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Chapter 08 - Process-Costing Systems

Chapter 08
Process-Costing Systems

True/FalseQuestions

1.Inprocesscosting,materialcostsarenottracedtoindividualunitsofoutput,asinjob
costing.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:1

2.Companiesthatproduceproductsincontinuousflowproduction,suchaspaintandcereals
useprocesscosting.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:1

3.Processcostingisusedtohelpsetsellingprices,butisnotusedtodetermineinventory
valuesforfinancialaccounting.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:2

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Chapter 08 - Process-Costing Systems

4.Conversioncostsofresourcesusedbyprocessesgenerallyoccurattheunitlevelofoutput.
FALSE

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
Difficulty:Medium
LearningObjective:2

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Chapter 08 - Process-Costing Systems

5.Conversioncostsofresourcesusedbyprocessescanapplytoalllevelsofthecost
hierarchy.
TRUE

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
Difficulty:Medium
LearningObjective:2

6.Temporarylaborisnormallyabatchlevelconversioncost.
FALSE

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
Difficulty:Medium
LearningObjective:2

7.Inprocesscosting,materialcostsaretracedtoindividualunitsofoutput.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3

8.Thefirststepintheprocesscostingsystemistocomputethenumberofequivalentunits
produced.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3

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Chapter 08 - Process-Costing Systems

9.Thefirststepintheprocesscostingsystemistosummarizethephysicalflowofunits.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3

10.Thebasiccostflowmodeltohelpaccountforunitsprocessedduringtheperiodis
beginninginventoryplustransfersinminustransfersoutequalsendinginventory.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3

11.Equivalentunitsrepresenttheamountofphysicalunitstransferredtofinishedgoods.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3

12.Equivalentunitsrepresenttheamountofworkactuallyaccomplished,expressedasthe
numberofunitsthatcouldhavebeenfullycompleted.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3

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Chapter 08 - Process-Costing Systems

13.Inprocesscosting,twohalffinishedunitsequaloneequivalentunit.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:3

14.Costperequivalentunitiscalculatedbydividingthenumberofequivalentunitsbythe
totalcost.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3

15.Weightedaveragecostingcombinesthecostinbeginninginventorywithcostsincurred
duringtheperiodtocomputeunitcosts.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:4

16.Forweightedaveragecosting,itisnotnecessarytoknowwhichofthefinishedunitswere
fromthebeginninginventoryinordertocomputethenumberoffinishedequivalentunits.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

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Chapter 08 - Process-Costing Systems

17.Weightedaverageprocesscostingprovidesdetailedinformationtomanagementtoassess
workerproductivityforthecurrentperiod.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

18.Overstatingthepercentageofcompletionoftheendinginventoryunderweightedaverage
processcostingwillresultinoverstatedprofitsfortheperiod.
TRUE

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:4

19.Underweightedaverageprocesscosting,allcostsofmaterialandconversionare
averagedtogetherindeterminingcostperfinishedequivalentunit.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

20.Ifthedegreeofcompletionoftheendinginventoryisunderestimated,acompany'sprofits
willbeoverstatedfortheperiod.
FALSE

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:4

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Chapter 08 - Process-Costing Systems

21.Priordepartmentcostsshouldbeexcludedfromadepartment'scostsforpurposesof
performanceevaluations.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:5

22.Inamultipledepartmentprocess,thecostsofunitstransferredoutofonedepartmentand
intoanotherarecalledpriordepartmentcosts.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:5

23.Priordepartmentprocesscostsarealwaysassignedanequivalentunitpercentcompleteof
0%.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:5

24.Thecostofnormalspoilageshouldbewrittenoffasanexpenseaccountduringthe
accountingperiod.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:6

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Chapter 08 - Process-Costing Systems

25.Thecostofabnormalspoilageshouldbewrittenoffasacostoftheperiodratherthan
addedtoinventory.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:6

26.Companiesthathaveazerodefectpolicymighttreatallspoilageasabnormal.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:6

27.Theentrytoaccountforabnormalspoilageconsistsofadebittoworkinprocess
inventoryandacredittoanexpenseaccount.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:6

28.Lostunitsaregoodsthatevaporateorotherwisedisappearduringaproductionprocess.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:6

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Chapter 08 - Process-Costing Systems

29.Alllostunitsshouldbewrittenoffasanexpensefortheperiod.
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:6

30.TotalcoststobeaccountedforarethesameforboththeweightedaverageandFIFO
methods.(Appendix)
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:8

31.Theweightedaveragemethodisusuallymoreaccurateinmatchingactualcoststothe
periodofproduction.(Appendix)
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:8

32.Onlytheweightedaveragemethodisallowedforexternalfinancialreporting.
(Appendix)
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:8

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Chapter 08 - Process-Costing Systems

33.Ifboththenumberofphysicalunitsinthebeginningandendinginventoryandtheir
degreesofcompletionareequal,thenthenumberofunitsstartedwillequalthenumberof
unitstransferredout.(Appendix)
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:8

34.Iftherearenounitsinbeginninginventory,weightedaverageandFIFOwillresultinthe
samenumberoffinishedequivalentunits.(Appendix)
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:8

35.Iftherearenounitsinendinginventory,weightedaverageandFIFOwillresultinthe
samenumberoffinishedequivalentunits.(Appendix)
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:8

36.Ifmaterialsareaddedattheendoftheprocessandassumingnospoilage,underFIFO
processcosting,theequivalentunitswillalwaysbeequaltothenumberofunitstransferred
outduringtheperiod.(Appendix)
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

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Chapter 08 - Process-Costing Systems

37.TheFIFOmethoddiffersfromtheweightedaveragemethodinthattheFIFOmethod
allocatescostsbasedonwholeunitswhereastheweightedaveragemethodusesequivalent
units.(Appendix)
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:8

38.TheweightedaveragemethoddiffersfromtheFIFOmethodinthattheweightedaverage
methoddoesnotconsiderthedegreeofcompletionforthebeginningworkinprocess
inventorywhereasFIFOdoes.(Appendix)
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:8

39.Priorprocesscostsarealwaysassignedanequivalentunitpercentcompleteof100%
underboththeFIFOandweightedaveragemethods.(Appendix)
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:8

40.Incomputingthecostperequivalentunit,theweightedaveragemethodconsiderscurrent
costsonly,whiletheFIFOMethodconsiderspriorperiodcostsandcurrentcosts.(Appendix)
FALSE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:8

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Chapter 08 - Process-Costing Systems

41.UnderFIFOprocesscosting,ifmaterialsareaddedattheendoftheprocess,thematerials
portionoftheendinginventoryofworkinprocesswillalwaysbeassignedacostofzero.
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

42.Inoperationcosting,directmaterialsforeachworkorderorbatchpassingthrougha
particularoperationaredifferent,whileconversioncostsarethesame.(Appendix)
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:9

43.Acompanyusingoperationcostingtypicallyusesdifferentmaterialsforproductsthat
passthroughthesameoperations.(Appendix)
TRUE

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:9

MultipleChoiceQuestions

Usethefollowingtoanswerquestions4445:
DiamondCompanyhasaprocesscostingsystemusingtheweightedaveragecostflow
method.AllmaterialsareintroducedatthebeginningoftheprocessinDepartment1.The
followinginformationisavailableforthemonthofJanuary:

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Chapter 08 - Process-Costing Systems

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Chapter 08 - Process-Costing Systems

44.ThenumberofequivalentunitsofproductionformaterialcostsforthemonthofJanuary
is:
A.28,000
b.23,200
c.24,000
d.22,000
Unitsfinished(22,000)+EndingWIP(6,000)=28,000

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

45.Thenumberofequivalentunitsofproductionforconversioncostsforthemonthof
Januaryis:
a.21,600
b.24,000
c.22,000
D.23,200
Unitsfinished(22,000)+EndingWIP(6,000x.2)=(22,000+1,200)=23,200

AACSB:ReflectiveThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

46.UnderwhatconditionswilltheFIFOmethodproducethesamecostofgoods
manufacturedastheweightedaveragemethod?(Appendix)
a.Whenthereisnoendinginventory
b.Whenthebeginningandendinginventoriesareboth50%complete
C.Whenthereisnobeginninginventory
d.Whenthebeginningandendinginventoriesareequal

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Easy
LearningObjective:8

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Chapter 08 - Process-Costing Systems

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Chapter 08 - Process-Costing Systems

Usethefollowingtoanswerquestions4750:
CarltonManufacturingCompanyhasthefollowinginformationavailableforitsprocess
costingsystemforthemonthofMayinthefinishingdepartment.Thefinishingdepartmentis
thesecondofamultipledepartmentmanufacturingplant.Materialsareaddedattheendof
theprocessinfinishing.

Beginninginventoryis30%completeastoconversioncosts;endinginventoryis80%
completeastoconversioncosts.

47.Thenumberofunitstransferredoutofthefinishingdepartmentis:
A.250,000
b.50,000
c.300,000
d.100,000
Beginninginventory+Transferredin=TransferredOut+Endinginventory

AICPAFN:Measurement
Difficulty:Easy
LearningObjective:4
LearningObjective:5

48.Thenumberoffinishedequivalentunitsofmaterialsunderweightedaverageis:
a.300,000
B.250,000
c.200,000
d.50,000
Unitsfinished:250,000FEU;Endinginventoryis0%completeformaterials

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4
LearningObjective:5

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Chapter 08 - Process-Costing Systems

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Chapter 08 - Process-Costing Systems

49.Thecostperfinishedequivalentunitformaterialsunderweightedaverageis:
a.$0.75
b.$2.00
C.$0.90
d.$0.94
$225,000/250,000FEU=$0.90

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

50.Thevalueassignedtothematerialsportionofendinginventoryunderweightedaverage
is:
a.$140,000
b.$100,000
c.$45,000
D.$0
$0(Materialsareaddedattheendoftheprocess;therefore,endinginventoryhasnomaterial)

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3
LearningObjective:4

51.Thetotalcostoftheunitstransferredoutunderweightedaverageis:
a.$225,000
B.$1,190,500
c.$1,365,000
d.$174,500
Finishedequivalentunits:MaterialsConversionPriorDepartment

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3
LearningObjective:4

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Chapter 08 - Process-Costing Systems

52.Anerrorwasmadeinthecomputationofthepercentageofcompletionofthecurrentyear
endingWorkinProcessinventory.Theerrorresultedinassigningahigherpercentageof
completiontoeachcomponentthanwasactuallythecase.Assumethattherewasno
beginninginventory.Theeffectofthiserroronequivalentunits,costperequivalentunitand
costsassignedtothegoodstransferredoutwouldbe:

a.ItemA
b.ItemB
C.ItemC
d.ItemD

AACSB:Analytic
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:4

Usethefollowingtoanswerquestions5360:
ThefollowinginformationisavailableforSulmonterManufacturingCompanyforthecurrent
period:

32,000unitswerestartedduringtheperiod
Theendinginventoryhas8,000units,whichare45%completewithrespecttodirect
materialsand65%completewithrespecttoconversioncosts.FIFOcostingisused.

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Chapter 08 - Process-Costing Systems

53.Whatarethetotalunitstobeaccountedfor?(AppendixA)
a.32,000
b.40,000
C.44,000
d.52,000
12,000+32,000=44,000

AICPAFN:Measurement
Difficulty:Easy
LearningObjective:7

54.Howmanyunitswerestartedandcompletedduringthecurrentperiod?(AppendixA)
a.20,000
B.24,000
c.32,000
d.40,000
Unitscompletedlessunitsinbeginninginventory(36,00012,000)

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

55.WhataretheequivalentunitsproducedformaterialsusingFIFO?(AppendixA)
a.29,200
b.30,000
C.37,200
d.38,000
Beginninginventory(12,000x.8)9,600

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

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Chapter 08 - Process-Costing Systems

56.WhataretheequivalentunitsproducedforconversioncostsusingFIFOCosting?
(AppendixA)
a.32,200
b.35,800
c.36,000
D.38,200
Beginninginventory(12,000x.75)9,000

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

57.Whatisthepriordepartmentcostperequivalentunit,usingFIFOcosting(roundedtothe
nearestcent?)(AppendixA)
A.$0.60
b.$0.80
c.$0.655
d.$0.50
Currentperiodcost$19,200

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:5
LearningObjective:7

58.WhatisthematerialcostperequivalentunitusingFIFOcosting?(AppendixA)
a.$1.16
B.$1.10
c.$1.35
d.$1.09
Currentperiodcost$40,920

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

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Chapter 08 - Process-Costing Systems

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Chapter 08 - Process-Costing Systems

59.WhatisthetotalcostoftheunitstransferredoutunderFIFO?(AppendixA)
a.$88,360
B.$77,520
c.$50,400
d.$67,566
Beginninginventorypriorcost$12,960

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

60.WhatisthetotalcostoftheendinginventoryunderFIFO?(AppendixA)
A.$10,840
b.$11,212
c.$12,720
d.$6,412
(3,600x$1.10)+(5,200x$0.40)+(8,000x$0.60)=$10,840

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

Usethefollowingtoanswerquestions6162:
VasselCompanyhasaprocesscostingsystemusingtheWeightedAveragecostflowmethod.
AllmaterialsareintroducedatthebeginningoftheprocessinDepartment1.Thefollowing
informationisavailableforthemonthofDecember.

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Chapter 08 - Process-Costing Systems

61.ThenumberofequivalentunitsofproductionformaterialsforthemonthofDecemberis:
a.8,000
b.7,500
C.9,000
d.7,800
Unitsfinished(7,500)+Endinginventory(1,500x100%)=9,000

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

62.Thenumberofequivalentunitsofproductionforconversioncostsforthemonthof
Decemberis:
a.8,000
b.7,500
c.9,000
D.7,800
Unitsfinished(7,500)+Endinginventory(1,500x.20)=7,800

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

63.Incomputingthecostperequivalentunit,theFIFOmethodconsiders:(AppendixA)
a.CurrentcostslesscostsinbeginningWorkinProcessInventory
B.Currentcostsonly
c.CurrentcostspluscostsinbeginningWorkinProcessInventory
d.CurrentcostspluscostsofendingWorkinProcessInventory

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

8-24

Chapter 08 - Process-Costing Systems

Usethefollowingtoanswerquestions6467:
ThefollowinginformationpertainstoYiannisOilCompanyforthemonthofJune:

Allmaterialsareaddedatthebeginningoftheprocess.Beginninginventoryis80%complete
forconversioncosts;endinginventoryis20%completeforconversioncosts.Yiannisusesthe
weightedaveragemethod.

64.ThenumberoffinishedequivalentunitsofmaterialsforJuneis:
a.1,600,000
B.1,840,000
c.1,540,000
d.1,348,000
Unitscompleted(1,540,000)+Endinginventory(300,000x100%)=1,840,000

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3
LearningObjective:4

65.ThenumberoffinishedequivalentunitsofconversioncostsforJuneis:
a.1,540,000
b.1,840,000
C.1,600,000
d.1,348,000
Unitscompleted(1,540,000)+Endinginventory(300,000x.2)=1,600,000

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3
LearningObjective:4

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Chapter 08 - Process-Costing Systems

66.ThecostperfinishedequivalentunitformaterialsforJuneis:
a.$24.31
b.$21.82
c.$21.00
D.$20.35
($3,840,000+33,600,000)/1,840,000=$20.35

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

67.ThetotalmaterialcostoftheendinginventoryforJuneis:
A.$6,105,000
b.$6,300,000
c.$5,478,261
d.$7,293,000
300,000x$20.35=$6,105,000

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

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Chapter 08 - Process-Costing Systems

68.RichardsonCorporation'sproductioncyclestartsinDepartmentA.Thefollowing
informationisavailableforMay:

MaterialsareaddedatthebeginningoftheprocessinDepartmentA.Whataretheequivalent
unitsofproductionformaterialsandconversion,usingtheweightedaveragemethod?

a.ItemA
b.ItemB
c.ItemC
D.ItemD

MaterialsConversion

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3
LearningObjective:4

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Chapter 08 - Process-Costing Systems

69.RiordanCorporation'sproductioncyclestartsinDepartmentA.Thefollowing
informationisavailableforMay:

MaterialsareaddedatthebeginningoftheprocessinDepartmentA.Whataretheequivalent
unitsofproductionformaterialsandconversion,usingtheFIFOmethod?(AppendixA)

a.ItemA
b.ItemB
C.ItemC
d.ItemD

MaterialsConversion

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

70.Whichofthefollowingistrueofabnormalspoilage?
a.Itisproratedbetweencostofgoodssoldandinventory
b.Itisnormallytreatedasapartofgoodunitsproduced
C.Itisnormallywrittenoffasanexpenseintheperiodincurred
d.Itisconsideredtobepartofproduction

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
Difficulty:Easy
LearningObjective:6

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Chapter 08 - Process-Costing Systems

71.Whichofthefollowingstatementsisfalseaboutnormalortoleratedspoilage?
a.Itisexpectedasanaturaloutcomeofanimperfectprocessandcountedasanormalcostof
goodunitsproduced
b.Withwideacceptanceofqualityimprovementinitiatives,theideaisnowindisfavor
C.Forexternalfinancialreportingpurposes,itisnormallyreportedasaseparatelineitemin
theincomestatement
d.Regardlessofthetreatmentandcomputation,itisusuallydesirabletointernallyreport
spoilagecostsasaseparateitemformanagementpurposes

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
Difficulty:Easy
LearningObjective:6

Usethefollowingtoanswerquestions7278:
WinchesterSaladDressinghadbeginningworkinprocessinJulyof$248,320consistingof
$101,640ofmaterialsand$146,680ofconversioncosts.Therewere16,000units(oneunit
equalsonecaseofsaladdressing)inbeginningworkinprocess,40%completeasto
conversioncosts.Materialsareaddedatthebeginningoftheprocess.DuringNovember,
34,000weretransferredout;1,000werespoiledand9,000remainedinendinginventory.The
spoiledunitswere60%completeforconversioncost.Theendingworkinprocesswas70%
completeforconversioncost.Costsduringtheperiodamountedto$781,200fordirect
materialsand$1,009,280forconversion.Winchesterusestheweightedaveragemethodand
identifiesallspoilagecostsseparately.

72.ThenumberofunitsstartedduringJulywas:
a.35,000
b.53,000
C.28,000
d.34,000
16,000+X=34,000+1,000+9,000

AICPAFN:Measurement
Difficulty:Easy
LearningObjective:3

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Chapter 08 - Process-Costing Systems

73.Thenumberoffinishedequivalentunitsunderweightedaverageformaterialsis:
A.44,000
b.43,000
c.39,600
d.39,400
UnitsFinished34,000

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4
LearningObjective:6

74.Thenumberoffinishedequivalentunitsunderweightedaverageforconversionscostsis:
a.44,000
b.34,000
c.40,300
D.40,900
UnitsFinished34,000

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4
LearningObjective:6

75.Thecostperfinishedequivalentunitformaterialsunderweightedaverageis:
a.$17.75
B.$20.06
c.$20.53
d.$21.69
($101,640+$781,200)/44,000=$20.06

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

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Chapter 08 - Process-Costing Systems

76.Thecostperfinishedequivalentunitforconversioncostsunderweightedaverageis:
a.$24.68
b.$26.27
c.$28.68
D.$28.26
($146,680+$1,009,280)/40,900=$28.26

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4
LearningObjective:6

77.Thetotalcostofunitstransferredoutassumingspoilageiswrittenoffasanexpenseunder
weightedaveragewas:
a.$1,680,000
b.$1,394,665
C.$1,642,880
d.$2,038,579
34,000x$48.32=$1,642,880

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:6

78.Thetotalcostassignedtospoiledunitsunderweightedaverageis:
a.$48,320
b.$20,060
C.$37,016
d.$28,260
(1,000x$20.06)+(600x$28.26)=$37,016

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:6

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Chapter 08 - Process-Costing Systems

Usethefollowingtoanswerquestions7985:
OliverCorporation'sDepartment2had1,600unitsinthebeginninginventory(60%complete
forconversioncosts).DuringJuly,14,000unitswerestartedintoproduction;14,400good
unitsweretransferredtoDepartment3and400unitswereleftintheendinginventory,which
were40%completeforconversioncosts.Allmaterialsareaddedattheendoftheprocessin
Department2.Unitsareinspectedatthecompletionoftheprocess,atwhichpointspoiled
unitsareidentifiedanddisposedof.Thecostofspoiledunitsiswrittenoffasanabnormal
expenseduringtheperiod.ThefollowingcostswereassignedtoDepartment2duringthe
period:

79.ThenumberofunitsspoiledduringJulywas:
a.400
B.800
c.1,200
d.0
1,600+14,000=14,400+400+X;X=800

AICPAFN:Measurement
Difficulty:Easy
LearningObjective:3
LearningObjective:6

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Chapter 08 - Process-Costing Systems

80.ThenumberoffinishedequivalentunitsofmaterialsunderweightedaverageandFIFOis:

a.ItemA
b.ItemB
C.ItemC
d.ItemD

WeightedAverage:14,400+800=15,200(spoiledunitshave100%;endinginventoryhas
0%)

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:6
LearningObjective:7
LearningObjective:8

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Chapter 08 - Process-Costing Systems

81.Thenumberoffinishedequivalentunitsofconversioncostsunderweightedaverageand
FIFOis:

a.ItemA
B.ItemB
c.ItemC
d.ItemD

WeightedAverage:14,400+400(.4)+800=15,360

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:6
LearningObjective:7
LearningObjective:8

82.IfDepartment2usesFIFOcosting,whatisthematerialcostperequivalentunitduring
July?(AppendixA)
a.$8.72
b.$7.75
c.$7.81
D.$7.34
Currentmaterialcost:$111,616

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:6
LearningObjective:7

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Chapter 08 - Process-Costing Systems

83.IfDepartment2usesweightedaverage,whatistheconversioncostperequivalentunit
duringJuly?
a.$7.73
B.$12.31
c.$11.53
d.$12.44
($11,968+$177,088)/15,360=$12.31

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:4
LearningObjective:6

84.IfDepartment2usesFIFOcostingandtreatsitsspoilagecostasaseparatecostitem,what
isthetotalcostassignedtothespoiledunitsduringJuly?(AppendixA)
a.$14,808
b.$16,200
c.$16,520
D.$15,712
800x$19.64=$15,712.Spoiledunitsare100%completeforbothmaterialsandconversion.

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:6
LearningObjective:7

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Chapter 08 - Process-Costing Systems

85.Ifthespoiledunitsweredetectedatthe50%pointintheprocessinsteadofattheendof
theprocess:
A.OasisCorporation'sprofitsforJulywouldbehigher
b.OasisCorporation'sprofitsforJulywouldbelower
c.TherewouldbenodifferenceinOasisCorporation'sprofitsforJuly
d.ItwoulddependuponwhetherOasisisusingtheweightedaverageorFIFOmethod

AACSB:Analytic
AICPABB:CriticalThinking
Difficulty:Medium
LearningObjective:6

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Chapter 08 - Process-Costing Systems

86.Whichofthefollowingcompanieswouldmostlikelyuseaprocesscostingsystem?
a.Alargecomputermanufacturerwhereeachcomputerismadetocustomerspecifications
b.Aluxuryhomebuilder
c.Alawfirm
D.Amanufacturerofcereals

AICPAFN:Measurement
Difficulty:Easy
LearningObjective:1

87.IftheFIFOcostingmethodisusedandmaterialsareaddedatthebeginningoftheperiod,
thetotalequivalentunitsformaterialswillequalthenumberofunits:(AppendixA)
a.Startedintotheprocessplustheunitsintheendinginventory
b.Startedandcompletedduringtheperiod
c.Transferredoutduringtheperiod
D.Startedintotheprocessduringtheperiod

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
Difficulty:Medium
LearningObjective:7

88.Whichofthefollowingcompaniesismostlikelytouseoperationcosting?(AppendixB)
a.Alargeoilrefiner
b.Apaintmanufacturer
c.Ashipbuilder
D.Ashoemanufacturer

AICPAFN:Measurement
Difficulty:Easy
LearningObjective:8

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Chapter 08 - Process-Costing Systems

89.Whichofthefollowingstatementsregardingoperationcostingistrue?(AppendixB)
a.Costsofconversionareaccountedforseparately,whileallproductshavethesame
materialscost
b.Itisidealinmassproductionofunitsincontinuousprocesses
C.Directmaterialsforeachbatchpassingthroughaparticularoperationaredifferent,while
conversioncostsarethesame
d.Itisbestusedincompaniesthatmakecustomizedproducts

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:8

Usethefollowingtoanswerquestions9093:
PrestonManufacturingCompanyhasthefollowinginformationavailableforitsprocess
costingsystemforthemonthofMayinthefinishingdepartment.Thefinishingdepartmentis
thesecondofamultipledepartmentmanufacturingplant.Materialsareaddedattheendof
theprocessinfinishing.

Beginninginventoryis30%completeastoconversioncosts;endinginventoryis80%
completeastoconversioncosts.

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Chapter 08 - Process-Costing Systems

90.ThefinishedequivalentunitsforeachproductioncategoryunderFIFOare:(AppendixA)

A.ItemA
b.ItemB
c.ItemC
d.ItemD

PriorDepartmentMaterialsConversion

AICPAFN:Measurement
Difficulty:Hard
LearningObjective:7

91.ThecostperfinishedequivalentunitforconversioncostsunderFIFOis:(AppendixA)
a.$1.12
B.$0.98
c.$1.02
d.$1.00
$510,000/520,000=$0.98

AICPAFN:Measurement
Difficulty:Hard
LearningObjective:7

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Chapter 08 - Process-Costing Systems

92.ThetotalcostofunitstransferredoutunderFIFOis:(AppendixA)
a.$1,402,500
b.$841,500
C.$1,148,700
d.$921,500
Beginninginventory$80,000

AICPAFN:Measurement
Difficulty:Hard
LearningObjective:7

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Chapter 08 - Process-Costing Systems

93.ThetotalcostassignedtotheendinginventoryunderFIFOis:(AppendixA)
a.$280,500
b.$235,500
C.$215,900
d.$188,400
(100,000x$1.375)+(80,000x$0.98)=$215,900

AICPAFN:Measurement
Difficulty:Hard
LearningObjective:7

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Chapter 08 - Process-Costing Systems

EssayQuestions
94.ThefollowinginformationappearsintherecordsoftheWoodrowCompany:OnJune1,
beginningWorkinProcesscontained100,000units,70%completeastoconversioncosts.
DuringJune,300,000unitsweretransferredinfromprocess1.OnJune30,50,000units
remainedininventory,whichwere40%complete.AdecorativematerialisaddedinProcess2
whenunitsare60%complete.
Required:ComputeequivalentunitsproducedduringJuneforpriordepartment,materials
andconversioncostsunderweightedaverageandFIFOcosting.(AppendixA)
Answer:

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3
LearningObjective:7
LearningObjective:8

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Chapter 08 - Process-Costing Systems

95.ThefollowinginformationappearsintherecordsoftheDoyleCorporation:OnJune1,
beginningWorkinProcesscontained200,000units,25%completeastoconversioncosts.
DuringJune,300,000unitsweretransferredinfromProcess1.OnJune30,50,000units
remainedininventory,whichwere75%complete.AdecorativematerialisaddedinProcess2
whenunitsare60%complete.
Required:ComputeequivalentunitsproducedduringJuneforpriordepartment,materials
andconversioncostsunderFIFO.(AppendixA)
Answer:

AICPAFN:Measurement
Difficulty:Hard
LearningObjective:7

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Chapter 08 - Process-Costing Systems

96.Celia'sSaladDressingshadbeginningworkinprocessof$496,640consistingof
$203,280ofmaterialsand$293,360ofconversioncosts.Therewere16,000units(oneunit
equalsonecase)inbeginninginventory,40%completeastoconversioncosts.Materialsare
addedatthebeginningoftheprocess.DuringNovember,34,000unitsweretransferredout,
1,000werespoiledand9,000remainedinendinginventory.Thespoiledunitswere60%
completeforconversioncosts.Theendingworkinprocesswas70%completeforconversion
costs.Costsduringtheperiodamountedto$1,562,400formaterialsand$2,018,560for
conversion.Celia'saccountsforspoiledunitsseparatelyanddoesnotspreadtheircostover
goodunitsproduced.
Required:
(a)PrepareaprocesscostingreportforNovemberusingtheweightedaveragemethod.Use
thefivestepcostingmethodtoassigncoststoproducts.Roundcoststofourdecimalpoints.
(b)Preparethejournalentryrequiredtotransferunitstofinishedgoodsinventory.
(c)Preparethejournalentryrequiredtodisposeofspoiledunits.

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Chapter 08 - Process-Costing Systems

Answer:
(a)

(b)

(c)

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3
LearningObjective:4
LearningObjective:6

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Chapter 08 - Process-Costing Systems

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Chapter 08 - Process-Costing Systems

97.ZarembaCompanyhasthefollowinginformationavailableforitsprocesscostingsystem
forthemonthofJulyinthefinishingdepartment,thesecondofamultipledepartment
manufacturingplant.Materialsareaddedattheendoftheprocessinfinishing.Beginning
inventorywas20%completeforconversioncost.Endinginventorywas70%completefor
conversioncosts.

Required:CalculatethecostoftheunitstransferredoutduringJulyandtheendinginventory
atJuly31usingtheweightedaveragemethod.Therewerenospoiledunits.Round
equivalentunitcoststofourdecimalpoints.
Answer:

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Chapter 08 - Process-Costing Systems

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3
LearningObjective:4
LearningObjective:5

98.WaxCompanyhasthefollowinginformationavailableforitsprocesscostingsystemfor
themonthofJulyinthefinishingdepartment,thesecondofamultipledepartment
manufacturingplant.Materialsareaddedattheendoftheprocessinfinishing.Beginning
inventorywas20%completeforconversioncost.Endinginventorywas70%completefor
conversioncosts.

Costsaddedthismonth:Materials:$450,000;Conversion:$575,000;Priordepartment:
$725,000
Required:CalculatethecostoftheunitstransferredoutduringJulyandtheendinginventory
atJuly31usingtheFIFOmethod.Therewerenospoiledunits.Roundequivalentunitcoststo
fourdecimalpoints.(AppendixA)

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Chapter 08 - Process-Costing Systems

Answer:

AICPAFN:Measurement
Difficulty:Medium
LearningObjective:5
LearningObjective:7

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Chapter 08 - Process-Costing Systems

99.CrazyCoolColaspreparesspecialtyflavoredsodasforlargegrocerychainsandbakeries.
Thecompanyemploysaprocesscostingsystem.Mostofthebasicingredients,labeled
MaterialGroupA,areaddedatthebeginningofthemixingprocess.However,togivethe
sodasthespecial"sizzle"theyarenamedfor,thecompanyaddsaspecialingredientwhen
unitsare80%complete,whichislabeledMaterialGroupB.Informationregardingthemixing
departmentinarecentmonthrevealsthefollowing:
Beginninginventory:2,000Cases(60%completeforconversion)
Casesstarted:18,000
Casesfinished:16,000
Theendinginventoryis90%completeastoconversioncosts
Costinformation:
BeginningWorkinProcess:$21,600consistingof$5,200ofMaterialGroupA,$0of
MaterialGroupBand$16,400ofconversioncosts
Addedduringthemonth:$48,000ofMaterialGroupA,$4,500ofMaterialGroupBand
$162,000ofconversioncosts
Required:a)Prepareacostreportusingtheweightedaveragemethod.Roundallnumbersto
fourdecimalpoints.
b)Duringtheannualaudit,thecompany'sauditorsdiscoverthatmanagement'sestimatesof
percentageofcompletionfortheendinginventoryweretoohigh.Discusshowthiserrorwill
affectthecompany'sendinginventoryandprofitsfortheperiod.

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Chapter 08 - Process-Costing Systems

Answer:
(a)

(b)Ifpercentagesofcompletionestimatesforendinginventoryaretoohigh,finished
equivalentunitswillbetoohigh;costperfinishedequivalentunitswillbetoolow.Costof
goodstransferredoutwillbeunderstated;thiswillresultinunderstatedcostofgoodssoldand
overstatedprofitsfortheperiod.

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:3
LearningObjective:4

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Chapter 08 - Process-Costing Systems

100.SizzlingSodaspreparesspecialtyflavoredsodasforlargegrocerychainsandbakeries.
Thecompanyemploysaprocesscostingsystem.Mostofthebasicingredients,labeled
MaterialGroupA,areaddedatthebeginningofthemixingprocess.However,togivethe
sodasthespecial"sizzle"theyarenamedfor,thecompanyaddsaspecialingredientwhen
unitsare80%complete,labeled,MaterialGroupB.Informationregardingthemixing
departmentinarecentmonthrevealsthefollowing:
Beginninginventory:1,000Cases(60%completeforconversion)
Casesstarted:9,000
Casesfinished:8,000
Theendinginventoryis90%completeastoconversioncosts
Costinformation:
BeginningWorkinProcess:$21,600consistingof$5,200ofMaterialGroupA,$0of
MaterialGroupBand$16,400ofConversionCosts
Addedduringthemonth:$48,000ofMaterialGroupA,$4,500ofMaterialGroupBand
$162,000ofConversionCosts
Required:(AppendixA)
a)PrepareacostreportusingtheFIFOmethod.Roundallnumberstofourdecimalpoints.
b)Basedonyourreport,prepareananalysisofthecosttrendforthiscompany.

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Chapter 08 - Process-Costing Systems

Answer:
(a)

(b)Thecostreportrevealsthatthecompany'spercasecostofsodahasdeclined.
Thebeginninginventorythatwasfinishedthismonthhadatotalcostof$29,093;this
representsacostpercaseof$29.09($29,093/1,000casescompleted).Thecurrentperiodcost
percaseis$23.392,thecostsassociatedwiththeunitsstartedandfinishedinthecurrent
month.Thisrepresentsa19.6%declineinthepercasecost.

AACSB:Analytic
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

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Chapter 08 - Process-Costing Systems

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Chapter 08 - Process-Costing Systems

101.ThefollowinginformationisbasedontheDryingandPackagingDepartmentofCape
ElizabethPotatoChips.Conversioncostsofbeginninginventorywere60%completeand
endinginventorywas30%complete.Managementhasrecentlybeenconcernedwiththe
risingcostsoffactorylaborinatightlabormarket.Otherinformationonthisprocess:

ThecompanyusestheFIFOmethod.
Required:(AppendixA)
a)WhatwastheconversioncostofworkinprocessintheDryingandPackagingdepartment
atAugust31?
b)Whatweretheconversioncostsperequivalentunitproducedlastperiodandthisperiod?
c)Whatwerethetotalconversioncoststransferredout?
d)Commentontheinformationprovidedbyyourcalculations.

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Chapter 08 - Process-Costing Systems

Answer:
UnitstoAccountfor:

(a)$42,293
(b)Lastperiod:$0.5067($30,400/60,000equivalentunits)thisperiod:$0.5874
(c)Totaltransferredout:$230,116
(d)Companymanagementisjustifiedinitsconcernoverrisinglaborcosts.Thetotal
conversioncostsperunitassociatedwiththebeginninginventoryare$0.5390
($53,896/100,000).Sincethiscostisanaverageoflastmonth'sconversioncostwiththe
currentconversioncost,theoverallperunitcostisincreasing.Thecurrentconversioncostper
unitis$0.5874.

AACSB:Analytic
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:7

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Chapter 08 - Process-Costing Systems

102.TheHoltManufacturingCompanyhasthefollowinginformationavailableregardingits
Septemberoperations:

Holtaddsallmaterialsatthebeginningoftheprocessandestimatesthatendinginventoryis
70%complete.
Required:
a)Computethecostofgoodstransferredtofinishedgoodsandthecostofspoilageassuming
thatallspoilagecostisconsideredtobeundesirableandiswrittenoffintheaccounting
periodincurred.Thecompanyusestheweightedaveragemethod.Spoiledunitsareinspected
outattheendoftheprocess.
b)Explainwhysomemanagersmightnotconsideranyspoilagetobenormalspoilage.How
doesidentifyingspoilageasaseparatecosthelpinprocessimprovement?
Answer:
(a)

Unitstransferredtofinishedgoods:8,500x$10.15:$86,275
Spoilage:500x$10.15$5,075
(b)Somemanagersmightnotconsiderspoilagetobenormalsincetheyarestrivingto
eliminateallspoilage.Byidentifyingspoilageasaseparatecost,managementcanobservethe
amountofresourceswastedbyprocessimperfectionsandtakeaction.

AACSB:Analytic
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4
LearningObjective:6

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Chapter 08 - Process-Costing Systems

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Chapter 08 - Process-Costing Systems

103.RiveraSaladDressinghad16,000units(oneunitequalsonecase)inbeginning
inventory,30%completewithrespecttobothmaterialsandtoconversioncosts.During
November,34,000unitsweretransferredout,1,000werespoiledand9,000remainedin
endinginventory.Thespoiledunitswere50%completeforconversioncostsand100%
completeformaterials.Theendingworkinprocesswas70%completeforconversioncosts
and60%completeastodirectmaterials.Riveraaccountsforspoiledunitsseparatelyanddoes
notspreadtheircostovergoodunitsproduced.Assumethatspoilagecameproportionately
fromcurrentandpriorwork.
Required:CalculatethefinishedequivalentunitsforNovember,assumingthecompany
separatelyidentifiesspoiledunitsandusesFIFO.(AppendixA).
Answer:

Note:35,000unitswereinspected(34,000+1,000).Ifthespoilagecameproportionately
fromcurrentandpriorwork,then(16,000/35,000)x1,000equals457spoiledunitsfrom
beginningWorkinProcess.Theremainingspoilageof1,000457=543wouldcomefrom
currentwork.
Unitscompletedfrombeginninginventoryequals16,000less457spoiledunits.
Startedandfinishedequals35,000finishedless16,000beginninginventoryless543current
spoiledunits.

AACSB:Analytic
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Hard
LearningObjective:6
LearningObjective:7

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Chapter 08 - Process-Costing Systems

104.Thefollowinginformationisknownaboutacompany'sprocesscostingsystemforthe
latestperiod:

Required:Calculatethecostperequivalentunitformaterialsandconversioncostsforthe
period.Thecompanyusesweightedaverage.Showallcomputations.
Answer:

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Chapter 08 - Process-Costing Systems

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

105.Thefollowinginformationisknownaboutacompany'sprocesscostingsystemforthe
latestperiod:

Required:Calculatethecostperequivalentunitformaterialsandconversioncostsforthe
period.ThecompanyusesFIFO.Showallcomputations.(AppendixA)

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Chapter 08 - Process-Costing Systems

Answer:

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:7

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Chapter 08 - Process-Costing Systems

106.MedfieldDesignerBagsproduceshighqualitydesignerwomen'shandbags.The
companyproducescloth,vinylandleatherbags.Thecompanyemploysanoperationcosting
systeminwhichmaterialcostsareassignedtoeachcategoryofhandbag,whileunitspass
throughthesameprocessingdepartments.Allthreetypesofhandbagspassthroughcutting
andstitching,whileonlyleatherbagspassthroughafinaldecoratingprocess.Information
relatedtotheproductionofbagsforthemonthofDecemberfollows:

Required:Computetheperunitproductioncostforeachtypeofhandbag.(AppendixB)
Answer:

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Chapter 08 - Process-Costing Systems

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:9

107.Aninevitableresultofmostprocesscostingsystemsisspoilage.Thereareseveral
acceptedapproachestoaccountingforspoilagecosts.Namethreewaystoaccountfor
spoilagecostsandtheirtheoreticaljustifications.
Answer:
Thethreeacceptedapproachesofaccountingforspoilageare:1)reportthetotalcostsof
spoilageseparatelyasacostoftheperiod,2)considerthetotalcostsofspoilageaspartofthe
costofproductionand3)splitthespoilageintonormalandabnormalspoilage.Thetheoretical
justificationforeachwouldbe:1)byreportingspoilagecostsseparatelyandexpensingeach
period,managementisstatingthatspoilageisundesirable.Labelingspoilageasaseparate
costrecognizesthatmostprocesseshavespoilageinexcessoftheoptimallevelandgives
managersincentivetostrivetoreducespoilagetoaminimum;2)byconsideringthetotal
costsofspoilageaspartofthecostofproduction,spoilageisconsideredanaturalpartof
producinggoodunits,andtheoretically,thecostofspoiledunitsisjustpartofthecostof
producinggoodunits;3)normalspoilageisexpectedandtoleratedasanaturaloutcomeofthe
processwhileabnormalspoilageisanyspoilageinexcessofnormalspoilage.Proponentsof
separatingspoilageintoabnormalandnormalwouldallocatethecostofnormalspoilageto
goodunitsproducedwhileexpensingabnormalspoilageasacostoftheperiod.

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
Difficulty:Medium
LearningObjective:6

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Chapter 08 - Process-Costing Systems

108.WhatistheadvantageofusingaFIFOprocesscostingsystemoveraWeightedaverage
system?ArethereanysituationswhereFIFOandWeightedaveragewillgivethesameper
unitcost?(Appendix)
Answer:
FIFOseparatesthecurrentperiod'sproductionandcostsfromthepriorperiod'sproduction
andcosts.Insituationswherecostcontroliscritical,thisisanimportantadvantage.Managers
willbeabletocomparethespecificcurrentperunitcostsofmanufacturingwiththoseofthe
priorperiod.Managershaveastructuredwaytohelpcontrolcosts.TheFIFOandWeighted
averagewillresultinthesameperunitcostifthereisnobeginninginventory.Allcostsand
alleffortwillbeassociatedwiththesameunits,withnocostsoreffortcarriedoverfromprior
periods.

AACSB:Analytic
AICPABB:CriticalThinking
Difficulty:Medium
LearningObjective:8

109.Explainhowearningsofaperiodcanbemanipulatedbymisstatingthedegreesof
completionoffinishedequivalentsunitstoresultinhigherprofit.Canthispracticebe
continuedindefinitely?
Answer:
Tooverstateprofits,thecompanywouldwanttounderstatethecostofeachunitproducedand
sold.Sincethecostperunitisdeterminedbythenumberofequivalentunits,overstatingthe
percentcompleteintheendinginventorywillunderstatethecostperequivalentunit,
understatethecostofunitstransferredoutandultimatelyunderstatethecostofgoodssold
associatedwiththoseunits.Theendingworkinprocessinventorywillcontainmorecostthan
itwouldhaveotherwise,sincelesscostisbeingtransferredouttoFinishedGoods.To
continuetounderstatecostofgoodssold,increasinglyhigherpercentageswouldhavetobe
appliedtothedegreeofcompletionoftheendinginventory.Sincethehighestpossibledegree
ofcompletionis100%,anauditoftheunitsininventorywouldrevealthefactthattheir
percentageofcompletionisbeingoverstated.Itisunlikelythatsuchaplanwouldsucceed
beyondafewaccountingperiods.

AACSB:Analytic
AACSB:Ethics
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

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Chapter 08 - Process-Costing Systems

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Chapter 08 - Process-Costing Systems

110.Whatisoperationcosting?Brieflyexplainhowoperationcostingissimilartoanddiffers
fromprocesscosting.Whattypeofcompanywouldmostlikelyuseoperationcosting?How
isoperatingcostinglikejobordercosting?(Appendix)
Answer:
Operationcostingisahybridmethodthatcombinesfeaturesofjoborderandprocesscosting.
Itisusedwhengoodsorservicesaresemicustomizedbutthebasicunitsandconversion
processesaresimilar.Typically,acompanythatusesavarietyofmaterialswhichcandiffer
greatlyincostmightuseoperationcosting.Directmaterialscostscanbetracedtospecific
unitsasinjobordercosting,whilethecostofconversionmaybesimilartoatraditional
processcostingsystem.Exampleswouldbeanautomanufacturerwherethebasicmodelis
producedonalinewithothermodels,butinteriorseatsandotheraccessoriesarecustomized
oracomputermanufacturerwherethecustomerordersspecificitemstogointoastandard
"box."

AACSB:ReflectiveThinking
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:9

111.Howwouldacompanymanipulatethedegreesofcompletiontounderstateprofits,
resultinginlowerincometaxes?Canthispracticebecontinuedindefinitely?
Answer:
Tounderstateprofits,thecompanywouldoverstatethecostofeachunitproducedandsold.
Sincecostperunitisdeterminedbythenumberofequivalentunits,understatingthepercent
completeintheendinginventorywilloverstatethecostperequivalentunit,overstatethecost
ofunitstransferredoutandultimatelyoverstatethecostofgoodssoldassociatedwiththose
units.Theendingworkinprocesswillcontainrelativelylesscostthanitwouldhave
otherwise,sincemorecostisbeingtransferredouttoFinishedGoods.Tocontinueto
overstatecostofgoodssold,increasinglylowerpercentageswouldhavetobeappliedtothe
degreeofcompletionoftheendinginventory.Sincethelowestpossibledegreeofcompletion
is0%ornoinventory,anauditoftheunitsininventorywouldrevealthefactthattheir
percentageofcompletionisbeingunderstated.Itisunlikelythatsuchaplanwouldsucceed
beyondafewaccountingperiods.

AACSB:Analytic
AACSB:Ethics
AICPABB:CriticalThinking
AICPAFN:Measurement
Difficulty:Medium
LearningObjective:4

8-67