4th Edition Topic Focus: Process Costing Complete Test Bank

T2 – Topic Focus: Process Costing

TRUE-FALSE STATEMENTS

1. Companies that mass produce similar products or employ a continuous production process typically use a process costing system.
2. Companies that mass produce similar products or employ a continuous production process typically use a job order system.
3. In a process costing system, all product costs for the period are accumulated and divided evenly over all units produced during the period.
4. In a job order costing system, all product costs for the period are accumulated and divided evenly over all units produced during the period.
5. The soft drink bottler, Dr. Pepper, is an example of a company that will likely use a process costing system.
6. The accounting firm, PWC, is an example of a company that will likely use a process costing system.
7. Costs incurred in a process costing system include direct material, direct labor, and overhead.
8. The costs incurred in a process costing system, direct material, direct labor, and manufacturing overhead, are also incurred in a job order costing system.
9. The inventories used in a process costing system include Work in Process and Finished Goods, but not Raw Materials.

LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

1. The inventories used in a process costing system are the same as those used in a job order costing system.
2. Both process costing systems and job order costing systems accumulate costs on a job cost sheet.
3. In a job order costing system, the costs of each job are accumulated on a job cost sheet, while in process costing, the costs are accumulated by department.
4. In process costing, all materials are added at the beginning of the production process, with labor and overhead added during the production process.
5. In process costing, direct materials may be added at different points of a department’s production process.
6. The accounts used in the journal entries used to record cost flows in a process costing system are the same as those used to record cost flows in a job order costing system.
7. The costs flow through the accounts in a similar manner in a process costing system and a job order costing system.
8. Both process costing and job order costing systems accumulate product costs throughout the production process and assign those costs to individual units of production.
9. Like process costing, job order costing makes no attempt to track an individual product’s costs; all units of a product have similar costs.
10. When there is no Work in Process Inventory at the end of a period, cost accumulation and reporting are extremely easy under process costing, as the product costs are simply added up and divided evenly among the products produced.
11. When work is in process at the end of an accounting period, cost accumulation and reporting is extremely easy under process costing, as the product costs are simply added up and divided evenly among the products produced.

LO: 2, Bloom: AN, Unit: TF02-2, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

1. Equivalent units of production are based on the percentage of completion for Work in Process Inventory at the end of the period.
2. In a process costing system, labor and overhead costs are typically combined and referred to as conversion costs.
3. In a process costing system, labor and overhead costs are typically combined and referred to as equivalent costs.

LO: 2, Bloom: K, Unit: TF02-2, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

1. Equivalent units for conversion costs are divided into total conversion costs incurred during the period to arrive at the conversion cost per unit.
2. The objective of process costing is the same as job order costing: to assign all costs to specific jobs.

MULTIPLE-CHOICE QUESTIONS

1. Companies that mass-produce similar products or employ a continuous production process typically use which of the following costing systems?
   1. Job order
   2. Process
   3. Perpetual
   4. Variable
2. Companies that mass-produce similar products or employ a continuous production process typically use which of the following costing systems?
   1. A system that accumulates costs by department
   2. A system that accumulates actual direct costs and allocates overhead costs
   3. A system that treats overhead costs as period costs
   4. A system that uses estimated costs rather than actual
3. The costing systems in which all product costs for the period are accumulated and divided evenly over all units produced during the period is referred to as
   1. a job order costing system.
   2. an accumulation costing system.
   3. a departmental costing system.
   4. a process costing system.
4. Which of the following types of entities would likely use a process costing system?
   1. Construction
   2. Ship building
   3. Soft drink bottler
   4. CPA firm
5. Which of the following types of entities would probably use a process costing system?
   1. Automobile repair shop
   2. Paint manufacturer
   3. Printing company
   4. Law firm
6. Which of the following types of entities would probably use a process costing system?
   1. Oil refiner
   2. Construction company
   3. Airplane manufacturer
   4. CPA firm
7. What types of costs are incurred in a process costing system?
   1. Direct material and direct labor
   2. Direct labor and manufacturing overhead
   3. Manufacturing overhead and direct material
   4. Direct material, direct labor, and manufacturing overhead
8. Which is not an inventory account that is used in a process costing system?
   1. Work in Process
   2. Finished Goods
   3. Cost of Goods Sold
   4. Materials
9. All the following are inventory accounts that are used in a process costing system except
   1. Raw Materials.
   2. Work in Process.
   3. Finished Goods.
   4. Cost of Goods Sold.
10. In a job order costing system, the costs of each job are accumulated on a
    1. job cost sheet.
    2. departmental cost sheet.
    3. balance sheet.
    4. company cost sheet.
11. In a process costing system, when raw material is received, in which of the following balance sheet accounts is it recorded?
    1. Raw Materials Inventory
    2. Work in Process Inventory
    3. Finished Goods Inventory
    4. Cost of Goods Sold
12. In a process costing system, when raw materials are moved into the mixing department, in which of the following balance sheet accounts is it recorded?
    1. Raw Materials Inventory – mixing
    2. Inventory – mixing
    3. Finished Goods Inventory – mixing
    4. Cost of Goods Sold
13. Which of the following is a similarity between job order costing and process costing systems?
    1. Both accumulate product costs throughout the production process and assign those costs to individual units of production.
    2. Both track individual product costs.
    3. Both accumulate product costs in each production department during the period.
    4. Both accumulate costs on a job cost sheet.
14. Which of the following is a similarity between job order costing and process costing systems?
    1. Both mass-produce identical products.
    2. Both accumulate direct materials, direct labor and manufacturing overhead costs.
    3. Both accumulate product costs on a departmental production report.
    4. Both accumulate costs on a job cost sheet.
15. Which of the following is a similarity between job order costing and process costing systems?
    1. Both accumulate costs on a job cost sheet,
    2. Both accumulate product costs in each production department during the period,
    3. Both systems track cost flows from Raw Materials to Work in Process, from Work in Process to Finished Goods, and from Finished Goods to Cost of Goods Sold,
    4. Both produce many different types of products, often to customer specifications,
16. Which of the following is not a similarity between job order costing and process costing systems?
    1. Both accumulate product costs throughout the production process and assign those costs to individual units of production.
    2. Both accumulate direct materials, direct labor, and manufacturing overhead costs.
    3. Both systems track cost flows from Raw Materials to Work in Process, from Work in Process to Finished Goods, and from Finished Goods to Cost of Goods Sold.
    4. Both transfer the cost of the inventory to Cost of Goods Sold when the production process is completed.
17. Which of the following is a difference between job order costing and process costing systems?
    1. Companies that use a process costing system mass-produce identical products, while companies that use a job order costing system produce many different types of products.
    2. Companies that use a process costing system accumulate product costs throughout the production process, while companies that use a job order costing system accumulate product costs only at the end of the production process.
    3. Companies that use a process costing system accumulate direct material and manufacturing overhead, but not direct labor while companies that use a job order costing system accumulate direct material, direct labor, and manufacturing overhead.
    4. Companies that use a job order costing system assign manufacturing overhead as part of the cost of production, while companies that use a process costing system omit manufacturing overhead in product cost.
18. Which of the following is a difference between job order costing and process costing systems?
    1. Companies that use a process costing system accumulate product costs throughout the production process, while companies that use a job order costing system accumulate product cost only at the end of the production process.
    2. Companies that use a process costing system accumulate product costs in each production department and allocate the costs evenly across all units produced in the department during the period, while companies that use job order costing accumulate product costs by job and allocate those costs only to the units in that job.
    3. Companies that use a process costing system accumulate direct material and direct labor, and omit manufacturing overhead, while companies that use a job order costing system accumulate direct material, direct labor, and manufacturing overhead.
    4. A process costing system is appropriate for a company that manufactures custom solar panels, while a job order costing system is appropriate for a company that manufactures a line of solar panels.
19. Which of the following is a difference between job order costing and process costing systems?
    1. Companies that use a process costing system accumulate product costs throughout the production process, while companies that use a job order costing system accumulate product costs only at the end of the production process.
    2. Companies that use a process costing system accumulate direct material and direct labor, and omit manufacturing overhead, while companies that use a job order costing system accumulate direct material, direct labor, and manufacturing overhead.
    3. Companies that use a process costing system accumulate product costs on a departmental production report, while companies that use a job order costing system accumulate product costs on the job cost sheet.
    4. A process costing system is appropriate for a winery, while a job order costing system is appropriate for a brewery.
20. When a department has work in process at the end of the period, the incomplete units must be converted to
    1. actual units.
    2. equivalent units.
    3. transferred-in units.
    4. physical units.
21. When a department has work in process at the end of the period, the percentage of completion for the work must be determined. Based on that percentage, what is calculated?
    1. Actual units of production
    2. Completed units of production
    3. Equivalent units of production
    4. Physical-units of production
22. At the end of January, Monroe Industries had completed 65,000 units and left 8,000 units in Work in Process, 60% complete with respect to materials and 80% complete with respect to conversion. How many equivalent units will be used to determine the cost per equivalent unit for materials?
    1. 66,600
    2. 68,200
    3. 69,800
    4. 71,400
23. At the end of January, Monroe Industries had completed 65,000 units and left 8,000 units in Work in Process, 60% complete with respect to materials and 80% complete with respect to conversion. Conversion costs will be assigned to how many equivalent units in the ending Work in Process Inventory?
    1. 1,600
    2. 6,400
    3. 4,800
    4. 8,000
24. The mixing department of the Glasson Company started the month with 20,000 units in its beginning Work in Process Inventory. An additional 309,000 units were transferred into the mixing department during the month. At the end of the month 29,000 units were in ending Work in Process Inventory in the mixing department. How many units were transferred out of the mixing department during the period?
    1. 280,000
    2. 300,000
    3. 318,000
    4. 329,000

Unit transferred out = 329,000 – 29,000 = 300,000 units

1. On December 31, Berry Company recorded the following information in the Mixing Department’s Work in Process account:

Assume that the unfinished units in ending inventory are 60% complete for both materials and conversion. What is the cost per equivalent unit?

• 1. $5.18
  2. $5.23
  3. $5.45
  4. $5.55

1. On December 31, Berry Company recorded the following information in the Mixing Department’s Work in Process account:

Assume that the unfinished units in ending inventory are 60% complete for both materials and conversion. What is balance in the ending Work in Process on December 31? Round the unit cost to 2 decimals.

• 1. $32,700
  2. $33,300
  3. $51,800
  4. $52,300

(10,000 × 60%) × $5.45 = $32,700

1. On March 31, Morgan Company recorded the following information in the Assembly Department’s Work in Process account:

Assume that the unfinished units in ending inventory are 80% complete for both materials and conversion. What is the total cost assigned to ending Work in Process?

• 1. $9,856
  2. $9,952
  3. $12,880
  4. $14,480

Cost per equivalent = [($229,852 + $60,000) ÷ 93,200 = $3.11;

Assigned to ending Work in Process = $3.11 × (4,000 × 80%) = $9,952

1. Bemis Corporation’s Assembly Department had 2,000 units in beginning inventory that were 70% complete with respect to conversion. An additional 60,000 units were transferred into Assembly during the period. Assembly had 12,000 units remaining in Work in Process at the end of the period. These units were 60% complete with respect to conversion. What were the equivalent units for conversion costs?
   1. 54,800
   2. 57,200
   3. 64,800
   4. 72,000

Equivalent units = (12,000 × 60%) + 50,000 = 57,200 equivalent units

1. Which of the following is not a step in calculating the unit product cost?
   1. Calculate the equivalent units of production.
   2. Allocate the product costs to units.
   3. Divide the total equivalent costs by the total units.
   4. Reconcile the costs of production.
2. Which of the following is not a step in calculating the unit product cost?
   1. Calculate the physical unit flow.
   2. Calculate the equivalent units of production.
   3. Calculate the cost per equivalent unit.
   4. Multiply the physical unit flow by the cost per equivalent unit.
3. When using a process costing system, the formula to reconcile the physical unit flow is
   1. Beginning WIP units + Units started = Units transferred out + Ending WIP units.
   2. Beginning WIP units + Units transferred out = Units started + Ending WIP units.
   3. Units started – Beginning WIP units = Units transferred out + Ending WIP units.
   4. Beginning WIP units + Units transferred out = Units started – Ending inventory.
4. The units of product in the ending Work in Process Inventory must be converted to equivalent units of production separately for the direct materials and conversion costs because
   1. the units may be in different departments at the end of the period.
   2. the units may not be at the same stage of completion.
   3. the conversion cost may have been added at the beginning of the process.
   4. there may be no conversion costs.
5. To determine the equivalent units produced,
   1. multiply the percentage of completion for each cost category by the number of physical units in the ending Work in Process Inventory.
   2. divide the percentage of completion for each cost category by the number of physical units in the ending Work in Process Inventory.
   3. add the cost of production to beginning Work in Process Inventory and divide this total by the physical units transferred out.
   4. multiply the number of physical units in ending Work in Process by the cost per physical unit.
6. When using a process costing system, the formula for reconciling the costs of production is
   1. Beginning WIP balance + Costs transferred out during the period + Ending WIP = Total costs accounted for.
   2. Beginning WIP balance + Cost added during the period = Cost transferred out during the period + Ending WIP balance.
   3. Cost added during the period – Beginning WIP balance = Cost transferred out during the period + Ending WIP balance.
   4. Beginning WIP balance + Cost transferred-out – Ending inventory = Total costs to accounted for.
7. Conversion costs consist of
   1. direct materials and direct labor.
   2. indirect materials and direct materials.
   3. direct labor and manufacturing overhead.
   4. direct materials and manufacturing overhead.

MATCHING

1. Match the following terms to the appropriate statement by placing the letter to the left of each statement.

1. e – Reconciliation of physical unit flow formula
2. c – Equivalent units
3. h – Work in Process
4. a – Brewery
5. f – Reconciliation of costs of production formula
6. b – Conversion costs
7. d – Process costing system
8. g – Shipbuilding

LO: 1,2,3,4, Bloom: K, Unit: TF02-1, TF02-2, TF02-3, TF02-4, Difficulty: Easy, Min: 3-4, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

BRIEF EXERCISES

1. Identify which costing method is more likely to be used to accumulate costs for the following products or services by marking an “X” in the appropriate column.

LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Easy, Min: 2-3, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

1. Identify which costing method is more likely to be used to accumulate costs for the following products or services by marking an “X” in the appropriate column.

LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Easy, Min: 2-3, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

1. Fill in the missing data (ignore indirect materials)

LO: 2, Bloom: AN, Unit: TF02-1, Difficulty: Moderate, Min: 4-5, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

1. In March, Connor, Inc. completed 150,000 units; 12,000 units still in process at the end of the period were 60% complete with respect to materials and conversion.

Required:

• 1. How many equivalent units were in Connor’s ending Work in Process Inventory?
  2. How many equivalent units will be used to calculate the cost per equivalent unit?

1. 12,000 × 60% = 7,200 with respect to materials and conversion
2. 150,000 + 7,200 = 157,200 with respect to materials and conversion

LO: 3, 4, Bloom: AP, Unit: T TF02-3, F02-4, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

EXERCISES

1. Identify which costing method is more likely to be used to accumulate costs for the following products or services by marking an “X” in the appropriate column.

LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Easy, Min: 4-5, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

1. Identify which costing method is described in the statements below by marking an “X” in the appropriate column (some items may apply to both).

LO: 1, 2, 3, Bloom: C, Unit: TF02-1, TF02-2 TF02-3, Difficulty: Easy, Min: 4-5, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

1. Stewart Manufacturing uses a process costing system. Information regarding units processed and processing costs for the Packaging Department for the most recent period are given below:

The beginning Work in Process Inventory had processing costs of $10,000. During the month, an additional $290,000 in processing costs were incurred. Materials and conversion costs are incurred at the same rate.

Required:

• 1. What are the equivalent units for processing costs for the Packaging Department for the month?
  2. What is the cost per equivalent unit for the month? Round to two decimals.

1. Equivalent units:

Units to account for:

Work in Process, beginning 1,200

Started into production 10,000

Total units to be accounted for 11,200

Units accounted for: EU – Materials & Conversion

Transferred out 9,400 9,400

Ending inventory 1,800 630

Total units accounts for 11,200 10,030

1. Cost per equivalent unit

Costs to account for:

Work in Process, beginning $ 10,000

Cost added 290,000

Total cost $300,000

Cost per equivalent: $300,000 ÷ 10,030 = $29.91

LO: 3, 4, Bloom: AP, Unit: TF02-3, TF02-4, Difficulty: Moderate, Min: 4-5, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

1. Morgan Company reported the following data for the operations of its Mixing Department for the month of July.

Required:

1. Calculate the equivalent units of production for materials and conversion costs.
2. Determine the cost per equivalent unit for materials and conversion costs.
3. Determine the cost of units transferred out of the Mixing Department during the period.
4. Determine the cost of ending work in process Inventory in the Mixing Department.

LO: 3, 4, Bloom: AP, Unit: TF02-3, TF02-4, Difficulty: Moderate, Min: 12-15, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

1. List three goods or services likely to use a process costing system and three that are likely to use a job order costing system.

Answers will vary. Examples of goods or services that are likely to use a process costing system include textiles, refining, foods, paint, bricks or tiles. Example of goods or services that are likely to use job order costing includes airplanes, furniture, designer dresses, CPA firms, law firms, hospital procedures.

LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Easy, Min: 3-4, AACSB: Communication, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

1. List three similarities between process costing and job-order costing.
2. The objective of both is to accumulate and assign manufacturing cost to products.
3. Manufacturing costs for both consist of direct materials, direct labor, and manufacturing overhead.
4. The cost flows are the same: from Raw Materials Inventory to Work in Process to Finished Goods to Cost of Goods Sold.

LO: 1, 2, Bloom: C, Unit: TF02-1, TF02-2, Difficulty: Easy, Min: 3-4, AACSB: Communication, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

ESSAY

1. When using a process costing system, explain the steps you use in assigning costs to units completed and transferred out of a department and to ending Work in Process.

Calculate the physical unit flow by adding the number of units started into production during the period to the number of units in beginning inventory, and then deduct the units transferred out to calculate ending work in process units.

Calculate the equivalent units of production separately for materials and conversion. To determine the number of equivalent units produced, multiply the percentage of completion for each cost category by the number of physical units in the ending Work in Process inventory. Add these results to the number of units transferred out of the department to obtain the total equivalent units of production for the period.

Calculate the cost per equivalent unit by adding the cost of direct materials incurred during the period to the direct material cost in beginning Work in Process. Divide this total by the equivalent units for direct materials. Next do the same calculation for conversion.

Allocate the equivalent unit costs of production by multiplying the number of equivalent units in the ending Work in Process inventory by the cost per equivalent unit to determine the amount of ending Work in Process. Then multiply the number of units transferred out by the cost per equivalent unit to determine the total cost transferred out of the department. Separate calculations should be done for materials and conversion costs.

Reconcile the costs of production using the following equation:

Beginning WIP balance + Costs added during the period = Costs transferred out during the period + Ending WIP balance

Repeat the above steps for each department.

LO: 3, 4, Bloom: AP, Unit: TF02-3, TF02-4, Difficulty: Moderate, Min: 15-20, AACSB: Analytic, Communication, AICPA FN: Measurement, AICPA PC: Communication, IMA: Reporting