Beruflich Dokumente
Kultur Dokumente
Test 3
May 16, 2012
Ricardo F Reis
7. Assuming no beginning work-in-process (BWIP) inventory, and that the ending work-in process
(EWIP) inventory is 50% complete as to conversion costs, the number of equivalent
units as to conversion costs would be
A. The same as the units completed.
B. The same as the units placed in process.
C. Less than the units completed.
D. Less than the units placed in process.
Answer (D) is correct. Given no BWIP, it is immaterial whether FIFO or weighted average is used. Thus,
conversion cost EUP equal the units that were started and completed this period, plus the EUP in EWIP.
Because the units in EWIP are 50% complete as to conversion costs, they will not be fully counted for
purposes of determining EUP.
[Fact Pattern #1]
A manufacturing company employs a process cost system. The companys product passes through both
Department 1 and Department 2 in order to be completed. Conversion costs are incurred uniformly
throughout the process in Department 2. The direct material is added in Department 2 when conversion is
80% complete. This direct material is a preservative that does not change the volume. Spoiled units are
discovered at the final inspection and are recognized then for costing purposes. The physical flow of units
for the current month is presented below.
Beginning work-in-process in Department 2 (90%complete with respect to conversion costs) 14,000
Transferred in from Department 1 76,000
Completed and transferred to finished goods 80,000
Spoiled units all normal 1,500
Ending work-in-process in Department 2 (60% complete with respect to conversion costs) 8,500
(Refers to Fact Pattern #1)
9. If the manufacturing company uses the weighted-average method, the equivalent units for
direct materials in Department 2 for the current month would be
A. 67,500
B. 80,000
C. 81,500
D. 90,000
Answer (C) is correct. The weighted-average method does not distinguish between work done currently
and in the prior period. Given that materials are added when units are 80% complete, that ending work-inprocess is 60% complete, and that goods are inspected when they are 100% complete, and assuming that
equivalent units are calculated for normal spoilage, the total weighted-average equivalent units for direct
materials equal 81,500 (80,000 units transferred + 1,500 normally spoiled units).
15. Forming Department is the first of a two-stage production process. Spoilage is identified when
the units complete the forming process. Costs of spoiled units are assigned to units completed
and transferred to the second department in the period spoilage is identified. The following
concerns Formings conversion costs:
Conversion Units
Costs
Beginning work-in-process (50% complete)
2,000
$10,000
Units started during month
8,000
75,500
Spoilage-normal
500
Units completed & transferred
7,000
Ending work-in-process (80% complete)
2,500
What was Formings weighted-average conversion cost transferred to the second department?
A. $59,850
B. $64,125
C. $67,500
D. $71,250
Answer (C) is correct. Under the weighted-average method, total equivalent units include the equivalent
units transferred and the equivalent units in ending work-in-process. Because normal spoilage costs
attach to the good output, the transferred costs equal the costs of both the good units and the spoiled
units. Total conversion costs under the weighted-average method are $85,500 ($10,000 BWIP + $75,500
May costs). Total equivalent units are 9,500 [7,000 good units transferred + (2,500 uninspected units in
EWIP 80%) + 500 completed units spoiled]. Accordingly, the conversion cost per equivalent unit is $9
($85,500 9,500), and total costs transferred are $67,500 [(7,000 good units transferred + 500 completed
units spoiled) $9].
16. Which of the following businesses is an example of a company that primarily uses process costing?
A. microprocessors
B. pharmaceutical company
C. oil refinery
D. all of the above use primarily costing process
Answer (D) is correct.
17. In process costing costs are often divided into two main categories. Why?
A. In process costing costs are separated according to the time they are introduced into the
production process. The two cost categories are direct materials and conversion costs. The direct
materials are often added at the beginning of the process and conversion costs are often added
evenly throughout the process.
B. In process costing costs split according to the inventory system used. Indirect costs are treated
under the weighted average cost method and the direct costs are treated according to FIFO.
C. In process costing costs are separated according to the time they are introduced into the
production process. The two cost categories are fixed costs and variable costs. Fixed costs are
added at the beginning of the process and variable costs are added at the end.
D. In process costing costs split according to the type of product or service. The cost of direct
materials is applicable only in the production of goods while conversion costs are applicable only
in service delivery.
Answer (A) is correct.
18. Which of the following better describes the distinctive feature of the weighted average method when
computing and allocating costs to both completed units and EWIP?
A. Computes the equivalent unit cost of current periods production. Allocates this cost to both
completed and transferred out equivalent units and EWIP equivalent units.
B. Standard costs are allocated first to finish the BWIP, then to units started and completed in the
period, and finally for units in EWIP.
C. Calculates the equivalent unit cost of all the work done to date and affects this cost to both
equivalent units completed and transferred out of the process and to equivalent units in EWIP
inventory
D. Allocates the cost of equivalent units in BWIP of previous accounting periods to the units
completed and transferred, and allocates the current periods equivalent unit cost to: firstly to
complete the BWIP, then to start and complete units, and finally to EWIP.
Answer (C) is correct.
19. Which of the following better describes the distinctive feature of the FIFO method when computing and
allocating costs to both completed units and EWIP?
A. Computes the equivalent unit cost of current periods production. Allocates this cost to both
completed and transferred out equivalent units and EWIP equivalent units
B. Assigns the cost of previous accounting periods equivalent units in BWIP inventory to the first
units completed and transferred out of the process and assigns the cost of equivalent units
worked on during the current period first to complete BWIP, next to start and complete new units,
and finally to units in EWIP inventory.
C. Standard costs are allocated first to finish the BWIP, then to units started and completed in the
period, and finally for units in EWIP.
D. Calculates the equivalent unit cost of all the work done to date and affects this cost to both
equivalent units completed and transferred out of the process and to equivalent units in EWIP
inventory.
Answer (B) is correct.
20. Transferred in costs are those costs incurred in the preceding accounting period. Do you agree?
A. No. Transferred in costs, or previous department costs are costs incurred in the previous
department that have been transferred to a subsequent department. These costs may be costs
incurred in the preceding department during the current accounting period or in a prior period.
B. No. Transferred in costs, or costs of the current period, are costs incurred only when the
product is being processed in the current department. As costs are incurred in the current period,
they are transferred and assigned to units.
C. None of the above is correct. Costs transferred have nothing to do with the costs incurred
during the accounting periods.
D. Yes. Transferred in costs are costs incurred in previous accounting periods. As units move
from one accounting period to another, the respective costs are transferred.
Answer (A) is correct.