finished Goods...................... ........................2,000
Related data were:Work in Process at.Added DuringBeginning of PeriodPeriodMaterials.............................................................................$100,000.$304,000Labor......................................................................................125,400.407,100Factory overhead.............................. .....................................173,500.407,750Total.......................................................................................$398,900.$ 1,118,850Required: Using the average costing method:(1) Compute the unit cost for materials, labor, and factory overhead.(2) Determine the cost of the work in process ending inventory.4.Cost of Production Report, Second Department, Average Costing. Isogen Corporationmanufactures a product in three departments. The product is cut out of lumber in theCutting Department, then transferred to the Planing Department where it is shaped andcertainpartspurchasedfromoutsidevendorsareaddedtothe unit, and finallytransferred to the Finishing Department where it is primed, painted, and packaged. Sinceonly one product is manufactured by the company, a process cost system is used. Thecompany adopted the average cost flow assumption to account for its work in processinventories. Data related to September operations in the Planing Department follow:Units in beginning inventory.............................................................3,000Units received from the Cutting Department this period......................................7,500Units transferred to Finishing Department this period...............................................8,500Units in ending inventory (75% materials, 50% labor and overhead...................2,000Beginning.AddedCosts charged to the department:InventoryThis PeriodCosts from the preceding department.....................................15,500.$63,250Materials..............................................................................7,80020,700Direct labor.............................................................................3,200.16,750Factory overhead.............................................................9,975.39,900●Required:PrepareaSeptembercostofproductionreportforthePlaningDepartment.5. Lawton Co produces canned tomato soup and is budgeting sales of 250,000 units forthe month of January. Actual inventory units at January 1 and budgeted inventory unitsat January 31 are as follows:
Actual inventory at January 1:UnitsWork in process.noneFinished goods75,000Budgeted Inventory at January 31:Work in process, (75% processed)16,000Finished goods60,000a.How many equivalent units of production is Lawton Budgeting for January?b.If 100 units are 70% complete, 30 units 60% complete, 200 units 40% complete,and 60 units 5% complete, how many EUP-have been produced?6. Ablan Co produces a special kind of insecticide. Materials are added in the first stageof production which is the Mixing Department. For the month of March, 2016, thefollowing data were gathered:No. of unitsWork in process. March 1. 40% complete as to conversion cost40,000Started in process during the month100,000Transferred to the Molding Department85,000Lost units in processing (31.60% complete as to conversion cost)10,000The costs corresponding to the lost units were absorbed by the remaining units.c.Using the weighted average method, the equivalent units for the material costwere:7. Complete the following process account of Lei Mfg. Co by supplying peso amount inthe credit side account indicated under (a) and (b):Process YMay 1, (1/3 converted) 6,000 units4,800| Completed, 16,000 units(a)Materials 12.000 units @ P.506.000| 1/2 completed, 2000 units(b)Labor3,600Overhead5,400d.The peso amount for the 16,000 units completed under a ise.The peso amount for 2,000 units 1/2 completed under b is8.The Glorious Corporation manufactures only one product in which raw material mustpass through Processes A, B, and C in that order, before completion. Inventories ofProcess C and of Finished Goods on October 1 were as follows: Process C- 1,200 units2/3 completed, P4,200, Finished goods - 1,000 units at P3.00 per unit. Inventories on
October 31, were as follows: Process C- 600 units, (1/2 completed), Finished goods- 1,300 units. During October the following transactions were completed:2,000 units with a value of P5,000 were transferred from ProcessDirect labor apply to process c during october was 3,100Overhead cost for october applied to process you were 3, 200f.The processing cost per equivalent unit for October is:g.The value of Process C inventory in process on October 31 is:h.The number of units completed in October and transferred to Finished goods is:9. Gyro Products transferred 10,000 units to one department. An additional 3,000 unitsof materials were added in the department. At the end of the month, 7, 000 units weretransferred to the next department. There was no beginning inventory. The costs forunits transferred in would be effectively allocated over:10.Read, Inc. instituted a new process in October. During October, 10, 000 units werestarted in Department A. Of the units started, 7.000 were transferred to Department B,and 3.000 remained in work in process at October 31. The work in process at October31 was 100% complete as to material costs and 50% complete as to conversion costs.Materials costs of $ 2,000 and conversion costs of $3,995 were charged to DepartmentA in October. What were the total costs transferred to Department B?11.RogerCompanymanufacturesProductXinatwo-stage production cycle inDepartmentsAandB.MaterialsareaddedatthebeginningoftheprocessinDepartmentB.Rogerusestheaveragecostingmethod.ConversioncostsforDepartment B were 50% complete as to the 6.000 units in beginning work in processand 75% complete as to the 8, 000 units in ending work in process. A total of 12,000units were completed and transferred out of Department B during February. An analysisof the costs relating to work in process and production activity in Department B forFebruary follows:Transferred inMaterials.ConversionWork in process, February 1:Costs attached......$12,000$2,500$1,000February activity:29.00041,00012,000i.The total cost per equivalent unit transferred out for February of Product X,rounded to the nearest penny, was:12. The Sanchez Co has the following information in March, 2016Opening inventory4,000
Percentage ofValueCompletionMaterials October,all.1,992Labor50%.1,074Overhead50%846Put in process20,000 unitsMaterials valueP12,000Labor9,984Overhead is 100% of labor costUnits completed and transferred to storeIn Process at the endall materials3,000 units60% ccj.The production equivalent for materials using Average is:k.The production equivalent for labor and overhead using FIFO is:l.The total cost of work in process at the end using Average is:m. The total cost transferred out using FIFO is: