CHAPTER 17

PROCESS COSTING
TRUE/FALSE
1. Examples of industries that would use process costing include the pharmaceutical
and semiconductor industry.
Answer: True Difficulty: 1 Objective: 1
Terms to Learn: process-costing system
2. The principal difference between process costing and job costing is that in job
costing an averaging process is used to compute the unit costs of products or
services.
Answer: alse Difficulty: 2 Objective: 1
Terms to Learn: process-costing system
The averaging process is used to calculate unit costs in process costing.
!. "rocess-costing systems separate costs into cost categories according to the timing
of when costs are introduced into the process.
Answer: True Difficulty: 2 Objective: 1
Terms to Learn: process-costing system
#. Estimating the degree of completion for the calculation of e$uivalent units is
usually easier for conversion costs than it is for direct materials.
Answer: alse Difficulty: 2 Objective: 1
Terms to Learn: e$uivalent units
Estimating the degree of completion is easier for the calculation of direct materials
since direct materials can be measured more easily than conversion costs.
%. "rocess costing would be most li&ely used by a firm that produces heterogeneous
products.
Answer: alse Difficulty: 1 Objective: 1
Terms to Learn: process costing
"rocess costing would be most li&ely used by a firm that produces homogeneous
products.
1'-1
(. The last step in a process-costing system is to determine the e$uivalent units for the
period.
Answer: alse Difficulty: 2 Objective: 2
Terms to Learn: process costing
The last step in a process-costing system is to assign the costs incurred to completed
units and to units in ending wor& in process.
'. E$uivalent units are calculated separately for each input.
Answer: True Difficulty: 2 Objective: !
Terms to Learn: e$uivalent units
). *n a process-costing system+ there is always a separate ,or&-in-"rocess account for
each different process.
Answer: True Difficulty: 2 Objective: !
Terms to Learn: process costing
-. "rocess-costing journal entries and job-costing journal entries are similar with
respect to direct materials and conversion costs.
Answer: True Difficulty: 2 Objective: #
Terms to Learn: process-costing system
1.. The accounting /for a ba&ery0 entry to record the transfer of rolls from the mixing
department to the ba&ing department is:
,or& in "rocess-1ixing 2epartment
,or& in "rocess-3a&ing 2epartment
Answer: alse Difficulty: 2 Objective: #
Terms to Learn: process-costing system
The correct accounting entry is the opposite of the entry shown here.
11. The weighted-average process costing method does not distinguish between units
started in the previous period but completed during the current period and units
started and completed during the current period.
Answer: True Difficulty: 2 Objective: %
Terms to Learn: weighted-average process-costing method
1'-2
12. E$uivalent units in beginning wor& in process 4 e$uivalent units of wor& done in
the current period e$uals e$uivalent units completed and transferred out in the
current period minus e$uivalent units in ending wor& in process.
Answer: alse Difficulty: 2 Objective: %
Terms to Learn: e$uivalent units
The second part of the e$uation should be: e$uivalent units completed and
transferred out in the current period "567 e$uivalent units in ending wor& in
process.
1!. *n the weighted-average costing method+ the costs of direct materials in beginning
inventory are not included in the cost per unit calculation since direct materials are
almost always added at the start of the production process.
Answer: alse Difficulty: 2 Objective: %
Terms to Learn: weighted-average process-costing method
The costs of the direct materials are included in the cost per unit calculation.
1#. The weighted-average cost is the total of all costs entering the ,or&-in-"rocess
account /whether they are from beginning wor&-in-process or from wor& started
during the current period0 divided by total e$uivalent units of wor& done to date.
Answer: True Difficulty: 2 Objective: %
Terms to Learn: weighted-average process-costing method
1%. The e$uivalent units are not needed in a weighted-average system+ because all costs
are just averaged.
Answer: alse Difficulty: 2 Objective: %
Terms to Learn: e$uivalent units+ weighted-average process-costing method
The e$uivalent units are needed in a weighted-average system+ even though all costs
are averaged.
1(. The cost of units completed can differ materially between the weighted average and
the *8 methods of process costing.
Answer: True Difficulty: 2 Objective: %+ (
Terms to Learn: weighted-average process-costing method+ first-in+ first-out
/*80 process-costing method
1'. The first-in+ first-out /*80 process costing method assigns the cost of the previous
accounting period9s e$uivalent units in beginning wor&-in-process inventory to the
first units completed and transferred out of the process.
Answer: True Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
1'-!
1). : distinctive feature of the *8 process costing method is that the wor& done on
beginning inventory before the current period is averaged with wor& done in the
current period.
Answer: alse Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
: distinctive feature of the *8 process costing method is that the wor& done on
beginning inventory before the current period is &ept separate from wor& done in
the current period.
1-. The *8 process costing method merges the wor& and the costs of the beginning
inventory with the wor& and the costs done during the current period.
Answer: alse Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
*8 only includes the wor& done during the current period.
2.. The first-in+ first-out process-costing method assumes that units in beginning
inventory are completed during the current accounting period.
Answer: True Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
21. "rocess-costing *8 is usually applied to both the units entering a department and
the units leaving a department.
Answer: alse Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
*8 is only applied to the goods transferred out.
22. :ctivity-based costing has more applicability in a process-costing system than in a
job-costing environment.
Answer: alse Difficulty: 2 Objective: (
Terms to Learn: process-costing system
:ctivity-based costing is less applicable to process costing because the process-
costing units all go through similar processes.
2!. : major advantage of the weighted-average process costing is that it provides
managers with information about changes in the costs per unit from one period to
the next.
Answer: alse Difficulty: 2 Objective: (
Terms to Learn: weighted-average process-costing method
This is an advantage of *8+ not the weighted-average method.
1'-#
2#. 7tandard costing is extremely useful when uni$ue+ high cost products are produced+
as compared to the production of multiple products.
Answer: alse Difficulty: 2 Objective: '
Terms to Learn: process-costing system
;ob costing is especially useful in this situation.
2%. 6nder standard costing the cost per e$uivalent-unit calculation is more difficult than
in either weighted average or *8.
Answer: alse Difficulty: 2 Objective: '
Terms to Learn: e$uivalent units+ first-in+ first-out /*80 process-costing
method+ weighted-average process-costing method
The cost per e$uivalent-unit calculation is simpler because the cost is assumed
constant during the accounting period.
2(. 7tandard costing is not possible in a firm that uses process costing.
Answer: alse Difficulty: 2 Objective: '
Terms to Learn: process costing
7tandard costing is possible in a firm that uses process costing.
2'. Transferred-out costs are incurred in previous departments that are carried forward
as the product<s cost as it moves to a subse$uent process in the production cycle.
Answer: True Difficulty: 2 Objective: )
Terms to Learn: process-costing system+ transferred-in costs
2). Each department is regarded as a distinct accounting entity when interdepartmental
transfers are present in an organi=ation.
Answer: True Difficulty: 2 Objective: )
Terms to Learn: process-costing system+ transferred-in costs
2-. >ybrid costing systems are developed to cost products that are produced in a
standardi=ed environment+ but which are often customi=ed to meet the needs of
some of its customers.
Answer: True Difficulty: 2 Objective: )
Terms to Learn: hybrid-costing system
!.. :n operation-costing system uses wor& orders that specify needed direct materials
and step-by-step operations.
Answer: True Difficulty: 2 Objective: :
Terms to Learn: operation-costing system
1'-%
MULTIPLE CHOICE
!1. ?osting systems that are used for the costing of li&e or similar units of products in
mass production are called:
a. inventory-costing systems
b. job-costing systems
c. process-costing systems
d. weighted-average costing systems
Answer: c Difficulty: 1 Objective: 1
Terms to Learn: process-costing system
!2. ,hich of the following manufactured products would not use process costing@
a. '(' jet aircraft
b. 1--inch television sets
c. ?ustom built houses
d. 3oth a and c are correct.
Answer: d Difficulty: 2 Objective: 1
Terms to Learn: process-costing system
!!. "rocess costing should be used to assign costs to products when the:
a. units produced are similar
b. units produced are dissimilar
c. calculation of unit costs re$uires the averaging of unit costs over all units
produced
d. Either a or c are correct.
Answer: d Difficulty: 2 Objective: 1
Terms to Learn: process-costing system
!#. ,hich one of the following statements is true@
a. *n a job-costing system+ individual jobs use different $uantities of production
resources.
b. *n a process-costing system each unit uses approximately the same amount of
resources.
c. :n averaging process is used to calculate unit costs in a job-costing system.
d. 3oth a and b are correct.
Answer: d Difficulty: 2 Objective: 1
Terms to Learn: process-costing system
1'-(
!%. ?onversion costs:
a. include all the factors of production
b. include direct materials
c. in process costing are usually considered to be added evenly throughout the
production process
d. 3oth b and c are correct.
Answer: c Difficulty: 2 Objective: 1
Terms to Learn: process-costing system
!(. :n example of a business which would have no beginning or ending inventory but
which could use process costing to compute unit costs would be a:
a. clothing manufacturer
b. corporation whose sole business activity is processing the customer deposits
of several ban&s
c. manufacturer of custom houses
d. manufacturer of large TAs
Answer: b Difficulty: 2 Objective: 1
Terms to Learn: process-costing system
!'. ,hich of the following statement/s0 concerning conversion costs is correct@
a. Estimating the degree of completion of direct materials in a partially
completed unit is usually easier to calculate than estimating the degree of
completion for conversion costs.
b. The calculation of e$uivalent units is relatively easy for the textile industry.
c. Estimates are usually not considered acceptable.
d. 3oth /b0 and /c0 are correct.
Answer: a Difficulty: 2 Objective: 1
Terms to Learn: process-costing system+ e$uivalent units
!). The purpose of the e$uivalent-unit computation is to:
a. convert completed units into the amount of partially completed output units
that could be made with that $uantity of input.
b. assist the business in determining ending inventory.
c. convert partially completed units into the amount of completed output units
that could be made with that $uantity of input.
d. 3oth b and c are correct.
Answer: c Difficulty: 2 Objective: !
Terms to Learn: e$uivalent units
1'-'
!-. *n a process-costing system+ the calculation of e$uivalent units is used for
calculating:
a. the dollar amount of ending inventory
b. the dollar amount of the cost of goods sold for the accounting period
c. the dollar cost of a particular job
d. 3oth a and b are correct.
Answer: d Difficulty: 1 Objective: !
Terms to Learn: e$uivalent units
#.. ,hen a ba&ery transfers goods from the 3a&ing 2epartment to the 2ecorating
2epartment+ the accounting entry is
a. ,or& in "rocess B 3a&ing 2epartment
,or& in "rocess B 2ecorating 2epartment
b. ,or& in "rocess B 2ecorating 2epartment
:ccounts "ayable
c. ,or& in "rocess B 2ecorating 2epartment
,or& in "rocess B 3a&ing 2epartment
d. ,or& in "rocess B 3a&ing 2epartment
:ccounts "ayable
Answer: c Difficulty: 2 Objective: #
Terms to Learn: process-costing system
T>E 8558,*CD *C8E1:T*8C :""5*E7 T8 F6E7T*8C7 #1 :C2 #2:
*njection 1olding+ *nc.+ manufactures plastic moldings for car seats. *ts costing system
utili=es two cost categories+ direct materials and conversion costs. Each product must
pass through 2epartment : and 2epartment 3. 2irect materials are added at the
beginning of production. ?onversion costs are allocated evenly throughout production.
Data for Department A for February 20X5 are:
,or& in process+ beginning inventory+ #.G converted 2.. units
6nits started during ebruary (.. units
,or& in process+ ending inventory 1.. units
Costs for Department A for February 20X5 are:
,or& in process+ beginning inventory:
2irect materials H1..+...
?onversion costs H1..+...
2irect materials costs added during ebruary H1+...+...
?onversion costs added during ebruary H1+2%.+...
1'-)
#1 ,hat is the unit cost per e$uivalent unit in 2epartment :@
a. H1+...
b. H1+'%.
c. H!+%..
d. H!+'%.
Answer: b Difficulty: 2 Objective: !
Terms to Learn: e$uivalent units
2irect materials per unit /H1..+...I2.. units0 H %..
?onversion costs per unit /H1..+...I/2.. x ..#.0 units0 1+2%.
Total costs per unit H1+'%.
#2. >ow many units were completed and transferred out of 2epartment : during
ebruary@
a. 1.. units
b. (.. units
c. '.. units
d. ).. units
Answer: c Difficulty: 2 Objective: !
Terms to Learn: e$uivalent units
2.. units 4 (.. units J 1.. units K '.. units
#!. *njection 1olding+ *nc.+ manufactures plastic moldings for car seats. *ts costing
system uses two cost categories+ direct materials and conversion costs. Each product
must pass through 2epartment : and 2epartment 3. 2irect materials are added at
the beginning of production. ?onversion costs are allocated evenly throughout
production.
Data for Department A for February 20X5 are:
,or& in process+ beginning inventory+ #.G converted 2.. units
6nits started during ebruary (.. units
,or& in process+ ending inventory: 1.. units
!.G complete as to conversion costs
1..G complete as to materials
Costs for te Department A for February 20X5 are:
,or& in process+ beginning inventory:
2irect materials H1..+...
?onversion costs H1..+...
2irect materials costs added during ebruary H1+...+...
?onversion costs added during ebruary H1+2%.+...
1'--
,hat were the e$uivalent units of direct materials and conversion costs+
respectively+ at the end of ebruary@ :ssume *njection 1olding+ *nc.+ uses the
weighted-average process costing method.
a. )..L '!.
b. )..L )..
c. )..L '..
d. (..L %..
Answer: a Difficulty: 2 Objective: !
Terms to Learn: e$uivalent units
E$uivalent units of direct materials under weighted average K units completed 4
e$uivalent units in ending inventory K '.. 4 1..
?onversion costs K '.. 4 /1.. x !.G0 K '!.
##. The weighted-average process-costing method calculates the e$uivalent units by:
a. considering only the wor& done during the current period
b. the units started during the current period minus the units in ending inventory
c. the units started during the current period plus the units in ending inventory
d. the e$uivalent units completed during the current period plus the e$uivalent
units in ending inventory
Answer: d Difficulty: 2 Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
#%. *n the computation of the cost per e$uivalent unit+ the weighted-average method of
process costing considers all the costs:
a. entering wor& in process from the units in beginning inventory plus the costs
for the wor& completed during the current accounting period
b. costs that have entered wor& in process from the units started or transferred in
during the current accounting period
c. that have entered wor& in process during the current accounting period from
the units started or transferred in minus the costs associated with ending
inventory
d. that have entered wor& in process during the current accounting period from
the units started or transferred in plus the costs associated with ending
inventory
Answer: a Difficulty: ! Objective: %
Terms to Learn: e$uivalent units
1'-1.
#(. *f there was no beginning wor& in process and no ending wor& in process under the
weighted-average process costing method+ the number of e$uivalent units for direct
materials+ if direct materials were added at the start of the process+ would be:
a. e$ual to the units started or transferred in
b. e$ual to the units completed
c. less than the units completed
d. 3oth a and b are correct.
Answer: d Difficulty: ! Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
#'. 6nder the weighted-average method+ the stage of completion of beginning wor& in
process:
a. is relevant in determining the e$uivalent units
b. must be combined with the wor& done during the current period to determine
the e$uivalent units
c. is irrelevant in determining the e$uivalent-unit calculation
d. can almost always be determined with a high degree of precision
Answer: c Difficulty: 2 Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
1'-11
T>E 8558,*CD *C8E1:T*8C :""5*E7 T8 F6E7T*8C7 #) T>E86D> %!:
The 7wiss ?loc& 7hop manufactures cloc&s on a highly automated assembly line. *ts
costing system uses two cost categories+ direct materials and conversion costs. Each
product must pass through the :ssembly 2epartment and the Testing 2epartment. 2irect
materials are added at the beginning of the production process. ?onversion costs are
allocated evenly throughout production. 7wiss ?loc& 7hop uses weighted-average
costing.
Data for te Assembly Department for !une 20X5 are:
,or& in process+ beginning inventory 2%. units
2irect materials /1..G complete0
?onversion costs /%.G complete0
6nits started during ;une ).. units
,or& in process+ ending inventory: 1%. units
2irect materials /1..G complete0
?onversion costs /'%G complete0
Costs for !une 20X5:
,or& in process+ beginning inventory:
2irect materials H1).+...
?onversion costs H2'.+...
2irect materials costs added during ;une H1+...+...
?onversion costs added during ;une H1+...+...
#). ,hat are the e$uivalent units for direct materials and conversion costs+ respectively+
for ;une@
a. 1+2...% unitsL 1+1(..(# units
b. 1+.%. unitsL 1+.12.% units
c. 1+.%. unitsL 1+.%. units
d. -(2 unitsL --. units
Answer: b Difficulty: 2 Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
2irect materials ?onversion costs
?ompleted and transferred out -.. -....
,or& in process+ ending 1%. 112.%
Total e$uivalent units 1+.%. 1+.12.%
1'-12
#-. ,hat is the total amount debited to the ,or&-in-"rocess account during the month
of ;une@
a. H#%.+...
b. H2+...+...
c. H2+2'.+...
d. H2+#%.+...
Answer: b Difficulty: 1 Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
H1+...+... 4 H1+...+... K H2+...+...
%.. ,hat is the direct materials cost per e$uivalent unit during ;une@
a. H1+12!.)1
b. H1+'!..2.
c. H1+%'-+..
d. H1+)-..!%
Answer: a Difficulty: ! Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
H1).+... 4 H1+...+... K H1+1).+...
H1+1).+...I1+.%. units K H1+12!.)1
/see calculations for answer to $uestion #)0
%1. ,hat is the conversion cost per e$uivalent unit in ;une@
a. H1+2%#.!2
b. H1+%'-.1#
c. H1+'!..2.
d. H1+)-..!%
Answer: a Difficulty: ! Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
H2'.+... 4 H1+...+... K H1+2'.+...
H1+2'.+...I1+.12.% K H1+2%#.!2
/see calculations for answer to $uestion #)0
1'-1!
%2. ,hat amount of direct materials costs is assigned to the ending ,or&-in-"rocess
account for ;une@
a. H1()+%'1.%.
b. H2)!+%%2.%.
c. H2%-+%!.
d. H2!(+)%.
Answer: a Difficulty: ! Objective: %
Terms to Learn: weighted-average process-costing method
/H1+...+... K H1).+...0I1+.%.K H1+12!.)1 cost per e$uivalent unit
H1+12# x 1%.K H1()+%'1.%.
/see calculations for answer to $uestion #)0
%!. ,hat amount of conversion costs are assigned to the ending ,or&-in-"rocess
account for ;une@
a. H1.1+-%(.(#
b. H1#1+111...
c. H12(+#%..%.
d. H1))+1#)...
Answer: b Difficulty: ! Objective: %
Terms to Learn: weighted-average process-costing method
/1%. units x '%G0 x H1+2%#.!2 K H1#1+111
/see calculations for answer to $uestion %10
T>E 8558,*CD *C8E1:T*8C :""5*E7 T8 F6E7T*8C7 %# T>E86D> %':
The Eest-a-5ot ?hair ?ompany manufacturers a standard recliner. 2uring ebruary+ the
firm<s :ssembly 2epartment started production of '%+... chairs. 2uring the month+ the
firm completed )%+... chairs and transferred them to the inishing 2epartment. The firm
ended the month with 1.+... chairs in ending inventory. :ll direct materials costs are
added at the beginning of the production cycle. ,eighted-average costing is used by
Eest-a-5ot.
%#. >ow many chairs were in inventory at the beginning of the month@ ?onversion
costs are incurred uniformly over the production cycle.
a. 1.+... chairs
b. 2.+... chairs
c. 1%+... chairs
d. 2%+... chairs
Answer: b Difficulty: 2 Objective: %
Terms to Learn: weighted-average process-costing method
3eginning inventory 4 '%+... J )%+... K 1.+...
3eginning inventory K 2.+...
1'-1#
%%. ,hat were the e$uivalent units for materials for ebruary@
a. -%+... chairs
b. )%+... chairs
c. ).+... chairs
d. '%+... chairs
Answer: a Difficulty: ! Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
1.+... 4 )%+... K -%+...
%(. ,hat were the e$uivalent units for conversion costs for ebruary if the beginning
inventory was '.G complete as to conversion costs and the ending inventory was
#.G complete as to conversion costs@
a. )-+...
b. '%+...
c. )%+...
d. -%+...
Answer: a Difficulty: ! Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
)%+... 4 /..# x 1.+...0 K )-+...
%'. 8f the '%+... units Eest-a-5ot started during ebruary+ how many were finished
during the month@
a. '%+...
b. )%+...
c. (%+...
d. -%+...
Answer: c Difficulty: ! Objective: %
Terms to Learn: weighted-average process-costing method
'%+... J 1.+... K (%+...
%). ,eighty 7teel processes a single type of steel. or the current period the following
information is given:
Units Material Costs Conversion Costs
3eginning *nventory !+... H#+%.. H%+#..
7tarted 2uring the ?urrent "eriod 2.+... !2+... ')+2..
Ending *nventory 2+%..
:ll materials are added at the beginning of the production process. The beginning
inventory was #.G complete as to conversion+ while the ending inventory was !.G
completed for conversion purposes.
,eighty uses the weighted-average costing method.
1'-1%
,hat is the total cost assigned to the units completed and transferred this period@
a. H1.'+.1.
b. H1.-+##.
c. H11!+1(.
d. H12.+1..
Answer: c Difficulty: ! Objective: %
Terms to Learn: weighted-average process-costing method
E6 /materials0 K 2.+%.. 4 /2+%.. x 1..G0 K 2!+....
/H#+%.. 4 H!2+...0 I 2!+... K H1.%- per unit for material
E6 /conversion0 K 2.+%.. 4 /2+%.. x !.G0 K 21+2%..
/H%+#.. 4 H')+2..0 I 21+2%. K H!.-! per unit for conversion.
Total cost per unit K H1.%- 4 H!.-! K H%.%2
?ost of transferred units K 2.+%.. x H%.%2 K H11!+1(.
%-. : distinct feature of the *8 process-costing method is that the:
a. wor& done on beginning inventory before the current period is blended with
the wor& done during the current period in the calculation of e$uivalent units
b. wor& done on beginning inventory before the current period is &ept separate
from the wor& done during the current period in the calculation of e$uivalent
units
c. wor& done on ending inventory is &ept separate from the wor& done during the
current period in the calculation of e$uivalent units and is usually not included
in the calculation
d. *8 process-costing method is only minimally different from the weighted-
average process-costing method
Answer: b Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
(.. 8n occasion+ the *8 and the weighted-average methods of process costing will
result in the same dollar amount of costs being transferred to the next department.
,hich of the following scenarios would have that result@
a. when the beginning and ending inventories are e$ual in terms of unit numbers
b. when the beginning and ending inventories are e$ual in terms of the
percentage of completion for both direct materials+ and conversion costs
c. when there is no ending inventory
d. when there is no beginning inventory
Answer: d Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method+ weighted-
average process-costing method
(1. :n assumption of the *8 process-costing method is that:
1'-1(
a. the units in beginning inventory are not necessarily assumed to be completed
by the end of the period
b. the units in beginning inventory are assumed to be completed first
c. ending inventory will always be completed in the next accounting period
d. no calculation of conversion costs is possible
Answer: b Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
T>E 8558,*CD *C8E1:T*8C :""5*E7 T8 F6E7T*8C7 (2 T>E86D> (%:
The Eest-a-5ot chair company manufacturers a standard recliner. 2uring ebruary+ the
firm<s :ssembly 2epartment started production of '%+... chairs. 2uring the month+ the
firm completed ).+... chairs+ and transferred them to the inishing 2epartment. The
firm ended the month with 1.+... chairs in ending inventory. There were 1%+... chairs in
beginning inventory. :ll direct materials costs are added at the beginning of the
production cycle and conversion costs are added uniformly throughout the production
process. The *8 method of process costing is used by Eest-a-5ot. 3eginning wor& in
process was !.G complete as to conversion costs+ while ending wor& in process was ).G
complete as to conversion costs.
"e#innin# inventory:
2irect materials H2#+...
?onversion costs H!%+...
$anufacturin# costs a%%e% %urin# te accountin# perio%:
2irect materials H1()+...
?onversion costs H2')+...
(2. >ow many of the units that were started during ebruary were completed during
ebruary@
a. )%+...
b. ).+...
c. '%+...
d. (%+...
Answer: d Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
'%+... J 1.+... K (%+...
1'-1'
(!. ,hat were the e$uivalent units for conversion costs during ebruary@
a. )!+%..
b. )%+...
c. '%+...
d. '-+%..
Answer: a Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units
/1%+... x ..'0 4 (%+... 4 /1.+... x ..)0 K )!+%..
(#. ,hat is the amount of direct materials cost assigned to ending wor&-in-process
inventory at the end of ebruary@
a. H1-+2..
b. H22+#..
c. H2%+(..
d. H22+%..
Answer: b Difficulty: ! Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
H1()+...I'%+... K H2.2# x 1.+... K H22+#..
(%. ,hat is the cost of the goods transferred out during ebruary@
a. H#1'+'%.
b. H#%(+.1%
c. H#'(+'%.
d. H%.%+...
Answer: b Difficulty: ! Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units
The costs in beginning inventory H2#+... 4 H!%+... K H %-+...
2irect materials K H2.2# x (%+... K 1#%+(..
?onversion costs K
MH2')+...I/1.+%.. 4 )+... 4 (%+...0N x (%+... K 21(+#%.
also D beginning inventory /1%+... x ..' x H!.!!0 K !#+-(%
Total H#%(+.1%
/see calculations for answers to $uestions (2+ (!+ and (#0
1'-1)
((. : reason/s0 why OpureO *8 is rarely encountered in process costing is that:
a. *8 is usually applied within a department to compute the cost of units
transferred out
b. the units transferred into the department during a given time period are usually
carried at a single average unit cost
c. trac&ing costs on a PpureO *8 basis is very difficult
d. :ll of these answers are correct.
Answer: d Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
('. 8perating income can differ materially between the results for the weighted-average
and *8 methods when:
a. direct materials or conversion costs per unit vary significantly from period to
period
b. the physical inventory levels of wor& in process are large relative to the total
number of units transferred out
c. Ceither of these answers is correct.
d. 3oth of these answers is correct.
Answer: d Difficulty: 2 Objective: (
Terms to Learn: weighted-average process-costing method+ first-in+ first-out
/*80 process-costing method
(). : major advantage of using the *8 process-costing method is that:
a. *8 ma&es the unit cost calculations simpler
b. in contrast with the weighted-average method+ *8 is considered D::"
c. *8 provides managers with information about changes in the costs per unit
from one period to the next
d. :ll of these answers are correct.
Answer: c Difficulty: 2 Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
1'-1-
(-. : disadvantage of the weighted-average method compared to the *8 process-
costing method is that:
a. *8 is computationally simpler
b. *8 provides better management information for planning and control
purposes
c. when unit cost per input prices fluctuate mar&edly from month to month+ its
per unit cost is less representative than *8
d. the information it provides about changes in unit prices from one period to the
next is less useful than the information provided by *8
Answer: d Difficulty: 2 Objective: (
Terms to Learn: weighted-average process-costing method+ first-in+ first-out
/*80 process-costing method
'.. :ctivity-based costing has less applicability in a process-costing environment
because:
a. the use of activity-based costing ma&es the computational process more
difficult
b. the products tend to be similar and thus use the resources in a similar manner
c. cost control in process costing is achieved by controlling the cost of the
various processes rather than the individual activities
d. 3oth b and c are correct.
Answer: d Difficulty: 2 Objective: (
Terms to Learn: process-costing system
'1. *8 :luminum processes a single type of aluminum. 2uring the current period the
following information was given:
Units Material Costs Conversion Costs
3eginning *nventory !+... H#+%.. H#+)..
7tarted 2uring the ?urrent "eriod 2.+... #)+... (%+...
Ending *nventory 2+%..
:ll materials are added at the beginning of the production process. The beginning
inventory was !.G complete as to conversion+ while the ending inventory was #.G
completed for conversion purposes.
*8 :luminum uses the first-in+ first-out system of process costing.
1'-2.
,hat were the costs assigned to the units transferred out this period /round
e$uivalent unit cost to the nearest penny0@
a. H11!+1(.
b. H11!+2!(
c. H11!+-).
d. H122+!..
Answer: a Difficulty: ! Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method
/!+... x '.G0 4 1'+%.. 4 /2+%.. x #.G0 K 2.+(.. E6 /conversion0.
H(%+... I 2.+(.. K H!.1( per unit for conversion costs.
H#)+... I 2.+... K H2.#. cost per unit for materials.
H#+).. conversion costs already incurred.
H!.1( x /1-!.G0 x !+... K H(+(!( to complete beginning inventory.
H#+).. 4 H(+(!( K H11+#!( conversion costs assigned to beginning inventory
transferred out this period.
H#+%.. material costs assigned to beginning inventory transferred out this period.
6nit cost for units started and completed this period K H!.1( 4 H2.#. K H%.%(
?ost for units started and completed K H%.%( x 1'+%.. K H-'+!..
Total costs transferred out K H11+#!( 4 H#+%.. 4 H-'+!.. K H11!+2!(.
'2. 7tandard costing is popular among companies that:
a. produce masses of similar or identical products
b. manufacture textiles or ceramics
c. produce a product that uses few direct materials items+ and has relatively few
operational activities
d. :ll of these answers are correct.
Answer: d Difficulty: 2 Objective: '
Terms to Learn: process-costing system
1'-21
T>E 8558,*CD *C8E1:T*8C :""5*E7 T8 F6E7T*8C7 '! T>E86D> '(:
>udson 2oc& ?ompany manufactures boat doc&s on an assembly line. *ts standard
costing system uses two cost categories+ direct materials and conversion costs. Each
product must pass through the :ssembly 2epartment and the inishing 2epartment.
2irect materials are added at the beginning of the production process. ?onversion costs
are allocated evenly throughout production.
Data for te Assembly Department for $ay 20X5 are:
,or& in process+ beginning inventory: '. units
2irect materials /1..G complete0
?onversion costs /2%G complete0
6nits started during 1ay #. units
,or& in process+ ending inventory: 1. units
2irect materials /1..G complete0
?onversion costs /%.G complete0
Costs for $ay:
7tandard costs for :ssembly:
2irect materials H#+... per unit
?onversion costs H1(+... per unit
,or& in process+ beginning inventory:
2irect materials H1#.+...
?onversion costs H2(.+...
'!. ,hat is the balance in ending wor&-in-process inventory@
a. H)2+...
b. H12.+...
c. H1%%+...
d. H1'.+...
Answer: b Difficulty: ! Objective: '
Terms to Learn: process-costing system
1. units x H#+... K H #.+...
1. units x %.G x H1(+... K ).+...
H12.+...
1'-22
'#. ,hich of the following journal entries records the :ssembly 2epartment<s
conversion costs for the month+ assuming conversion costs are 2.G higher than
expected@
a. :ssembly 2epartment ?onversion ?ost ?ontrol 1+().+...
Aarious accounts 1+().+...
b. 1aterials *nventory 1+().+...
:ssembly 2epartment ?onversion ?ost ?ontrol 1+().+...
c. :ssembly 2epartment ?onversion ?ost ?ontrol 1+#..+...
1aterials *nventory 1+#..+...
d. 1aterials *nventory 1+().+...
,or& in "rocess B :ssembly 1+().+...
Answer: a Difficulty: ! Objective: '
Terms to Learn: process-costing system
'. units x '%G x H1(+... K H )#.+...
/#. J 1. units0 x H1(+... K #).+...
1. units x %.G x H1(+... K ).+...
3udgeted H1+#..+...
H1+#..+... x 1.2.G K H1+().+...
'%. ,hich of the following journal entries properly records the assignment of
conversion costs to wor&-in-process inventory and the conversion-cost variances of
the :ssembly 2epartment+ assuming that conversion costs are 2.G higher than
expected@
a. ,or& in "rocess B :ssembly 1+().+...
?onversion-?ost Aariances 2).+...
:ssembly 2epartment ?onversion ?ost ?ontrol 1+#..+...
b. ,or& in "rocess B:ssembly 1+().+...
2irect 1aterials Aariances 2).+...
Testing 2epartment ?onversion ?ost ?ontrol 1+#..+...
c. ,or& in "rocess B :ssembly 1+#..+...
?onversion-?ost Aariances 2).+...
:ssembly 2epartment ?onversion ?ost ?ontrol 1+().+...
d. ,or& in "rocess B Testing 1+#..+...
:ssembly 2epartment ?onversion ?ost ?ontrol 1+#..+...
Answer: c Difficulty: ! Objective: '
Terms to Learn: process-costing system
H1+().+... J H1+#..+... K H2).+... conversion cost variances
/see calculations for answer to $uestion '#0
1'-2!
'(. ,hich of the following journal entries properly records direct materials re$uisitions
for the wor&-in-process inventory and direct materials variances+ assuming that the
:ssembly 2epartment used 1.G less materials than expected@
a. ,or& in "rocess B :ssembly 1(.+...
:ssembly 2epartment 1aterials ?ost ?ontrol 1(.+...
b. ,or& in "rocess B :ssembly 1(.+...
2irect 1aterials Aariance 1(+...
:ssembly 2epartment 1aterials ?ost ?ontrol 1##+...
c. ,or& in "rocess B :ssembly 1##+...
:ssembly 2epartment 1aterials ?ost ?ontrol 1##+...
d. ,or& in "rocess B :ssembly 1##+...
2irect 1aterials Aariances 1(+...
:ssembly 2epartment 1aterials ?ost ?ontrol 1(.+...
Answer: b Difficulty: 2 Objective: '
Terms to Learn: process-costing system
#. x H#+... K H1(.+...
H1(.+... x ..- K H1##+...
''. *n a process-costing system when goods move from department to department+ the
accounting for such transfers is relatively simple under:
a. standard costing
b. *8 costing
c. weighted-average costing
d. operations costing
Answer: a Difficulty: 1 Objective: )
Terms to Learn: process-costing system
'). Transferred-in costs are treated as if they are:
a. conversion costs added at the beginning of the process
b. costs of beginning inventory added at the beginning of the process
c. direct labor costs added at the beginning of the process
d. a separate direct material added at the beginning of the process
Answer: d Difficulty: 2 Objective: )
Terms to Learn: transferred-in costs
1'-2#
'-. :mpco 2is& ?ompany operates a computer dis& manufacturing plant. 2irect
materials are added at the end of the process. The following data were for ;une
2.Q%:
,or& in process+ beginning inventory %.+... units
Transferred-in costs /1..G complete0
2irect materials /.G complete0
?onversion costs /-.G complete0
Transferred in during current period 1%.+... units
?ompleted and transferred out 1'%+... units
,or& in process+ ending inventory
Transferred-in costs /1..G complete0
2irect materials /.G complete0
?onversion costs /(%G complete0
>ow many units must be accounted for during the period@
a. 22%+... units
b. 2..+... units
c. 1'-+%.. units
d. 1%.+... units
Answer: b Difficulty: 1 Objective: )
Terms to Learn: process-costing system
%.+... 4 1%.+... K 2..+...
1'-2%
).. :mpco 2is& ?ompany operates a computer dis& manufacturing plant. 2irect
materials are added at the end of the process. The following data were for :ugust
2.Q%:
,or& in process+ beginning inventory 1..+... units
Transferred-in costs /1..G complete0
2irect materials /.G complete0
?onversion costs /-.G complete0
Transferred in during current period !..+... units
?ompleted and transferred out 2%.+... units
,or& in process+ ending inventory %.+...
Transferred-in costs /1..G complete0
2irect materials /.G complete0
?onversion costs /(%G complete0
?alculate e$uivalent units for conversion costs using the *8 method.
a. #.1+%.. units
b. !%.+... units
c. !..+... units
d. 2-2+%.. units
Answer: d Difficulty: 2 Objective: )
Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units
3eginning wor& in process /1..+... x ..1.0 1.+... units
?ompleted and transferred out 2%.+... units
Ending wor& in process /%.+... x ..(%0 !2+%.. units
2-2+%.. units
)1. :n operation costing system would be applicable to:
a. batches of similar products where each batch is a variation of a single design
b. the construction of a bridge
c. a suit-ma&ing operation
d. 3oth a and c are correct.
Answer: d Difficulty: 2 Objective: :
Terms to Learn: operation-costing system
1'-2(
)2. 1anagers find operation costing useful in cost management because it:
a. often results in profit maximi=ation
b. results in cost minimi=ation
c. captures the financial impact of the control of physical processes
d. :ll of these answers are correct.
Answer: c Difficulty: 2 Objective: :
Terms to Learn: operation-costing system
EXERCISES AND PROBLEMS
)!. There are basically two distinct methods of calculating product costs.
Reqire!:
?ompare and contrast the two methods.
Ans"er:
*n job costing the job or product is a distinctly identifiable product or service. Each
job re$uires /or can re$uire0 vastly different amounts of input. ;ob costing is usually
associated with products that are uni$ue or heterogeneous. Thus+ each job re$uires
different amounts of input+ and they can re$uire vastly different amount of costs to
finish. ;ob-costed products tend to be high cost per unit. Thus the costs of each
/uni$ue0 job are important for planning+ pricing+ and profitability.
*n process costing+ the jobs or products are similar /or homogeneous0. Each job
usually re$uires the same inputs+ and results in approximately the same costs per
unit. The cost of a product or service is obtained by assigning total costs to many
identical or similar units. ,e assume each unit receives the same amount of direct
material costs+ direct manufacturing labor costs+ and indirect manufacturing costs.
6nit costs are then computed by dividing total costs by the number of units.
The principal difference between process costing and job costing is the extent of
averaging used to compute unit costs. :s noted above in job costing+ individual jobs
use different $uantities of production resourcesL whereas in process costing+ we
assume that each job uses approximately the same amount of resources.
Difficulty: 2 Objective: 1
Terms to Learn: process-costing system
1'-2'
)#. ,hy do we need to accumulate and calculate unit costs in process costing /and also
job costing0@
Ans"er:
,e need to accumulate unit costs to:
1. 3udget /planning0
2. "rice
!. :ccount for the costs
1. "u%#etin# BTo operate a successful business+ we should prepare budgets+
review the results+ and ma&e decisions as to how well our business is doing.
8ur business has formulated plans for the future. The resources we need for
the future /materials+ conversion costs+ facilities+ etc.0 will depend on our
estimate of the resources we need to accomplish these goals. :n important
part of these estimates is the unit costs of the products we plan to produce.
These unit costs will tell us how many dollars we must ac$uire to accomplish
our plans.
2. &rice B *n order to be a profitable business+ we must sell our product at a
price in excess of what it costs us to produce the product. Essential for the
pricing decision is the cost per unit. ,e will also learn whether we can sell a
product at a profit.
!. Accountin# B 2uring the course of the accounting period+ we will be
accumulating costs. :t the end of the accounting period+ we must allocate this
pool of costs between the units that were transferred out and the goods in
ending inventory. 6nit costs are essential for this purpose.
Difficulty: 1 Objective: 1
Terms to Learn: process-costing system
1'-2)
)%. The Rygon ?orporation was recently formed to produce a semiconductor chip that
forms an essential part of the personal computer manufactured by a major
corporation. The direct materials are added at the start of the production process
while conversion costs are added uniformly throughout the production process. ;une
is Rygon<s first month of operations+ and therefore+ there was no beginning
inventory. 2irect materials cost for the month totaled H)-%+...+ while conversion
costs e$ualed H#+22%+.... :ccounting records indicate that #'%+... chips were
started in ;une and #2%+... chips were completed.
Ending inventory was %.G complete as to conversion costs.
Reqire!:
a. ,hat is the total manufacturing cost per chip for ;une@
b. :llocate the total costs between the completed chips and the chips in ending
inventory.
Ans"er:
a.
E$uivalent unit for conversion costs K
#2%+... completed 4 /%.+... x ..% completed0 K
#2%+... 4 2%+... K #%.+...
b. ?ompleted units K H11.2' x #2%+... K H#+')-+'%.
Ending wor& in process K 2irect materials K %.+... x H1.)) K H -#+...
?onversion costs K 2%+... x H-.!- K 2!#+'%.
Total H!2)+'%.
Difficulty: 2 Objective: 2
Terms to Learn: process-costing system+ e$uivalent units
1'-2-
Dire#t Materials Conversion Costs Total
?ost to account for H)-%+... H#+22%+... H%+12.+...
2ivided by e$uiv units #'%+... #%.+...
?ost per e$uivalent units H1.)) H-.!- H11.2'
)(. ?edar Eapids ?hemical placed 22.+... liters of direct materials into the mixing
process. :t the end of the month+ 1.+... liters were still in process+ !.G converted
as to labor and factory overhead. :ll direct materials are placed in mixing at the
beginning of the process and conversion costs occur evenly during the process.
?edar Eapids ?hemical uses weighted-average costing.
Reqire!:
a. 2etermine the e$uivalent units in process for direct materials and conversion
costs+ assuming there was no beginning inventory.
b. 2etermine the e$uivalent units in process for direct materials and conversion
costs+ assuming that 12+... liters of chemicals were #.G complete prior to the
addition of the 22.+... liters.
Ans"er:
a. 2irect materials:
3eginning inventory . liters
6nits started 22.+... liters
E$uivalent units 22.+... liters
?onversion costs:
3eginning inventory . liters
6nits started 22.+... liters
To account for 22.+... liters
6nits transferred out 21.+... liters
Ending inventory 1.+... liters
6nits transferred out 21.+... liters
Ending inventory+ !.G complete !+... liters
E$uivalent units 21!+... liters
b. 2irect materials:
?ompleted and transferred out /21.+... 4 12+...0 222+... liters
Ending inventory+ 1..G complete 1.+... liters
E$uivalent units 2!2+... liters
?onversion costs:
?ompleted and transferred out 222+... liters
Ending inventory+ !.G complete !+... liters
E$uivalent units 22%+... liters
Difficulty: 2 Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
1'-!.
)'. ;ordana ,oolens is a manufacturer of wool cloth. The information for 1arch is as
follows:
3eginning wor& in process 1.+... units
6nits started 2.+... units
6nits completed 2%+... units
3eginning wor&-in-process direct materials H (+...
3eginning wor&-in-process conversion H 2+(..
2irect materials added during month H!.+...
2irect manufacturing labor during month H12+...
actory overhead H %+...
3eginning wor& in process was half converted as to labor and overhead. 2irect
materials are added at the beginning of the process. :ll conversion costs are
incurred evenly throughout the process. Ending wor& in process was (.G complete.
Reqire!:
"repare a production cost wor&sheet using the weighted-average method. *nclude
any necessary supporting schedules.
Ans"er:
"E826?T*8C ?87T ,8ES7>EET
Flow of pro%uction P$%si#al Units Dire#t Materials Conversion
,or& in process+ beginning 1.+...
7tarted during period 2.+...
To account for !.+...
6nits completed 2%+... 2%+... 2%+...
,or& in process+ ending %+... %+... !+...
:ccounted for !.+... !.+... 2)+...
Costs Totals Dire#t Materials Conversion
,or& in process+ beginning H )+(.. H (+... H 2+(..
?osts added during period #'+... !.+... 1'+...
Total costs to account for H%%+(.. H!(+... H1-+(..
2ivided by e$uivalent units !.+... 2)+...
E$uivalent unit costs H 1.-. H 1.2. H ..'.
1'-!1
)'. /continued0
Assi#nment of costs
?osts transferred out /2%+... x H1.-.0 H#'+%..
,or& in process+ ending
2irect materials /%+... x H1.2.0 (+...
?onversion /%+... x H..'. x ..(.0 2+1..
?osts accounted for H%%+(..
Difficulty: ! Objective: %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
)). our 7easons ?ompany ma&es snow blowers. 1aterials are added at the beginning
of the process and conversion costs are uniformly incurred. :t the beginning of
7eptember+ wor& in process is #.G complete and at the end of the month it is (.G
complete. 8ther data for the month include:
3eginning wor&-in-process inventory 1+(.. units
6nits started 2+... units
6nits placed in finished goods !+2.. units
?onversion costs H2..+...
?ost of direct materials H2(.+...
3eginning wor&-in-process costs:
1aterials H1%#+...
?onversion H )2+.).
Reqire!:
a. "repare a production cost wor&sheet with supporting schedules using the
weighted-average method of process costing.
b. "repare journal entries to record transferring of materials to processing and
from processing to finished goods.
Ans"er:
a. "E826?T*8C ?87T ,8ES7>EET
Flow of &ro%uction
P$%si#al
Units
Dire#t
Materials Conversion
,or& in process+ beginning 1+(..
7tarted during period 2+...
To account for !+(..
6nits completed !+2.. !+2.. !+2..
,or& in process+ ending #.. #.. 2#.
:ccounted for !+(.. !+(.. !+##.
1'-!2
Costs
Totals
Dire#t
Materials Conversion
,or& in process+ beginning H2!(+.). H1%#+... H )2+.).
?osts added during period #(.+... 2(.+... 2..+...
Total costs to account for H(-(+.). H#1#+... H2)2+.).
2ivided by e$uivalent units !+(.. !+##.
E$uivalent-unit costs H1-' H 11% H )2
Assi#nment of costs
?ompleted units /!+2.. x H1-'0 H(!.+#..
,or& in process+ ending
2irect materials /#.. x
H11%0
H#(+...
?onversion /#.. x H)2 x
..(.0
1-+(). (%+().
?osts accounted for H(-(+.).
b.
,or& in "rocess 2(.+...
1aterials *nventory 2(.+...
inished Doods (!.+#..
,or& in "rocess (!.+#..
Difficulty: ! Objective: #+ %
Terms to Learn: weighted-average process-costing method+ e$uivalent units
)-. 7urf "roducts ?ompany uses an automated process to clean and polish its souvenir
items. or 1arch+ the company had the following activities:
3eginning wor& in process inventory !+... items+ 1I! complete
6nits placed in production 12+... units
6nits completed -+... units
Ending wor& in process inventory (+... items+ 1I2 complete
?ost of beginning wor& in process H2+%..
2irect material costs+ current H-+...
?onversion costs+ current H'+'..
1'-!!
2irect materials are placed into production at the beginning of the process and
conversion costs are incurred evenly throughout the process.
Reqire!:
"repare a production cost wor&sheet using the *8 method.
Ans"er:
"E826?T*8C ?87T ,8ES7>EET
Flow of pro%uction
P$%si#al
Units
Dire#t
Materials Conversion
,or& in process+ beginning !+...
7tarted during period 12+...
To account for 1%+...
'nits Complete%:
,or& in process+ beginning !+... 2+...
7tarted and completed (+... (+... (+...
,or& in process+ ending (+... (+... !+...
1%+... 12+... 11+...
Costs
Totals
Dire#t
Materials Conversion
,or& in process+ beginning H 2+%..
?osts added during period 1(+'.. H -+... H '+'..
Total costs to account for H1-+2.. H -+... H '+'..
2ivided by e$uivalent units 12+... 11+...
E$uivalent-unit costs H1.#% H ..'% H ..'.
)-. /continued0
Assi#nment of costs
,or& in process+ beginning H 2+%..
?ompletion of beginning /2+... x H..'.0 1+#..
Total beginning inventory !+-..
7tarted and ?ompleted /(+... x H1.#%0 )+'..
Total costs transferred out H12+(..
,or& in process+ ending
2irect materials /(+... x H..'%0 H#+%..
?onversion /(+... x H..'. x ..%.0 2+1.. (+(..
?osts accounted for H1-+2..
1'-!#
Difficulty: ! Objective: (
Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units
-.. The 5aramie actory produces expensive boots. *t has two departments that process
all the items. 2uring ;anuary+ the beginning wor& in process in the tanning
department was #.G complete as to conversion and 1..G complete as to direct
materials. The beginning inventory included H(+... for materials and H1)+... for
conversion costs. Ending wor&-in-process inventory in the tanning department was
#.G complete. 2irect materials are added at the beginning of the process.
3eginning wor& in process in the finishing department was (.G complete as to
conversion. 3eginning inventories included H'+... for transferred-in costs and
H1.+... for conversion costs. Ending inventory was !.G complete.
:dditional information about the two departments follows:
Tannin& Finis$in&
3eginning wor&-in-process units %+... #+...
6nits started this period 1#+... @
6nits transferred this period 1(+... 1)+...
Ending wor&-in-process units @ 2+...
1aterial costs added H1)+... @
?onversion costs !2+... H1-+...
Transferred-out cost %.+... @
Reqire!:
"repare a production cost wor&sheet using weighted-average costing for the
finishing department.
Ans"er:
"roduction ?ost ,or&sheet
inishing 2epartment
,eighted-:verage 1ethod
Flow of pro%uction P$%si#al Units Conversion Trans'In
,or& in process+ beginning #+...
Transferred in during period 1(+...
To account for 2.+...
6nits transferred out 1)+... 1)+... 1)+...
,or& in process+ ending 2+... (.. 2+...
:ccounted for 2.+... 1)+(.. 2.+...
1'-!%
Costs Totals Conversion Trans'in
,or& in process+ beginning H1'+... H1.+... H '+...
?osts added during period (-+... 1-+... %.+...
Total costs to account for H)(+... H2-+... H%'+...
2ivided by e$uivalent units 1)+(.. 2.+...
E$uivalent-unit costs H #.#1 H 1.%( H 2.)%
Assi#nment of costs
Transferred out /1)+... x H#.#10 H'-+!).
,or& in process+ ending
Transferred-in costs /2+... x H2.)%0 H%+'..
?onversion /(.. x H1.%(0 -!( (+(!(
?osts accounted for H)(+.1(
Difficulty: ! Objective: )
Terms to Learn: weighted-average process-costing method+ e$uivalent units
1'-!(
-1. 5exington ?ompany produces baseball bats and cric&et paddles. *t has two
departments that process all products. 2uring ;uly+ the beginning wor& in process in
the cutting department was half completed as to conversion+ and complete as to
direct materials. The beginning inventory included H#.+... for materials and
H(.+... for conversion costs. Ending wor&-in-process inventory in the cutting
department was #.G complete. 2irect materials are added at the beginning of the
process.
3eginning wor& in process in the finishing department was ).G complete as to
conversion. 2irect materials for finishing the units are added near the end of the
process. 3eginning inventories included H2#+... for transferred-in costs and
H2)+... for conversion costs. Ending inventory was !.G complete. :dditional
information about the two departments follows:
Cttin& Finis$in&
3eginning wor&-in-process units 2.+... 2#+...
6nits started this period (.+...
6nits transferred this period (#+... ()+...
Ending wor&-in-process units 2.+...
1aterial costs added H#)+... H!#+...
?onversion costs 2)+... ()+%..
Transferred-out cost 12)+...
Reqire!:
"repare a production cost wor&sheet+ using *8 for the finishing department.
Ans"er:
"roduction ?ost ,or&sheet
inishing 2epartment
*8 1ethod
Flow of &ro%uction
P$%si#al
Units
Dire#t
Materials Conversion Trans'In
,or& in process+ beginning 2#+...
7tarted during period (#+...
To account for ))+...
(oo% units complete%
3eginning wor& in process 2#+... 2#+... #+)..
7tarted and completed ##+... ##+... ##+... ##+...
Ending wor& in process 2.+... . (+... 2.+...
:ccounted for ))+... ()+... %#+).. (#+...
1'-!'
-1. /continued0
Costs Totals DMaterials Conversion Trans'In
,*"+ beginning H %2+...
?osts added during period 2!.+%.. H!#+... H()+%.. H12)+...
Total costs to account for H2)2+%.. H!#+... H()+%.. H12)+...
2ivided by e$uivalent units ()+... %#+).. (#+...
E$uivalent-unit costs H !.'% H ..%. H 1.2% H 2...
Assi#nment of costs
,or& in process+ beginning H %2+...
?ompletion of beginning:
2irect 1aterials /2#+... x H..%.0 H12+...
?onversion /#+).. x H1.2%0 (+... 1)+...
Total 3eginning *nventory '.+...
7tarted and ?ompleted /##+... x H!.'%0 1(%+...
Total costs transferred out 2!%+...
,or& in process ending:
Transferred-in /2.+... x H2...0 H#.+...
?onversion /2.+... x H1.2% x ..!.0 '+%.. #'+%..
?osts accounted for H2)2+%..
Difficulty: ! Objective: )
Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units
-2. Deneral abricators assembles its product in several departments. *t has two
departments that process all units. 2uring 8ctober+ the beginning wor& in process in
the cutting department was half completed as to conversion+ and complete as to
direct materials. The beginning inventory included H12+... for materials and
H!+... for conversion costs. Ending wor&-in-process inventory in the cutting
department was #.G complete. 2irect materials are added at the beginning of the
process.
3eginning wor& in process in the finishing department was '%G complete as to
conversion. 2irect materials are added at the end of the process. 3eginning
inventories included H1(+... for transferred-in costs and H2.+... for conversion
costs. Ending inventory was 2%G complete. :dditional information about the two
departments follows:
Cttin& Finis$in&
3eginning wor&-in-process units 2.+... 2.+...
6nits started this period #.+... %.+...
6nits transferred this period %.+...
Ending wor&-in-process units 1.+... 2.+...
1aterial costs added H#)+... H2)+...
2irect manufacturing labor H1(+... H#.+...
8ther conversion costs H )+... H2#+...
1'-!)
Reqire!:
"repare a production cost wor&sheet using weighted-average for the cutting
department and *8 for the finishing department.
Ans"er:
"roduction ?ost ,or&sheet
?utting 2epartment
,eighted-:verage 1ethod
Flow of &ro%uction
P$%si#al Units
Dire#t
Materials Conversion
,or& in process+ beginning 2.+...
7tarted during period #.+...
To account for (.+...
6nits transferred out %.+... %.+... %.+...
,or& in process+ ending 1.+... 1.+... #+...
:ccounted for (.+... (.+... %#+...
Costs
Totals
Dire#t
Materials Conversion
,or& in process+ beginning H1%+... H12+... H !+...
?osts added during period '2+... #)+... 2#+...
Total costs to account for )'+... (.+... 2'+...
2ivided by e$uivalent units (.+... %#+...
E$uivalent-unit costs H 1.%. H 1... H ..%.
Assi#nment of costs
Transferred out /%.+... x H1.%.0 H'%+...
,or& in process+ ending
2irect materials /1.+... x H1...0 H1.+...
?onversion /1.+... x ..#. x H..%.0 2+... 12+...
?osts accounted for H)'+...
1'-!-
-2. /continued0
"roduction ?ost ,or&sheet
inishing 2epartment
*8 1ethod
Flow of &ro%uction
P$%si#al
Units
Dire#t
Materials Conversion Trans'In
,or& in process+ beginning 2.+...
7tarted 2uring "eriod %.+...
To account for '.+...
Dood 6nits ?ompleted:
3eginning ,or& in process 2.+... 2.+... %+...
7tarted and ?ompleted !.+... !.+... !.+... !.+...
Ending wor& in process 2.+... . %+... 2.+...
:ccounted for '.+... %.+... #.+... %.+...
Costs
Totals Dire#t
Materials
Conversion Trans'In
,or& in process+ beginning H !(+...
?osts added during period 1('+... H2)+... H(#+... H'%+...
Total ?osts to account for H2.!+... H2)+... H(#+... H'%+...
2ivided by e$uivalent units %.+... #.+... %.+...
E$uivalent-unit costs H !.(( H ..%( H 1.(. H 1.%.
Assi#nment of costs
,or& in process+ beginning H !(+...
?ompletion of beginning:
2irect 1aterials /2.+... x H..%(0 H11+2..
?onversion /2.+... x ..2% x H1.(.0 )+... 1-+2..
Total 3eginning *nventory %%+2..
7tarted and ?ompleted /!.+... x H!.((0 1.-+)..
Total costs transferred out 1(%+...
,or& in process ending
Transferred-in /2.+... x H1.%.0 H!.+...
?onversion /2.+... x H1.(. x ..2%0 )+... !)+...
?osts accounted for H2.!+...
Difficulty: ! Objectives: %-)
Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units
1'-#.
CRITICAL THIN(IN)
-!. The president of the Dulf ?oast Eefining ?orporation wants to &now why his
golfing partner+ who is the chief financial officer of a large construction company+
calculates his costs by the job+ but his own corporation calculates costs by large
units rather than by individual barrel of oil.
Ans"er:
8il refineries use process costing to calculate their costs per barrel of oil. Each
barrel of oil is essentially the same. Thus+ costs are accumulated for all the oil
processed during a given time period+ and the total costs are divided by the barrels
of oil produced. :n average cost is calculated. 7ince the costs to actually produce
the oil are essentially the same+ accuracy is not lost by this process.
The construction company calculates costs by each job+ since each job can re$uire
substantially different amounts of the various inputs. Thus+ the cost of each job
could be radically different from the other jobs.
Difficulty: 1 Objective: 1
Terms to Learn: process-costing system
-#. 5ist and describe the five steps in process costing.
Ans"er:
Ste* + involves s,,ari-in& t$e *$%si#al .lo" o. t$e nits o. ot*t/ Ste* 0
involves !eter,inin& t$e n,1er ot*t e2*resse! in ter,s o. eqivalent
nits/ T$is ,eans !eter,inin& $o" ,an% #o,*lete nits "ol! $ave 1een !one
"it$ t$e ,aterials3 ti,e3 an! e..ort e2*en!e! $a! nits 1een !one one at a
ti,e/ T$e t$ir! ste* involves #o,*tin& t$e #ost *er eqivalent nit B
!eter,inin& $o" ,#$ a "$ole nit #ost .or ea#$ ite, t$is *erio!/ In t$e
.ort$ ste*3 t$e #osts t$at nee! to 1e assi&ne! to t$e nits are s,,ari-e!/ T$e
.i.t$ ste* involves assi&nin& t$e #osts to t$e #o,*lete! nits an! t$e nits still
re,ainin& in "or4 in *ro#ess/
Difficulty: 2 Objective: 2
Terms to Learn: process-cost system
1'-#1
-%. 1arv and Aic&i own and operate a vegetable canning plant. *n recent years+ their
business has grown tremendously and+ at any point in time+ they may have !. to !%
different vegetables being processed. :lso+ during the pea& summer months there
are several thousand bushels of vegetables in some stage of processing at any one
time. ,ith the company<s growth during the past few years+ the owners decided to
employ an accountant to provide cost estimations on each vegetable category and
prepare monthly financial statements. :lthough the accountant is doing exactly as
instructed+ 1arv and Aic&i are confused about the monthly operating costs.
:lthough they process an average of %.+... canned units a month+ the monthly
production report fluctuates wildly.
Reqire!:
Explain how the production report can fluctuate wildly if they process a constant
amount of vegetables each month.
Ans"er:
*t appears that the accountant may not be using e$uivalent units of production but
he or she is only including completed units when preparing the monthly reports.
"articularly with large summer inventories+ the number and value associated costs
with ending wor& in process could cause wide fluctuations between months if the
e$uivalent unit concept is ignored. The accountant should start using e$uivalent
units to determine the costs to assign to finished goods and ending wor& in process
each month.
Difficulty: 2 Objective: !
Terms to Learn: process-costing system+ e$uivalent units
-(. ,hat is the difference between a weighted-average method of process costing and a
first-in+ first-out method of process costing@
Ans"er:
T$e "ei&$te! avera&e ,et$o! #o,*tes nit #osts 1% !ivi!in& total #osts
enterin& t$e "or4'in'*ro#ess a##ont 5"$et$er .ro, 1e&innin& "or4'in'
*ro#ess or .ro, "or4 starte! !rin& t$e *erio!6 1% total eqivalent nits
#o,*lete! to !ate3 an! assi&ns t$is avera&e #ost to nits #o,*lete! an! to nits
in en!in& "or4'in *ro#ess inventor%/
T$e .irst'in3 .irst'ot 5FIFO6 ,et$o! #o,*tes nit #osts 1ase! on #osts
in#rre! !rin& t$e #rrent *erio! an! eqivalent nits o. "or4 !one in t$e
#rrent *erio!/ It assi&ns t$e #osts o. 1e&innin& "or4'in'*ro#ess inventor% to
t$e .irst nits #o,*lete!3 an! it assi&ns #osts o. t$e eqivalent nits "or4e! on
!rin& t$e #rrent *erio! .irst to #o,*lete 1e&innin& inventor%3 ne2t to start
an! #o,*lete ne" nits3 an! .inall% to nits in en!in& "or4'in'*ro#ess
inventor%/
Difficulty: ! Objective: %+ (
1'-#2
Terms to Learn: first-in+ first-out /*80 process-costing method+ weighted-
average process-costing method+
-'. 6niversal *ndustries operates a division in 3ra=il+ a country with very high inflation
rates. Traditionally+ the company has used the same costing techni$ues in all
countries to facilitate reporting to corporate head$uarters. >owever+ the financial
accounting reports from 3ra=il never seem to match the actual unit results of the
division. 1anagement has studied the problem and it appears that beginning
inventories may be the cause of the unmatched information. The reason for this is
that the inventories have a different financial base because of the severe inflation.
Reqire!:
>ow can process costing assist in addressing the problem facing 6niversal
*ndustries@
Ans"er:
"robably the best way to address the problem of inflation is to use *8 costing.
This method &eeps the cost of beginning inventories separate from production units
started and completed in a given period. Therefore+ the company may be able to
trac& the cost of items that were actually produced in a given period+ versus mixing
the units and costs of multiple periods.
Difficulty: 2 Objective: (
Terms to Learn: weighted-average process-costing method+ first-in+ first-out
/*80 process-costing method
-). 3*D 1anufacturing "roducts has been using *8 process costing for trac&ing the
costs of its manufacturing activities. >owever+ in recent months+ the system has
become somewhat bogged down with details. *t seems that+ when the company
purchased 3rown Electronics last year+ its product lines increased six-fold. This has
caused both the accountants and the suppliers of the information+ the line managers+
great difficulty in &eeping the costs of each product line separate. 5i&ewise+ the
estimation of the completion of ending wor&-in-process inventories and the
associated costs has become very cumbersome. The chief financial officer of the
company is loo&ing for ways to improve the reporting system of product costs.
Reqire!:
,hat can you recommend to improve the situation@
1'-#!
Ans"er:
: beginning point would be to change to a standard costing system. 7tandard
costing eliminates many of the problems of *8 costing in trac&ing actual costs to
products. ,ith standard costing+ only the e$uivalent units have to be determined
immediately+ not the actual cost of the period. : standard cost for materials and
conversion is then applied to the e$uivalent units for the reporting period. :ctual
costs and variances from standard costing can be determined later. This approach is
very appropriate for a company that has many products.
Difficulty: ! Objective: '
Terms to Learn: first-in+ first-out /*80 process-costing method
--. ord 1otor ?ompany is said to use a hybrid costing system. ,hat is a hybrid
costing system+ and what would be the advantage to ord of such a system@
Ans"er:
: hybrid costing system is one that combines the elements of job costing and
process costing systems. *mportant elements of profitability include &nowing what
the costs are+ and controlling costs. ord has a basic platform that they use to
produce cars. Aehicles undergo essentially the same processing and are in effect
manufactured in a continuous flow using standard parts and standardi=ed
manufacturing processes.
:nother important part of profitability is ma&ing a product different than other
vehicles so buyers will be attracted to purchase the vehicle. Aehicles that are
different can command a higher price and increase profitability. ?osts are
accumulated using process costing up to the point where the product is
differentiated. ;ob costing is used from that point forward.
Difficulty: 2 Objective: )
Terms to Learn: hybrid-costing system
1'-##