COSTACCTG

Chapter 06
Process Costing

Multiple Choice Questions

1. Firms should use a process costing system when they produce products that:

A. Are semi-homogeneous.

B. Pass through a series of inspection points.

C. P
ass through a series of manufacturing departments.

D. H
ave a small batch size.

2. In process costing, unit product cost is calculated by dividing process cost in each department by
the equivalent units produced:

A. Less beginning inventory.

B. Plus beginning inventory.

C. I n the prior period.

D. I n the following period.

E. During the period.

3. In calculating unit cost in a process costing system, "conversion cost" is defined as the sum of:

A. Direct and indirect material costs.

B. Direct and indirect labor costs.

C. D
irect labor and factory overhead costs.

D. I ndirect labor and factory overhead costs.

E. Indirect material and factory overhead costs.

4. The first step in determining process costs is:

A. Assigning cost to completed and uncompleted production.

B. Computing the cost per equivalent unit.

C. C
alculating equivalent units of production.

D. A
nalyzing physical flow of production units.

E. Determining total cost for each manufacturing element.

5. The fifth and final step in determining process costs is:

A. Analyzing physical flow of production units.

B. Calculating equivalent units of production.

C. D
etermining total cost for each manufacturing element.

D. C
omputing the cost per equivalent unit.

E. Assigning cost to completed and uncompleted production.

6. The weighted-average method of process costing makes no distinction between the cost incurred
prior to the current period and the cost incurred in:

A. A future period.

B. The current period.

C. E
ither a future period or the current period.

D. B
oth a future period and the current period.

E. The operational process.

7. The key difference between weighted-average and FIFO process costing methods is the handling
of the partially completed:

A. Beginning direct materials inventory.

B. Ending direct materials inventory.

C. B
eginning work-in-process inventory.

D. E
nding work-in-process inventory.

E. Beginning finished goods inventory.

8. The advantage of the weighted-average method is its:

A. Complexity and comprehensiveness.

B. Ability to handle spoilage and waste.

C. A
ppropriateness regardless of inventory level changes.

D. E
ffectiveness in a cost leadership strategy.

E. Simplicity.

9. Which of the statements below is not correct?

A. Normal spoilage is spoilage that occurs under efficient operating conditions.

B. Normal spoilage is controllable in the short term and not considered a part of product cost.

C. A
bnormal spoilage is spoilage in excess of that expected under efficient operating conditions.

D. A
bnormal spoilage is charged as a loss to operations in the period detected.

10. Process cost systems are used in all of the following industries except:

A. Chemicals.

B. Ship building.

C. O
il refining.

D. T
extiles.

E. Steel.

11. Which one of the following is one of the key steps in determining process costs?

A. Assigning the total manufacturing costs to the units completed and transferred out and the
units of work in process at the end of the period.

B. Analyzing the physical flow of production units.

C. C
omputing the cost per equivalent unit for each manufacturing cost element.

D. C
alculating equivalent units of production for all manufacturing cost elements.

E. All of the above are correct.

12. Which one of the following process costing methods combines both current and prior costs in
determining cost per equivalent unit?

A. FIFO method.

B. LIFO method.

C. S
pecific unit method.

D. W
eighted-average method.

E. Moving-average method.

13. Which one of the following process costing methods includes only current costs in the
calculations of cost per equivalent unit?

A. FIFO method.

B. LIFO method.

C. S
pecific unit method.

D. W
eighted-average method.


14. The sum of the beginning inventory units and the number of units started during the period
determines the:

A. Units completed during the period.

B. Units to account for.

C. U
nits transferred in during the period.

D. U
nits accounted for.

E. Units started during the period.

15. The sum of units transferred out and ending inventory units, assuming no spoilage, determines
the:


B. Units spoiled.

C. U
nits transferred in during the period.

D. U
nits accounted for.


16. The journal entry to record the application of factory overhead to work in process would include a
credit to:

A. Work-in-Process.

B. Cost of Goods Sold.

C. F
actory Overhead.

D. M
aterials Inventory.

E. Finished Goods Inventory.

17. When using the first-in, first-out method of process costing, equivalent units for work done during
this period is equal to the number of units:

A. In work-in-process at the beginning of the period times the percent of work necessary to
complete the items, plus the number of units started and completed during the period, plus the
number of units remaining in work-in-process at the end of the period times the percent of work
done during the period.

B. In work-in-process at the beginning of the period, plus the number of units started during the
period, plus the number of units remaining in work-in-process at the end of the period times the
percent of work necessary to complete the items.

C. S
tarted into process during the period, plus the number of units in work-in-process at the
beginning of the period.

D. T
ransferred out during the period, plus the number of units remaining in work-in-process at the
end of the period times the percent of work necessary to complete the items.

E. None of the above.

18. The percentage of completion of the beginning work-in-process inventory should be considered in
the computation of the equivalent units for which of the following methods of process costing?

A. Option A

B. Option B

C. O
ption C

D. O
ption D


19. In a given process costing system, the equivalent units are computed using the weighted-average
method. With respect to conversion costs, the percentage of completion for the current period is
necessary for the calculation of the:

A. Option A

B. Option B

C. O
ption C

D. O
ption D


20. From the industries listed below, which one is most likely to use process costing in accounting for
production costs?

A. Printing shop.

B. Accounting firm.

C. E
lectrical contractor.

D. S
teel mill.

E. Automobile repair shop.

21. Which of the following characteristics applies to process costing but not to job costing?

A. Identifiable batches of production.

B. Average costs.

C. E
quivalent units.

D. A
pplication of overhead.

E. Use of standard costs.

22. In the computation of manufacturing cost per equivalent unit, the weighted-average method of
process costing considers:

A. Current costs only.

B. Current costs less cost of ending work-in-process inventory.

C. C
urrent costs plus cost of beginning work-in-process inventory.

D. C
urrent costs plus cost of ending work-in-process inventory.

E. Current costs less cost of beginning work-in-process inventory.

23. In a production cost report using process costing, transferred-in costs are similar to:

A. Materials costs added at the end of the process.

B. Materials costs added at the beginning of the process.

C. C
onversion costs added during the process.

D. C
onversion costs transferred to the next process.

E. Conversion costs included in beginning inventory.

24. In a process costing system, the cost of abnormal spoilage should be:

A. Prorated between units transferred out and ending inventory.

B. Included in the cost of units transferred out.

C. T
reated as a loss in the period incurred.

D. A
dded to overhead.

25. Normal spoilage and abnormal spoilage should be classified as:

A. Option A

B. Option B

C. O
ption C

D. O
ption D


26. In a process costing system, which assumes that normal spoilage occurs at the end of a process,
the cost attributable to normal spoilage should be assigned to:

A. Beginning work-in-process inventory.

B. Ending work-in-process inventory.

C. C
ost of goods manufactured and ending work-in-process inventory in the ratio of units worked
on during the period to units remaining in work-in-process inventory.

D. C
ost of goods manufactured (transferred out).

E. A separate loss account in order to highlight production inefficiencies.

East Bay Fisheries Inc. processes king salmon for various distributors. Two departments are
involved — processing and packaging. Data relating to tons of king salmon processed in the
processing department during June 2013 are provided below:

27. Total equivalent units for materials under the weighted-average method are calculated to be:

A. 6,830 equivalent units.

B. 8,180 equivalent units.

C. 6
,980 equivalent units.

D. 7

E. 7,620 equivalent units.

28. Total equivalent units for conversion under the weighted-average method are calculated to be:



C. 6

D. 7


29. Total equivalent units for materials under the FIFO method are calculated to be:



C. 6

D. 7


30. Total equivalent units for conversion under the FIFO method are calculated to be:



C. 6

D. 7


31. The journal entry to record requisitioned and usage of direct materials would include a credit to:

A. Work-in-Process Inventory.

B. Accrued Payroll.

C. F
actory Overhead.

D. M
aterials Inventory.


Landry Co. had the following information for the month of December. All direct materials were one
hundred percent complete, and beginning materials cost $14,000.




C. 1

D. 1





C. 1

D. 1


34. Cost per equivalent unit for materials under the FIFO method is calculated to be (rounded):

A. $112.103.

B. $49.242.

C. $
109.496.

D. $
82.757.

E. $60.185.

35. Cost per equivalent unit for conversion under the FIFO method is calculated to be (rounded):

A. $112.103.

B. $49.242.

C. $
109.496.

D. $
82.757.

E. $60.185.

Matrix Inc. calculates cost for an equivalent unit of production using both the weighted-average
and the FIFO methods.




C. 9
0,000 equivalent units.

D. 1





C. 9

D. 1


38. Cost per equivalent unit for materials under the weighted-average method is calculated to be:

A. $2.00.

B. $2.40.

C. $
3.00.

D. $
3.10.

E. $3.20.

39. Cost per equivalent unit for conversion under the FIFO method is calculated to be:

A. $2.00.

B. $2.40.

C. $
3.00.

D. $
3.10.

E. $3.20.

40. The cost of goods completed and transferred out under the weighted-average method is
calculated to be:

A. $96,000.

B. $476,400.

C. $
571,200.

D. $
484,000.

E. $468,200.

41. The journal entry to record finished product units would include a debit to:


B. Accrued Payroll.

C. F
actory Overhead.

D. M
aterials Inventory.


42. The journal entry to record incurred direct labor would include a credit to:


B. Accrued Payroll.

C. F
actory Overhead.

D. M
aterials Inventory.


Talamoto Co. manufactures a single product that goes through two processes — mixing and
cooking. The following data pertains to the Mixing Department for September.
Material P is added at the beginning of work in the Mixing Department. Material Q is also added
in the Mixing Department, but not until units of product are forty percent completed with regard to
conversion. Conversion costs are incurred uniformly during the process.

43. Total equivalent units for Material P under the weighted-average method are calculated to be:



C. 8

D. 7


44. Total equivalent units for Material Q under the weighted-average method are calculated to be:



C. 8

D. 7


45. Total equivalent units for conversion under the weighted-average method are calculated to be:



C. 8

D. 7


46. Cost per equivalent unit for Material P under the weighted-average method is calculated to be:

A. $5.10.

B. $2.60.

C. $
2.50.

D. $
2.30.

E. $5.40.

47. Cost per equivalent unit for Material Q under the weighted-average method is calculated to be:

A. $5.10.

B. $2.60.

C. $
2.50.

D. $
2.30.

E. $5.40.

48. Cost per equivalent unit for conversion under the weighted-average method is calculated to be:

A. $5.10.

B. $2.60.

C. $
2.50.

D. $
2.30.

E. $5.40.

calculated to be:

A. $885,000.

B. $882,000.

C. $
888,000.

D. $
891,000.

E. $887,000.

Stoltenberg Co. had the following information for the month of June:
Beginning work-in-process inventory is 30 percent complete as to conversion. Ending work-in-

process inventory is 50 percent complete as to conversion. Materials are added at the end of the
process.

50. How many units were completed in June?

A. 12,000.

B. 10,000.

C. 1
4,000.

D. 1
6,000.

E. 18,000.

51. How many units were started and completed in June?

A. 12,000.

B. 10,000.

C. 1
4,000.

D. 1
6,000.

E. 18,000.

52. The equivalent units for materials under the weighted-average method are calculated to be:

A. 12,000.

B. 10,000.

C. 1
4,000.

D. 1
6,000.

E. 18,000.

53. The equivalent units for conversion under the weighted average method are calculated to be:

A. 12,000.

B. 10,000.

C. 1
4,000.

D. 1
6,000.

E. 18,000.

54. The equivalent units for transferred-in costs under the FIFO method are calculated to be:

A. 12,000.

B. 10,000.

C. 1
4,000.

D. 1
6,000.

E. 18,000.

DeFond Company has a process costing system. All materials are introduced at the beginning of
the process in Department One. The following information is available for the month of January:

55. What are the equivalent units for the month of July if the company uses the FIFO method?

A. Option A

B. Option B

C. O
ption C

D. O
ption D

E. Option E

56. What are the equivalent units for the month of July if the company uses the weighted-average
method?

A. Option A

B. Option B

C. O
ption C

D. O
ption D

E. Option E

57. On March 1, Portland Company had 20,000 units of work in process in Department A, which were
100% complete as to material costs and 40% complete as to conversion costs. During March,
150,000 units were started in Department A and 160,000 units were completed and transferred to
Department B. Work in process on March 31 was 100% complete as to material costs and 50%
complete as to conversion costs. By what amount would the equivalent units for conversion costs
for the month of March differ if the FIFO method were used instead of the weighted-average
method?

A. 10,000 decrease.

B. 8,000 decrease.

C. 6
,000 decrease.

D. 5
,000 decrease.

E. 4,000 decrease.

58. Larsen Company adds materials at the beginning of the process in Department 2. Data
concerning the materials used in May production are as follows:
Using the weighted-average method, the equivalent units for materials are:

A. 44,000.

B. 41,000.

C. 3
6,000.

D. 3
3,000.

E. 32,000.

59. Which of the following companies (industries) would not use a process cost system?

A. Georgia-Pacific Corporation (Lumber & Paper).

B. Durham Integrative Medical Care (Medical practice).

C. B
ayer Pharmaceuticals (Drugs).

D. R
eichhold Chemical Co. (Chemicals).

E. Accenture (Consulting).

60. Conversion costs in a process cost system include:

A. Direct materials and direct labor.

B. Direct labor and manufacturing overhead.

C. D
irect materials and manufacturing overhead.

D. M
anufacturing overhead and selling, general & administrative expenses.

61. Place the following Process costing steps in the correct order:
1 - Calculate equivalent units

2 - Determine the total costs to account for
3 - Analyze flow of physical units
4 - Assign total manufacturing costs
5 - Compute unit costs

A. 3, 5, 2, 1, 4.

B. 2, 1, 5, 4, 3.

C. 2
, 3, 5, 4, 1.

D. 3
, 1, 2, 5, 4.


62. Which method is (are) used to prepare the departmental production cost report when using a
process cost system?

A. LIFO method.

B. FIFO method.

C. W
eighted average method.

D. B
oth A & B are correct.

E. Both B & C are correct.

63. The number of the same or similar units that could have been produced given the amount of work
actually performed on both complete and partially complete units is referred to as:

A. Physical units.

B. Completed units.

C. E
quivalent units.

D. P
roduced units.

E. Units to account for.

64. Which equation correctly calculates the total weighted average equivalent units of production?

A. Completed and transferred out units + Beginning work-in-process equivalent units.

B. Ending work-in-process equivalent units - Completed and transferred out units.

C. B
eginning work-in-process equivalent units - Completed and transferred out units.

D. C
ompleted and transferred out units + Ending work-in-process equivalent units.

E. Ending work-in-process equivalent units + Beginning work-in-process equivalent units.

Giddings Pharmaceutical Company is a maker of drugs for high blood pressure and uses a
process costing system. The following information pertains to the final department of Giddings's
blockbuster drug called Solcax.
Giddings calculates separate costs of spoilage by computing both normal and abnormal spoiled
units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are
charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered
before inspection of finished units. Materials are added at the beginning of the process. Using the
weighted-average method, answer the following question:

65. What are the equivalent units for conversion costs?

A. 4,200 units.

B. 4,800 units.

C. 4
,000 units.

D. 4
,400 units.

66. What are the unit conversion costs?

A. $2.15.

B. $2.36.

C. $
2.50.

D. $
2.75.

67. What are the total conversion costs of abnormal spoilage?

A. $375.

B. $430.

C. $
625.

D. $
860.

68. What are the total conversion costs transferred to finished goods?

A. $6,750.

B. $7,740.

C. $
8,600.

D. $
9,460.

69. What are the total conversion costs in ending inventory?

A. $430.

B. $500.

C. $
850.

D. $
1,150.

70. Abnormal spoilage is considered what kind of cost?

A. Period cost.

B. Product cost.

C. O
pportunity cost.

D. S
unk cost.

71. O'Leary Company manufactures Product Z in a two-stage production cycle in Departments A and
B. Materials are added at the beginning of the process in Department B. O'Leary uses the
weighted-average method. Conversion costs for Department B were 40% complete as to the
5,000 units in the beginning work-in-process (WIP) inventory and 50% complete as to the 7,000
units in the ending work-in-process inventory. 10,000 units were completed and transferred out of
Department B during October. An analysis of the costs relating to work-in-process inventories and
production activity in Department B for October follows:
The total cost per equivalent unit transferred-out for October of Product Z, rounded to the nearest
penny, was:

A. $2.75.

B. $2.80.

C. $
2.85.

D. $
2.90.

E. $2.95.

Universal Automotive Group is a maker of engines for high performance cars and uses a process
costing system. The following information pertains to the final department of manufacturing for
Universal's most popular engine, the "Atomic 8".
Universal Automotive Group calculates separate costs of spoilage by computing both normal and
abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal
spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result of
defects not discovered before inspection of finished units. Using the weighted-average method,
answer the following question:


A. 1,700 units.

B. 1,800 units.

C. 1
,900 units.

D. 2
,000 units.


A. $534.54.

B. $583.14.

C. $
605.81.

D. $
649.08.


A. $60,518.

B. $53,454.

C. $
64,908.

D. $
58,314.


A. $801,810.

B. $855,720.

C. $
921,340.

D. $
910,000.

76. Backflush costing:

A. Is a simplified approach to determining product cost that is used when there is little or no work-
in-process inventory.

B. Involves the use of standard costing.

C. A
llows product costs to be quickly and conveniently calculated

D. I s an approach to determining product cost that is used when JIT is used.

E. ALL of the above.

77. A Production Cost Report summarizes all except:

A. The physical units of a department.

B. The equivalent units of a department.

C. T
he costs incurred during the period.

D. T
he costs assigned to both units completed and ending work-in-process inventories.


78. Process costing can be found in which of the following companies (industries)?

A. Coca-Cola.

B. Royal Dutch Shell Group.

C. K
imberly-Clark (paper products).

D. R
eichhold Chemical (chemicals).

E. All of the above.

79. Conversion costs are the sum of direct labor and:

A. Unit costs.

B. Factory overhead costs.

C. P
rocess costs.

D. L
abor costs.

80. Which of the following is not a step in the preparation of a production cost report?

A. Analyze the physical flow of production units.

B. Determine total costs for each manufacturing cost element.

C. C
ompute cost per equivalent unit for each manufacturing cost element.

D. C
alculate incomplete units for each manufacturing cost element.

81. Units accounted for includes units completed and transferred out plus:

A. Beginning inventory.


C. E
nding inventory.

D. U
nits started.

82. If a firm has 1,200 completed and transferred out units, 200 equivalent units of beginning work in
process and 500 ending work-in-process equivalent units, what is the total of equivalent units of
production using the weighted-average method?

A. 1,500 units.

B. 1,700 units.

C. 1
,200 units.

D. C
annot be determined from the above.

83. The following table was taken from Firm X's Production Cost Report:
What is the number of FIFO equivalent units?

A. 40,000.

B. 50,000.

C. 4
8,000.

D. 3
8,000.

What is the number of weighted-average equivalent units?

A. 40,000.

B. 50,000.

C. 4
8,000.

D. 3
8,000.

85. The weighted-average method is most appropriate when:

A. Work in process is relatively small.

B. Conversion costs are stable.

C. D
irect materials prices are stable.

D. A
ll of the above.

86. Transferred-in costs are costs of work performed:

A. In the current department from last period that are transferred in this period.

B. In the preceding department that are transferred into the present department.

C. I n a prior period that transferred in this period.

D. B
y an outside supplier of materials or labor.

87. Backflush costing is a costing method that:

A. Charges current production costs directly to finished goods inventory.

B. Charges past production costs directly to finished goods inventory.

C. C
harges current production costs using actual costs incurred.

D. C
harges current production cost directly to work-in-process inventory.

88. The U.S. Department of Agriculture urges the use of process costing together with:

A. Normal costing.

B. Volume-based costing.

C. A
ctivity-based costing.

D. S
tandard costing.

89. JIT (Just in time) methods are designed primarily to:

A. Reduce costs.

B. Reduce inventory levels.

C. I mprove product design.

D. I mprove the accuracy of product costs.

90. Process costing is not intended to help determine

A. Departmental cost flows.

B. Product costs.

C. P
rofitability of products.

D. P
rofitability of product mix.

91. Reichhold Chemical Company uses process costing together with:

A. Standard costing.

B. Activity-based costing.

C. B
ackflush costing.

D. T
hroughput costing.

Essay Questions

92. Amos and Son Manufacturing Company of Asheville, Tennessee, produces about 1,000 units of
hand-crafted wooden chairs per month. Their chairs are known for quality and durability. Most of
the chairs are marketed through two furniture outlets with over 200 stores in the southwestern
United States. You have been hired as a cost consultant to recommend improvements in Amos
and Son's process cost system, a system installed some fifty years ago. Since then, the number
of product lines has increased tenfold, and the units sold each year have increased from 3,000 to
12,000. You discover a process cost system driven by volume only, with a single rate for factory
overhead based on units produced.
Required: Given these limited facts, explain what impact changing to an activity-based process
costing/management system (ABC/ABM) would have on Amos and Son's costing and pricing
activities.

93. Bob and Nancy Barnett have recently expanded their television-based educational film business
by shooting 30-second television ads for a regional television market in southern Colorado. They
began business about 15 years ago with a contract to film training videos for the U.S. Army, and
that business continues to provide a steady revenue base, currently about 40 percent of total
revenue. Nancy Barnett is the firm's accountant, and in a visit to your accounting class last week,
made a presentation detailing her firm's costing activities. Your instructor has asked you to
respond to one particular statement that Nancy Barnett made: "Since our contract for military
training films requires us to detail all costs, we use the process cost method that gives the
maximum amount of fixed overhead cost. This almost covers all of our overhead, giving us an
edge in competitively pricing our 30-second TV ads, and explains why we have grown so much in
this sector of our business."
Required: Is there an ethical problem with this approach? Does it represent acceptable
accounting procedure?

94. Many industries, for example mining and other extractive industries, use process costing to
provide information regarding sustainability.
Required: Give an example of how a company could use process costing to assist in making
decisions regarding sustainability.

95. Pierce Co. manufactures a single product that goes through two processes — mixing and
cooking. The following data pertains to the Mixing Department for September 2013.
Material R is added at the beginning of work in the Mixing Department. Material S is also added in
the Mixing Department, but not until units of product are thirty percent completed with regard to
conversion. Conversion costs are incurred uniformly during the process.
Required:
(1) Calculate the equivalent units for Material R using the weighted-average method.
(2) Calculate the equivalent units for Material S using the weighted-average method.
(3) Calculate the equivalent units for conversion using the weighted-average method.
(4) Calculate the unit costs using the weighted-average method.
(5) Calculate the cost of units completed and transferred out using the weighted-average method.
(6) Calculate the cost of ending work in process using the weighted-average method.

96. Assad Company uses the process costing method with the following data for the month of July.
Required:
(1) Compute cost per equivalent unit under the weighted-average method.
(2) Compute cost per equivalent unit under FIFO method.

97. Irvine Company uses process costing. The following data are available for the month of June.
(a) Materials purchased, $800,000.

(b) Materials used: Direct materials: Department A $250,000, Department B $230,000. Indirect
materials: $20,000.
(c) Factory payroll incurred, $600,000: Direct labor: Department A $300,000, Department B
$200,000. Indirect labor: $100,000.
(d) Other factory overhead incurred, $30,000: Power and light $2,000, Depreciation $20,000,
Property tax $5,000, Insurance $3,000.
(e) Factory overhead cost was allocated equally to Department A and Department B.
(f) Department A completed and transferred to department B $600,000.
(g) Department B completed and transferred to Finished Goods Inventory account $1,000,000.
Required:
(1) Prepare journal entries for June activities in Irvine Company.

(2) Compute ending working-in-process inventories in Department A and Department B.

98. Each of the following cases is independent. Use the FIFO method.
Required: Fill in the blanks.

99. Edenton Boat Company manufactures small pleasure boats on an assembly-line basis. The units
are started in the Department A. On July 1 of this year, the Work-in-Process inventory of the
department A consisted of 200 units 100% complete as to materials and 40% complete as to
conversion. During the month, 400 units were started and 500 units were completed and
transferred out. The Work-in-Process on July 31 was 100% complete as to materials and 30%
complete as to conversion.
Costs in process at the beginning of the period amounted to $600,000 for materials and $160,000
for conversion. Costs added during the period were materials costs of $1,802,700 and conversion
costs of $905,512.
Required: Prepare a production cost report using the weighted-average method.

100.W
illiams Corporation's Department A has the following information:
Required:
1. Use the FIFO method to calculate:
(a) Equivalent units.

(b) Cost per unit, rounded to three decimal places.
(c) Cost completed and transferred out, rounded to the nearest whole dollar.
(d) Cost in the ending work-in-process inventory, rounded to the nearest whole dollar.
2. Use the weighted-average method to answer a through d in requirement 1.

101.M
arshall Company uses the weighted-average process costing in accounting for its production
activities. Materials are added at the beginning of the process and conversion costs are incurred
uniformly throughout the process.
August's production records indicate the following information:
Required: Prepare a production cost report for the Marshall Company. In your report, combine
direct labor and factory overhead into a single cost pool for conversion costs.

102.A
tlantic Manufacturing Company uses process costing. All materials are added at the beginning
of the process. The normal spoilage rate is calculated as 10% of good units completed.
The cost of the beginning work-in-process in the Month of May is $3,000,000, including
$1,600,000 of input of materials, 100,000 units, and $1,400,000 for conversion costs. The
beginning work-in-process is 70% complete.
During May, the input includes $7,400,000 for materials, 800,000 units started and $4,190,000
for conversion costs. There were 700,000 good units finished. In addition, the ending work-in-
process in May is 100,000 units with 60% complete. The abnormal spoilage is 30,000 units. All
spoilage occurred when all processing was complete, at the final inspection.
Required: Use the weighted-average method to calculate:
(a) The dollar value of abnormal spoilage.

(b) The cost of the good units finished.
(c) The cost of ending work-in-process inventory.

103.D
owntonTractor Company manufactures small tractors on an assembly-line basis. The units are
started in Department Y. On January 1 of this year, the Work-in-Process inventory of Department
Y consisted of 200 units 100% complete as to materials and 20% complete as to conversion.
During the month, 800 units were started and 500 units were completed and transferred out. The
Work-in-Process on January 31 was 100% complete as to materials and 20% complete as to
conversion.
for conversion. Costs added during the period were materials costs of $200,000 and conversion
costs of $143,000.

104.N
YI Corporation manufactures decorative window glass in two sequential departments. These
data pertain to the month of August:
Required: Prepare journal entries to record these events:
1. Incurrence of direct materials and direct labor. Application of factory overhead in department 1.
2. Transfer of products from department 1 to department 2.
3. Incurrence of direct materials and direct labor. Application of factory overhead in department 2.
4. Transfer of complete products from department 2 to finished goods inventory.

105.C
hen Manufacturing uses backflush costing. Chen has the following information for the most
recent month of activity:
Required
1. Prepare the journal entries for purchase of materials, conversion costs, the completion of
product during the month, the sale of product, and the closing entries for conversion costs and
material costs.
2. What is the final amount for cost of goods sold?
3. Under what conditions is backflush costing used in practice?

106.Y
ou are engaged in the audit of the December 31, 2013, financial statements of Epworth
Products
Corporation. You are attempting to verify the costing of the work-in-process and finished goods
ending inventories that were recorded on Epworth's books as follows:
Materials are added to production at the beginning of the manufacturing process, and overhead
is applied to each product at the rate of 60 percent of direct labor costs. Epworth uses the FIFO
costing method. A review of Epworth's 2013 inventory cost records disclosed the following
information:
Required: Prepare a production cost report to verify the inventory balances. What is the amount
of potential understatement or overstatement of the ending work-in-process account?

Chapter 06 Process Costing Answer Key

Multiple Choice Questions

1. Firms should use a process costing system when they produce products that:

A. Are semi-homogeneous.

B. Pass through a series of inspection points.

C. Pass through a series of manufacturing departments.

D. Have a small batch size.

Difficulty: 2 Medium
Learning Objective: 06-01 Identify the types of firms or operations for which a process costing system is most suitable

2. In process costing, unit product cost is calculated by dividing process cost in each department
by the equivalent units produced:

A. Less beginning inventory.

B. Plus beginning inventory.

C. In the prior period.

D. In the following period.

E. During the period.

Learning Objective: 06-02 Explain and calculate equivalent units

3. In calculating unit cost in a process costing system, "conversion cost" is defined as the sum
of:

A. Direct and indirect material costs.

B. Direct and indirect labor costs.

C. Direct labor and factory overhead costs.

D. Indirect labor and factory overhead costs.

E. Indirect material and factory overhead costs.


4. The first step in determining process costs is:

A. Assigning cost to completed and uncompleted production.

B. Computing the cost per equivalent unit.

C. Calculating equivalent units of production.

D. Analyzing physical flow of production units.

E. Determining total cost for each manufacturing element.

Difficulty: 1 Easy
Learning Objective: 06-03 Describe the five steps in process costing

5. The fifth and final step in determining process costs is:

A. Analyzing physical flow of production units.

B. Calculating equivalent units of production.

C. Determining total cost for each manufacturing element.

D. Computing the cost per equivalent unit.

E. Assigning cost to completed and uncompleted production.

Difficulty: 1 Easy

6. The weighted-average method of process costing makes no distinction between the cost
incurred prior to the current period and the cost incurred in:

A. A future period.

B. The current period.

C. Either a future period or the current period.

D. Both a future period and the current period.

E. The operational process.

Difficulty: 1 Easy
Learning Objective: 06-04 Demonstrate the weighted-average method of process costing

7. The key difference between weighted-average and FIFO process costing methods is the
handling of the partially completed:

A. Beginning direct materials inventory.

B. Ending direct materials inventory.

C. Beginning work-in-process inventory.

D. Ending work-in-process inventory.

E. Beginning finished goods inventory.

Learning Objective: 06-05 Demonstrate the FIFO method of process costing

8. The advantage of the weighted-average method is its:

A. Complexity and comprehensiveness.

B. Ability to handle spoilage and waste.

C. Appropriateness regardless of inventory level changes.

D. Effectiveness in a cost leadership strategy.

E. Simplicity.

Difficulty: 3 Hard

9. Which of the statements below is not correct?

A. Normal spoilage is spoilage that occurs under efficient operating conditions.

B. Normal spoilage is controllable in the short term and not considered a part of product cost.

C. Abnormal spoilage is spoilage in excess of that expected under efficient operating

conditions.

D. Abnormal spoilage is charged as a loss to operations in the period detected.

Difficulty: 1 Easy
Learning Objective: 06-09 (Appendix) Account for spoilage in process costing

10. Process cost systems are used in all of the following industries except:

A. Chemicals.

B. Ship building.

C. Oil refining.

D. Textiles.

E. Steel.

Difficulty: 3 Hard

11. Which one of the following is one of the key steps in determining process costs?

A. Assigning the total manufacturing costs to the units completed and transferred out and the
units of work in process at the end of the period.

B. Analyzing the physical flow of production units.

C. Computing the cost per equivalent unit for each manufacturing cost element.

D. Calculating equivalent units of production for all manufacturing cost elements.


Difficulty: 1 Easy

12. Which one of the following process costing methods combines both current and prior costs in
determining cost per equivalent unit?

A. FIFO method.

B. LIFO method.

C. Specific unit method.

D. Weighted-average method.


Difficulty: 1 Easy

13. Which one of the following process costing methods includes only current costs in the
calculations of cost per equivalent unit?

A. FIFO method.

B. LIFO method.

C. Specific unit method.

D. Weighted-average method.


Difficulty: 1 Easy

14. The sum of the beginning inventory units and the number of units started during the period
determines the:



C. Units transferred in during the period.

D. Units accounted for.


Difficulty: 1 Easy
Learning Objective: 06-06 Analyze process costing with multiple departments

15. The sum of units transferred out and ending inventory units, assuming no spoilage,
determines the:


B. Units spoiled.

C. Units transferred in during the period.

D. Units accounted for.


Difficulty: 1 Easy

16. The journal entry to record the application of factory overhead to work in process would
include a credit to:

A. Work-in-Process.

B. Cost of Goods Sold.

C. Factory Overhead.

D. Materials Inventory.


Learning Objective: 06-07 Prepare journal entries to record the flow of costs in a process costing system

17. When using the first-in, first-out method of process costing, equivalent units for work done
during this period is equal to the number of units:

A. In work-in-process at the beginning of the period times the percent of work necessary to
complete the items, plus the number of units started and completed during the period, plus
the number of units remaining in work-in-process at the end of the period times the percent
of work done during the period.

B. In work-in-process at the beginning of the period, plus the number of units started during
the period, plus the number of units remaining in work-in-process at the end of the period
times the percent of work necessary to complete the items.

C. Started into process during the period, plus the number of units in work-in-process at the
beginning of the period.

D. Transferred out during the period, plus the number of units remaining in work-in-process at
the end of the period times the percent of work necessary to complete the items.



18. The percentage of completion of the beginning work-in-process inventory should be
considered in the computation of the equivalent units for which of the following methods of
process costing?

A. Option A

B. Option B

C. Option C

D. Option D



19. In a given process costing system, the equivalent units are computed using the weighted-
average method. With respect to conversion costs, the percentage of completion for the
current period is necessary for the calculation of the:

A. Option A

B. Option B

C. Option C

D. Option D


Difficulty: 3 Hard

20. From the industries listed below, which one is most likely to use process costing in accounting
for production costs?

A. Printing shop.

B. Accounting firm.

C. Electrical contractor.

D. Steel mill.

E. Automobile repair shop.


21. Which of the following characteristics applies to process costing but not to job costing?

A. Identifiable batches of production.

B. Average costs.

C. Equivalent units.

D. Application of overhead.

E. Use of standard costs.

Difficulty: 1 Easy

22. In the computation of manufacturing cost per equivalent unit, the weighted-average method of
process costing considers:

A. Current costs only.

B. Current costs less cost of ending work-in-process inventory.

C. Current costs plus cost of beginning work-in-process inventory.

D. Current costs plus cost of ending work-in-process inventory.

E. Current costs less cost of beginning work-in-process inventory.


23. In a production cost report using process costing, transferred-in costs are similar to:

A. Materials costs added at the end of the process.

B. Materials costs added at the beginning of the process.

C. Conversion costs added during the process.

D. Conversion costs transferred to the next process.

E. Conversion costs included in beginning inventory.


24. In a process costing system, the cost of abnormal spoilage should be:

A. Prorated between units transferred out and ending inventory.

B. Included in the cost of units transferred out.

C. Treated as a loss in the period incurred.

D. Added to overhead.

Difficulty: 1 Easy

25. Normal spoilage and abnormal spoilage should be classified as:

A. Option A

B. Option B

C. Option C

D. Option D



26. In a process costing system, which assumes that normal spoilage occurs at the end of a
process, the cost attributable to normal spoilage should be assigned to:

A. Beginning work-in-process inventory.

B. Ending work-in-process inventory.

C. Cost of goods manufactured and ending work-in-process inventory in the ratio of units
worked on during the period to units remaining in work-in-process inventory.

D. Cost of goods manufactured (transferred out).

E. A separate loss account in order to highlight production inefficiencies.

Difficulty: 3 Hard

East Bay Fisheries Inc. processes king salmon for various distributors. Two departments are
involved — processing and packaging. Data relating to tons of king salmon processed in the
processing department during June 2013 are provided below:




C. 6,980 equivalent units.

D. 7,140 equivalent units.

1. Units finished = 1,500 + 7,800 - 2,800 = 6,500

2. EUs = 6,500 + (.6 x 2,800) = 8,180

Difficulty: 1 Easy

28. Total equivalent units for conversion under the weighted-average method are calculated to
be:





1. Units finished = 1,500 + 7,800 - 2,800 = 6,500

2. EUs = 6,500 + (.4 x 2,800) = 7,620

Difficulty: 1 Easy






1. Units finished = 1,500 + 7,800 - 2,800 = 6,500

2. EUs = 6,500 + (.6 x 2,800) - (.9 x 1,500) = 6,830

Difficulty: 1 Easy






1. Units finished = 1500 + 7800 - 2800 = 6500

2. EUs = 6500 + (.4 x 2800) - (.8 x 1500) = 6,420

Difficulty: 1 Easy

31. The journal entry to record requisitioned and usage of direct materials would include a credit
to:


B. Accrued Payroll.




Difficulty: 1 Easy
Landry Co. had the following information for the month of December. All direct materials were
one hundred percent complete, and beginning materials cost $14,000.






960 + 360 - 240 = 1,080

Difficulty: 1 Easy






960 + (.2 x 360) - (.1 x 240) = 1,008

Difficulty: 1 Easy

34. Cost per equivalent unit for materials under the FIFO method is calculated to be (rounded):

A. $112.103.

B. $49.242.

C. $109.496.

D. $82.757.

E. $60.185.
$65,000/1,080 = $60.185


35. Cost per equivalent unit for conversion under the FIFO method is calculated to be (rounded):

A. $112.103.

B. $49.242.

C. $109.496.

D. $82.757.

E. $60.185.
1. $113,000 = 41,000 + 7,000 + 38,000 + 22,000 + 5,000

2. $113,000/1,008 = $112.103

Difficulty: 3 Hard
Matrix Inc. calculates cost for an equivalent unit of production using both the weighted-
average and the FIFO methods.






72,000 + (24,000 x 1.0) = 126,000

Difficulty: 1 Easy






102,000 + (24,000 x .5) - (36,000 x .5) = 96,000

Difficulty: 1 Easy

38. Cost per equivalent unit for materials under the weighted-average method is calculated to be:

A. $2.00.

B. $2.40.

C. $3.00.

D. $3.10.

E. $3.20.
($122,400 + 180,000)/126,000 = $2.40


39. Cost per equivalent unit for conversion under the FIFO method is calculated to be:

A. $2.00.

B. $2.40.

C. $3.00.

D. $3.10.

E. $3.20.
$288,000/96,000 = $3.00


calculated to be:

A. $96,000.

B. $476,400.

C. $571,200.

D. $484,000.

E. $468,200.
1. Equivalent units for conversion under weighted average = 102,000 + (.5 x 24,000) =
114,000
2. Conversion cost per EU under weighted average = ($76,800 + $288,000)/114,000 = $3.20
3. Materials cost per EU from question 38 above: $2.40
4. Cost assigned: 102,000 x ($2.40 + $3.20) = $571,200

Difficulty: 3 Hard

41. The journal entry to record finished product units would include a debit to:


B. Accrued Payroll.




Difficulty: 1 Easy

42. The journal entry to record incurred direct labor would include a credit to:


B. Accrued Payroll.




Difficulty: 1 Easy

Talamoto Co. manufactures a single product that goes through two processes — mixing and
cooking. The following data pertains to the Mixing Department for September.
Material P is added at the beginning of work in the Mixing Department. Material Q is also
added in the Mixing Department, but not until units of product are forty percent completed with
regard to conversion. Conversion costs are incurred uniformly during the process.

43. Total equivalent units for Material P under the weighted-average method are calculated to be:





1. Units finished and transferred out = 32,000 + 72,000 - 20,000 = 84,000

2. Note that both material P and material Q are complete in process since conversion both in
beginning and ending inventory is beyond the 40% point
3. EUs = 84,000 + 20,000 = 104,000

Difficulty: 1 Easy

44. Total equivalent units for Material Q under the weighted-average method are calculated to be:






2. Note that both material P and material Q are complete in process since conversion both in
beginning and ending inventory is beyond the 40% point
3. EUs = 84,000 + 20,000 = 104,000

Difficulty: 3 Hard

45. Total equivalent units for conversion under the weighted-average method are calculated to
be:






2. EUs = 84,000 + (20,000 x .5) = 94,000

Difficulty: 1 Easy

46. Cost per equivalent unit for Material P under the weighted-average method is calculated to
be:

A. $5.10.

B. $2.60.

C. $2.50.

D. $2.30.

E. $5.40.
($80,000 + $180,000)/104,000 = $2.50


47. Cost per equivalent unit for Material Q under the weighted-average method is calculated to
be:

A. $5.10.

B. $2.60.

C. $2.50.

D. $2.30.

E. $5.40.
(104,800 + 165,600)/104,000 = $2.60


48. Cost per equivalent unit for conversion under the weighted-average method is calculated to
be:

A. $5.10.

B. $2.60.

C. $2.50.

D. $2.30.

E. $5.40.
($142,440 + $365,160)/94,000 = $5.40


calculated to be:

A. $885,000.

B. $882,000.

C. $888,000.

D. $891,000.

E. $887,000.
($2.50 + 2.60 + 5.40) x 84,000 = $882,000

Difficulty: 3 Hard
Stoltenberg Co. had the following information for the month of June:
Beginning work-in-process inventory is 30 percent complete as to conversion. Ending work-in-

process inventory is 50 percent complete as to conversion. Materials are added at the end of
the process.

50. How many units were completed in June?

A. 12,000.

B. 10,000.

C. 14,000.

D. 16,000.

E. 18,000.
2,000 + 16,000 - 4,000 = 14,000

Difficulty: 1 Easy

51. How many units were started and completed in June?

A. 12,000.

B. 10,000.

C. 14,000.

D. 16,000.

E. 18,000.
14,000 - 2,000 = 12,000

Difficulty: 1 Easy

52. The equivalent units for materials under the weighted-average method are calculated to be:

A. 12,000.

B. 10,000.

C. 14,000.

D. 16,000.

E. 18,000.
14,000 + (0% x 4,000) = 14,000

Difficulty: 1 Easy

53. The equivalent units for conversion under the weighted average method are calculated to be:

A. 12,000.

B. 10,000.

C. 14,000.

D. 16,000.

E. 18,000.
14,000 + (.5 x 4,000) = 16,000

Difficulty: 1 Easy

54. The equivalent units for transferred-in costs under the FIFO method are calculated to be:

A. 12,000.

B. 10,000.

C. 14,000.

D. 16,000.

E. 18,000.
18,000 - 2,000 = units in process less units in beginning WIP = 16,000

DeFond Company has a process costing system. All materials are introduced at the beginning
of the process in Department One. The following information is available for the month of
January:

55. What are the equivalent units for the month of July if the company uses the FIFO method?

A. Option A

B. Option B

C. Option C

D. Option D

E. Option E
1. 2,000 = 1,900 + 500 - 400

2. 2,040 = 1,900 + (.6 x 500) - (.4 x 400)


56. What are the equivalent units for the month of July if the company uses the weighted-average
method?

A. Option A

B. Option B

C. Option C

D. Option D

E. Option E
1. 2,400 = 1,900 + 500

2. 2,200 = 1,900 + (.6 x 500)


57. On March 1, Portland Company had 20,000 units of work in process in Department A, which
were 100% complete as to material costs and 40% complete as to conversion costs. During
March, 150,000 units were started in Department A and 160,000 units were completed and
transferred to Department B. Work in process on March 31 was 100% complete as to material
costs and 50% complete as to conversion costs. By what amount would the equivalent units
for conversion costs for the month of March differ if the FIFO method were used instead of the
weighted-average method?

A. 10,000 decrease.

B. 8,000 decrease.

C. 6,000 decrease.

D. 5,000 decrease.

E. 4,000 decrease.
(.4 x 20,000) = 8,000, that is, the percentage completion in beginning WIP


58. Larsen Company adds materials at the beginning of the process in Department 2. Data
concerning the materials used in May production are as follows:
Using the weighted-average method, the equivalent units for materials are:

A. 44,000.

B. 41,000.

C. 36,000.

D. 33,000.

E. 32,000.
44,000 = 33,000 + 3,000 + (1.0 x 8,000)


59. Which of the following companies (industries) would not use a process cost system?

A. Georgia-Pacific Corporation (Lumber & Paper).

B. Durham Integrative Medical Care (Medical practice).

C. Bayer Pharmaceuticals (Drugs).

D. Reichhold Chemical Co. (Chemicals).

E. Accenture (Consulting).

Difficulty: 1 Easy

60. Conversion costs in a process cost system include:

A. Direct materials and direct labor.

B. Direct labor and manufacturing overhead.

C. Direct materials and manufacturing overhead.

D. Manufacturing overhead and selling, general & administrative expenses.

Difficulty: 1 Easy

61. Place the following Process costing steps in the correct order:
1 - Calculate equivalent units

2 - Determine the total costs to account for
3 - Analyze flow of physical units
4 - Assign total manufacturing costs
5 - Compute unit costs

A. 3, 5, 2, 1, 4.

B. 2, 1, 5, 4, 3.

C. 2, 3, 5, 4, 1.

D. 3, 1, 2, 5, 4.



62. Which method is (are) used to prepare the departmental production cost report when using a
process cost system?

A. LIFO method.

B. FIFO method.

C. Weighted average method.

D. Both A & B are correct.

E. Both B & C are correct.


63. The number of the same or similar units that could have been produced given the amount of
work actually performed on both complete and partially complete units is referred to as:

A. Physical units.

B. Completed units.

C. Equivalent units.

D. Produced units.

E. Units to account for.

Difficulty: 3 Hard

64. Which equation correctly calculates the total weighted average equivalent units of production?

A. Completed and transferred out units + Beginning work-in-process equivalent units.

B. Ending work-in-process equivalent units - Completed and transferred out units.

C. Beginning work-in-process equivalent units - Completed and transferred out units.

D. Completed and transferred out units + Ending work-in-process equivalent units.

E. Ending work-in-process equivalent units + Beginning work-in-process equivalent units.

Difficulty: 1 Easy

Giddings Pharmaceutical Company is a maker of drugs for high blood pressure and uses a
process costing system. The following information pertains to the final department of
Giddings's blockbuster drug called Solcax.
Giddings calculates separate costs of spoilage by computing both normal and abnormal
spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage
costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not
discovered before inspection of finished units. Materials are added at the beginning of the
process. Using the weighted-average method, answer the following question:


A. 4,200 units.

B. 4,800 units.

C. 4,000 units.

D. 4,400 units.
3,600 + 400 + 200 + (600/3) = 4,400

Difficulty: 1 Easy


A. $2.15.

B. $2.36.

C. $2.50.

D. $2.75.
(2,560 + 6,900)/4,400 = $2.15



A. $375.

B. $430.

C. $625.

D. $860.
200 x $2.15 = $430



A. $6,750.

B. $7,740.

C. $8,600.

D. $9,460.
(3,600 + 400) x $2.15 = $8,600


69. What are the total conversion costs in ending inventory?

A. $430.

B. $500.

C. $850.

D. $1,150.
$430 = 600 x (1/3 x $2.15)


70. Abnormal spoilage is considered what kind of cost?

A. Period cost.

B. Product cost.

C. Opportunity cost.

D. Sunk cost.


71. O'Leary Company manufactures Product Z in a two-stage production cycle in Departments A

and B. Materials are added at the beginning of the process in Department B. O'Leary uses the
weighted-average method. Conversion costs for Department B were 40% complete as to the
5,000 units in the beginning work-in-process (WIP) inventory and 50% complete as to the
7,000 units in the ending work-in-process inventory. 10,000 units were completed and
transferred out of Department B during October. An analysis of the costs relating to work-in-
process inventories and production activity in Department B for October follows:
The total cost per equivalent unit transferred-out for October of Product Z, rounded to the
nearest penny, was:

A. $2.75.

B. $2.80.

C. $2.85.

D. $2.90.

E. $2.95.

Difficulty: 3 Hard

Universal Automotive Group is a maker of engines for high performance cars and uses a
process costing system. The following information pertains to the final department of
manufacturing for Universal's most popular engine, the "Atomic 8".
Universal Automotive Group calculates separate costs of spoilage by computing both normal
and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal
spoilage costs are charged as a loss. The units of the Atomic 8 that are spoiled are the result
of defects not discovered before inspection of finished units. Using the weighted-average
method, answer the following question:


A. 1,700 units.

B. 1,800 units.

C. 1,900 units.

D. 2,000 units.
1,400 + 100 + 100 + (.25 x 400) = 1,700

Difficulty: 1 Easy


A. $534.54.

B. $583.14.

C. $605.81.

D. $649.08.
($180,500 + $728,218)/1,700 = $534.54



A. $60,518.

B. $53,454.

C. $64,908.

D. $58,314.
100 x $534.54 = $53,454



A. $801,810.

B. $855,720.

C. $921,340.

D. $910,000.
(1,400 + 100) x $534.54 = $801,810


76. Backflush costing:

A. Is a simplified approach to determining product cost that is used when there is little or no
work-in-process inventory.

B. Involves the use of standard costing.

C. Allows product costs to be quickly and conveniently calculated

D. Is an approach to determining product cost that is used when JIT is used.

E. ALL of the above.

Difficulty: 1 Easy
Learning Objective: 06-08 Explain how process costing systems are implemented and enhanced in practice

77. A Production Cost Report summarizes all except:

A. The physical units of a department.

B. The equivalent units of a department.

C. The costs incurred during the period.

D. The costs assigned to both units completed and ending work-in-process inventories.


Difficulty: 1 Easy

78. Process costing can be found in which of the following companies (industries)?

A. Coca-Cola.

B. Royal Dutch Shell Group.

C. Kimberly-Clark (paper products).

D. Reichhold Chemical (chemicals).

E. All of the above.

Difficulty: 1 Easy

79. Conversion costs are the sum of direct labor and:

A. Unit costs.

B. Factory overhead costs.

C. Process costs.

D. Labor costs.

Difficulty: 1 Easy

80. Which of the following is not a step in the preparation of a production cost report?

A. Analyze the physical flow of production units.

B. Determine total costs for each manufacturing cost element.

C. Compute cost per equivalent unit for each manufacturing cost element.

D. Calculate incomplete units for each manufacturing cost element.


81. Units accounted for includes units completed and transferred out plus:

A. Beginning inventory.


C. Ending inventory.

D. Units started.


82. If a firm has 1,200 completed and transferred out units, 200 equivalent units of beginning work
in process and 500 ending work-in-process equivalent units, what is the total of equivalent
units of production using the weighted-average method?

A. 1,500 units.

B. 1,700 units.

C. 1,200 units.

D. Cannot be determined from the above.
1,200 + 500 = 1,700

Difficulty: 1 Easy

What is the number of FIFO equivalent units?

A. 40,000.

B. 50,000.

C. 48,000.

D. 38,000.
44,000 + 6,000 - 10,000 = 40,000

Difficulty: 1 Easy

What is the number of weighted-average equivalent units?

A. 40,000.

B. 50,000.

C. 48,000.

D. 38,000.
44,000 + 6,000 = 50,000

Difficulty: 1 Easy

85. The weighted-average method is most appropriate when:

A. Work in process is relatively small.

B. Conversion costs are stable.

C. Direct materials prices are stable.

D. All of the above.

Difficulty: 1 Easy

86. Transferred-in costs are costs of work performed:

A. In the current department from last period that are transferred in this period.

B. In the preceding department that are transferred into the present department.

C. In a prior period that transferred in this period.

D. By an outside supplier of materials or labor.


87. Backflush costing is a costing method that:

A. Charges current production costs directly to finished goods inventory.

B. Charges past production costs directly to finished goods inventory.

C. Charges current production costs using actual costs incurred.

D. Charges current production cost directly to work-in-process inventory.


88. The U.S. Department of Agriculture urges the use of process costing together with:

A. Normal costing.

B. Volume-based costing.

C. Activity-based costing.

D. Standard costing.
Answer is contained in the Real-World Focus item on page 193.

Difficulty: 3 Hard

89. JIT (Just in time) methods are designed primarily to:

A. Reduce costs.

B. Reduce inventory levels.

C. Improve product design.

D. Improve the accuracy of product costs.


90. Process costing is not intended to help determine

A. Departmental cost flows.

B. Product costs.

C. Profitability of products.

D. Profitability of product mix.


91. Reichhold Chemical Company uses process costing together with:

A. Standard costing.

B. Activity-based costing.

C. Backflush costing.

D. Throughput costing.


Essay Questions

92. Amos and Son Manufacturing Company of Asheville, Tennessee, produces about 1,000 units
of hand-crafted wooden chairs per month. Their chairs are known for quality and durability.
Most of the chairs are marketed through two furniture outlets with over 200 stores in the
southwestern United States. You have been hired as a cost consultant to recommend
improvements in Amos and Son's process cost system, a system installed some fifty years
ago. Since then, the number of product lines has increased tenfold, and the units sold each
year have increased from 3,000 to 12,000. You discover a process cost system driven by
volume only, with a single rate for factory overhead based on units produced.
Required: Given these limited facts, explain what impact changing to an activity-based
process costing/management system (ABC/ABM) would have on Amos and Son's costing and
pricing activities.
Answer may vary
Feedback: A process costing system might be adequate for a stable production of a limited
variety of products. In this firm, the variety of products has changed dramatically over a
relatively short period of time. The costing system needs to focus on "causes of costs" to be
able to correctly assign costs to multiple products by identifying key activities, using them as
cost drivers. An activity-based costing system (ABC) will more precisely identify costs with
their causes, allowing more competitive pricing and more effective cost control.

Difficulty: 1 Easy

93. Bob and Nancy Barnett have recently expanded their television-based educational film
business by shooting 30-second television ads for a regional television market in southern
Colorado. They began business about 15 years ago with a contract to film training videos for
the U.S. Army, and that business continues to provide a steady revenue base, currently about
40 percent of total revenue. Nancy Barnett is the firm's accountant, and in a visit to your
accounting class last week, made a presentation detailing her firm's costing activities. Your
instructor has asked you to respond to one particular statement that Nancy Barnett made:
"Since our contract for military training films requires us to detail all costs, we use the process
cost method that gives the maximum amount of fixed overhead cost. This almost covers all of
our overhead, giving us an edge in competitively pricing our 30-second TV ads, and explains
why we have grown so much in this sector of our business."
Required: Is there an ethical problem with this approach? Does it represent acceptable
accounting procedure?
Answer may vary
Feedback: The objective of a good costing system should be to fairly distribute overhead costs
to all products of the firm. There is a significant ethical problem in dumping a disproportionate
amount of common cost into cost-plus contracts to allow minimizing allocation of overhead to
price-competitive products, even though the practice might be acceptable accounting
procedure.

AACSB: Ethics
Topic: Ethics

94. Many industries, for example mining and other extractive industries, use process costing to
provide information regarding sustainability.
Required: Give an example of how a company could use process costing to assist in making
decisions regarding sustainability.
Answer may vary
Feedback: The answer to this question is presented in the Cost Management in Action box
and the solution to at the end of the chapter.
Cost Management in Action

Process Industries Use Process Cost Information for Sustainability
Many process industries such as paper manufacturing, chemical production, oil refining, and
steel processing create environmentally sensitive waste products. Many of these firms use
sustainability scorecard as explained in chapter 2. A critical cost management goal for these
firms is to find cost-effective means to manage these waste products. For example, a steel
plating facility in the United States recently faced the need to redesign its plant to meet U.S.
environmental standards. The firm sought bids from environmental engineering firms for the
redesign work. The average bid was $800,000, each requiring a significant rebuilding of the
plant and extensive downtime at the plant. To avoid the cost and disruption of such a plant
redesign, the company used cost management methods based in part on process cost
information to develop a plan to reduce cost within the plant's current facilities. The plan
involved several changes in operations including new ways to handle raw materials, changes
in product mix and scheduling, segregating wastewater flows, and treating some wastes within
the plant rather than off-site. The redesign cost of the plan was less than 25 percent of the
cost of the plant redesign and it also was projected to have lower operating costs. Moreover,
the plan offered a better integration of day-to-day decision making with environmental
compliance, in comparison to the redesign plan of the consulting environmental engineers.
Can you think of other examples of how a process industry could save money and also
improve environmental sustainability?
Solution to Cost Management in Action
Achieving sustainability requires a carefully planned and executed policy to reduce the firm's
environmental and social footprint. This could be measured in a number of ways, amount of
waste products, workplace injuries, carbon and sulfur emissions (as indicated in Exhibit 2.8),
and a number of other social and environmental indicators.
Marc Epstein notes that Royal Dutch Shell and Alcoa, two large process firms, employ review
processes to assess human rights risks, health, safety, and other environmental issues before
investing in a new location. Other initiatives include those by Wal-Mart in recent years to
redesign its product distribution system to reduce fuel usage by over 30%. Other companies
are using solar energy, some to the extent that they can sell energy back to the energy grid
provided by the energy companies. In other initiatives in agriculture, genetic engineering and
improved seed and planting methods have reduced the need for fertilizer and other soil
treatments, saving the cost and also the environmental impact of these chemicals. There are
many other stories that you may know of. The Epstein books cited below provide additional
examples.
Source: Marc J. Epstein, "Implementing Corporate Sustainability: Measuring and Managing

Social and Environmental Impacts," Strategic Finance, January 2008, pp 25-31; Marc J.
Epstein, "Implementing Corporate Sustainability: Measuring and Managing Social and
Environmental Impacts," Strategic Finance, January 2008, pp. 25-31; Marc J. Epstein, Making
Sustainability Work: Best Practices in Managing and Measuring Corporate Social,
Environmental and Economic Impacts, Berrett-Kolehler Pub (2008).

Topic: Sustainability

95. Pierce Co. manufactures a single product that goes through two processes — mixing and
cooking. The following data pertains to the Mixing Department for September 2013.
Material R is added at the beginning of work in the Mixing Department. Material S is also
added in the Mixing Department, but not until units of product are thirty percent completed with
regard to conversion. Conversion costs are incurred uniformly during the process.
Required:
(1) Calculate the equivalent units for Material R using the weighted-average method.
(2) Calculate the equivalent units for Material S using the weighted-average method.
(3) Calculate the equivalent units for conversion using the weighted-average method.
(4) Calculate the unit costs using the weighted-average method.
(5) Calculate the cost of units completed and transferred out using the weighted-average
method.
(6) Calculate the cost of ending work in process using the weighted-average method.
Answer may vary
Feedback: 1. 124,000
2. 124,000
3. 109,600
4. $4.29, $3.15, $6.58 for materials R, S, and conversion, respectively
5. $1,402,000
6. $241,728


96. Assad Company uses the process costing method with the following data for the month of
July.
Required:
(1) Compute cost per equivalent unit under the weighted-average method.
(2) Compute cost per equivalent unit under FIFO method.
Answer may vary
Feedback: 1. $6.71
2. $6.77


97. Irvine Company uses process costing. The following data are available for the month of June.
(a) Materials purchased, $800,000.

(b) Materials used: Direct materials: Department A $250,000, Department B $230,000. Indirect
materials: $20,000.
(c) Factory payroll incurred, $600,000: Direct labor: Department A $300,000, Department B
$200,000. Indirect labor: $100,000.
(d) Other factory overhead incurred, $30,000: Power and light $2,000, Depreciation $20,000,
Property tax $5,000, Insurance $3,000.
(e) Factory overhead cost was allocated equally to Department A and Department B.
(f) Department A completed and transferred to department B $600,000.
(g) Department B completed and transferred to Finished Goods Inventory account $1,000,000.
Required:
(1) Prepare journal entries for June activities in Irvine Company.

(2) Compute ending working-in-process inventories in Department A and Department B.
Answer may vary
Feedback: (1) Journal Entries

(2) Department A Ending Work-in-Process Inventory:
$250,000 + $300,000 + $75,000 - $600,000 = $25,000
Department B Ending Work-in-Process Inventory:

$230,000 + $200,000+ $75,000 + $600,000 - $1,000,000 = $105,000


98. Each of the following cases is independent. Use the FIFO method.
Required: Fill in the blanks.
Answer may vary
Feedback: Case A
Current costs = $44,000 + $6,000 - $5,000 = $45,000
Equivalent units = $45,000/$6 = 7,500 units
Case B
Beginning inventory = $35,000 + $28,000 - $30,000 = $33,000
Unit cost = $30,000/10,000 = $3.00
Case C
Transferred out cost = $18,000 + $45,000 - $11,000 = $52,000
Equivalent units = $45,000/$15 = 3,000 units
Case D
Transferred out cost = $20,000 + $30,000 - $10,000 = $40,000
Equivalent units = $50,000/$5 = 10,000
Case E
Beginning Inventory = $7 x 10,000 - $30,000 = $40,000
Transferred out cost = $40,000 + $30,000 - $25,000 = $45,000 Also = ($7 x 10,000) - $25,000
Case F
Ending Inventory = $40,000 + $60,000 - $80,000 = $20,000
Unit cost = ($20,000 + $80,000)/20,000 = $5 Also = ($40,000 + $60,000)/20,000


99. Edenton Boat Company manufactures small pleasure boats on an assembly-line basis. The units
are started in the Department A. On July 1 of this year, the Work-in-Process inventory of the
department A consisted of 200 units 100% complete as to materials and 40% complete as to
conversion. During the month, 400 units were started and 500 units were completed and
transferred out. The Work-in-Process on July 31 was 100% complete as to materials and 30%
complete as to conversion.
for conversion. Costs added during the period were materials costs of $1,802,700 and conversion
costs of $905,512.
Answer may vary
Feedback:

Difficulty: 1 Easy

100. Williams Corporation's Department A has the following information:
Required:
1. Use the FIFO method to calculate:
(a) Equivalent units.

(b) Cost per unit, rounded to three decimal places.
(c) Cost completed and transferred out, rounded to the nearest whole dollar.
(d) Cost in the ending work-in-process inventory, rounded to the nearest whole dollar.
2. Use the weighted-average method to answer a through d in requirement 1.
Answer may vary
Feedback: 1. a. 28,400 for materials, 30,600 for conversion

b. $3.944, 2.882, 6.826 for materials, conversion and total, respectively
c. $271,843
d. $7,615
2. a. 33,200 for materials, 33,000 for conversion

b. $4.69, 3.75,8.44 for materials, conversion and total, respectively
c. $270,080
d. $9,378


101. Marshall Company uses the weighted-average process costing in accounting for its production
activities. Materials are added at the beginning of the process and conversion costs are
incurred uniformly throughout the process.
August's production records indicate the following information:
Required: Prepare a production cost report for the Marshall Company. In your report, combine
direct labor and factory overhead into a single cost pool for conversion costs.
Answer may vary
Feedback:


102. Atlantic Manufacturing Company uses process costing. All materials are added at the
beginning of the process. The normal spoilage rate is calculated as 10% of good units
completed.
The cost of the beginning work-in-process in the Month of May is $3,000,000, including
$1,600,000 of input of materials, 100,000 units, and $1,400,000 for conversion costs. The
beginning work-in-process is 70% complete.
During May, the input includes $7,400,000 for materials, 800,000 units started and $4,190,000
for conversion costs. There were 700,000 good units finished. In addition, the ending work-in-
process in May is 100,000 units with 60% complete. The abnormal spoilage is 30,000 units. All
spoilage occurred when all processing was complete, at the final inspection.
Required: Use the weighted-average method to calculate:
(a) The dollar value of abnormal spoilage.

(b) The cost of the good units finished.
(c) The cost of ending work-in-process inventory.
Answer may vary
Feedback: (a) The dollar value of the abnormal spoilage = $495,000

(b) Cost of finished goods = $12,705,000
(c) Cost of ending work in process = $1,390,000


103 DowntonTractor Company manufactures small tractors on an assembly-line basis. The units are
. started in Department Y. On January 1 of this year, the Work-in-Process inventory of Department
Y consisted of 200 units 100% complete as to materials and 20% complete as to conversion.
During the month, 800 units were started and 500 units were completed and transferred out. The
Work-in-Process on January 31 was 100% complete as to materials and 20% complete as to
conversion.
for conversion. Costs added during the period were materials costs of $200,000 and conversion
costs of $143,000.
Answer may vary
Feedback:


104. NYI Corporation manufactures decorative window glass in two sequential departments. These
data pertain to the month of August:
Required: Prepare journal entries to record these events:
1. Incurrence of direct materials and direct labor. Application of factory overhead in

department 1.
2. Transfer of products from department 1 to department 2.
3. Incurrence of direct materials and direct labor. Application of factory overhead in
department 2.
4. Transfer of complete products from department 2 to finished goods inventory.
Answer may vary
Feedback:


105. Chen Manufacturing uses backflush costing. Chen has the following information for the most
recent month of activity:
Required
1. Prepare the journal entries for purchase of materials, conversion costs, the completion of
product during the month, the sale of product, and the closing entries for conversion costs and
material costs.
2. What is the final amount for cost of goods sold?
3. Under what conditions is backflush costing used in practice?
Answer may vary
Feedback: (1)
(2)
(3) Finished goods are shown for the standard cost of the 35,000 units produced 35,000 x
($20 + $40) = $2,100,000
(4)
(5a)
(5b)
2. The final amount for cost of goods sold is therefore $1,980,000 + $50,000 + $5,000 =
$2,035,000.
3. Backflush costing is used when the level of work-in-process inventory is very small. This
can be the case for firms that use just-in-time manufacturing (JIT), so that purchases are
carefully coordinated with scheduled production on a daily basis. Backflush costing is a
practical and convenient costing method for cases like this.


106. You are engaged in the audit of the December 31, 2013, financial statements of Epworth
Products
Corporation. You are attempting to verify the costing of the work-in-process and finished
goods ending inventories that were recorded on Epworth's books as follows:
Materials are added to production at the beginning of the manufacturing process, and
overhead is applied to each product at the rate of 60 percent of direct labor costs. Epworth
uses the FIFO costing method. A review of Epworth's 2013 inventory cost records disclosed
the following information:
Required: Prepare a production cost report to verify the inventory balances. What is the
amount of potential understatement or overstatement of the ending work-in-process account?
Answer may vary
Feedback:
Conversion costs:
$504,000 = $315,000 x 1.6

$3,186,200 = $1,991,375 x 1.6
Ending inventory is understated by $66,040

where $927,000 - $860,960 = $66,040

Difficulty: 3 Hard

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Chapter 06

Multiple Choice Questions

B. Pass through a series of inspection points.

B. Plus beginning inventory.

C. I n the prior period.

D. I n the following period.

E. During the period.

B. Direct and indirect labor costs.

D. I ndirect labor and factory overhead costs.

E. Indirect material and factory overhead costs.

B. Computing the cost per equivalent unit.

E. Determining total cost for each manufacturing element.

5. The fifth and final step in determining process costs is:

B. Calculating equivalent units of production.

E. Assigning cost to completed and uncompleted production.

B. The current period.

E. The operational process.

B. Ending direct materials inventory.

E. Beginning finished goods inventory.

B. Ability to handle spoilage and waste.

9. Which of the statements below is not correct?

B. Analyzing the physical flow of production units.

E. All of the above are correct.

B. Units to account for.

E. Units started during the period.

E. Units started during the period.

B. Cost of Goods Sold.

E. Finished Goods Inventory.

E. None of the above.

E. None of the above.

E. None of the above.

E. Automobile repair shop.

E. Use of standard costs.

B. Current costs less cost of ending work-in-process inventory.

E. Current costs less cost of beginning work-in-process inventory.

B. Materials costs added at the beginning of the process.

E. Conversion costs included in beginning inventory.

B. Included in the cost of units transferred out.

25. Normal spoilage and abnormal spoilage should be classified as:

E. None of the above.

B. Ending work-in-process inventory.

E. A separate loss account in order to highlight production inefficiencies.

B. 8,180 equivalent units.

E. 7,620 equivalent units.

B. 8,180 equivalent units.

E. 7,620 equivalent units.

B. 8,180 equivalent units.

E. 7,620 equivalent units.

B. 8,180 equivalent units.

E. 7,320 equivalent units.

E. Finished Goods Inventory.

B. 1,080 equivalent units.

E. 1,320 equivalent units.

B. 1,080 equivalent units.

E. 1,320 equivalent units.

B. 114,000 equivalent units.

E. 96,000 equivalent units.

B. 114,000 equivalent units.

E. 96,000 equivalent units.

E. Finished Goods Inventory.

E. Finished Goods Inventory.

B. 71,600 equivalent units.

E. 94,000 equivalent units.

B. 71,600 equivalent units.