Chapter 20: Process Cost Accounting

Question 1

What is process operations?

Answer 1

Also called process manufacturing or process production, is the mass production of products in a continuous flow of steps. Meaning products pass through a series of sequential processes.

Question 2

What is the first step in process manufacturing?

Answer 2

To decide when to produce a product.

Question 3

Who determines the types and quantities of materials and labor needed?

Answer 3

Management, they schedule the work and forecast the demand expected for their products.

Question 4

How are process and job order operations similar?

Answer 4

They combine materials, labor and OH in process of producing products. Regardless of the measurement focus, we are ultimately interest in determining the cost per unit of product (or service) resulting from either service.

Question 5

How are process and job operations different?

Answer 5

In how they are organized and managed. It’s on the individual process in a process costing system.

Question 6

How does a job order system measure cost per unit upon completion of a job?

Answer 6

By dividing the total cost for that job by the number of units in that job.

Question 7

How does a process costing system measure unit costs at the end of a period?

Answer 7

By dividing the total costs for that process by the number of units passing through that process to determine the cost per equivalent unit.

Question 8

Like job order operations, process cost accounting uses what concepts?

Answer 8

Of direct and indirect costs.

Question 9

If a cost can be traced to the cost object?

Answer 9

It is direct. Materials and labor that can be traced to specific processes are assigned to those processes as direct costs.

Question 10

If a cost can’t be traced to the cost object?

Answer 10

It is indirect. Materials and labor that cannot be traced to a specific process are indirect costs and are assigned to overhead.

Question 11

Summary entry for receipts of raw materials?

Answer 11

Raw Materials Inventory - $11,095

Accounts Payable $11,095

Question 12

The entry to record the use of direct materials by GenX’s production department in April.

Answer 12

Goods In Process Inventory $9,900

Raw Materials Inventory $9,900

Question 13

The entry records the cost of indirect materials. They are not clearly linked with any specific production process or department but are used to support overall production activity.

Answer 13

Factory overhead $1,195

Raw Materials Inventory $1,195

Question 14

How to record factory payroll?

Answer 14

Factory Payroll $8,920

Cash $8,920

Question 15

The following entry transfers direct labor costs from the Factory payroll account to the goods in process inventory account.

Answer 15

Goods in Process Inventory $5,700

Factory Payroll $5,700

Question 16

The following entry charges these indirect labor costs (order materials, deliver them to the factory floor, repair equipment, operate and program computers in production) to factory overhead.

Answer 16

Factory overhead $3,220

Factory Payroll $3,220

Question 17

The following entry records overhead costs.

Answer 17

Factory overhead $2,425
Prepaid Insurance $180
Utilities Payable $645
Cash $750
AD- Factory Equipment $850

Question 18

How do you calculate overhead applied?

Answer 18

Direct labor x Predetermined rate

Question 19

How do you record applied overhead?

Answer 19

Goods in Process Inventory $6,840

Factory overhead $6,840

Question 20

If a process has a beginning or ending inventory of partially processed units (or both)?

Answer 20

Then the total cost assgned to the process must be allocated to all completed and incomplete units worked on during the period.

Question 21

What is equivalent units of production (or EUP)?

Answer 21

Denominator must measure the entire production activity of the process for the period. It refers to the number of units that could have been started and completed given the cost incurred during a period. This measure is then used to compute the cost per equivalent unit and assign costs to finished goods and goods in process inventory.

Question 22

Example of job order?

Answer 22

Wedding invitations, customized home and tax returns.

Question 23

Example of process?

Answer 23

Soft Drinks, chocolate chip cookies and oil changes.

Question 24

The entry to record the use of direct materials in process cost accounting?

Answer 24

Increase in one asset and a decrease in another asset.

Question 25

How to record factory utilities?

Answer 25

Factory overhead

Utilities Payable

Question 26

At the end of the account period, the overapplied or underapplied balance in Factory overhead is closed to?

Answer 26

COGS

Question 27

To record the insurance on factory equipment?

Answer 27

Factory overhead

Prepaid insurance

Question 28

A company completes 21,000 units and has ending goods in process inventory of 3,000 units which are estimated to be 40% complete. Total production costs are $666,000. The cost of ending goods in process inventory is?

Answer 28

$36,000.

Question 29

The cost of units transferred from Goods in Process Inventory to Finished Goods Inventory is called?

Answer 29

Cost of Goods Manufactured.

Question 30

The process cos summary is prepared for the following reasons?

Answer 30

Help department managers control and monitor their departments

Help factory managers evaluate department mangers’ performance

Provide cost information for financial statements.

Question 31

Transferred out 450 units and had ending goods in process inventory of 60 units. The ending inventory is 20% complete for materials and 60% complete for labor and overhead. The equivalent units of production for labor and overhead is ?

Answer 31

486 units.

450 x 100% + 60 x 60%

Question 32

List the four steps involving analysis when accounting for a department’s activity?

Answer 32

Physical flow, equivalent units, cost per equivalent unit and cost assignment and reconciliation.

Question 33

What is process design?

Answer 33

Reorganize production processes to improve. efficiency

Question 34

What is just-in-time production?

Answer 34

Raw materials inventory and finished goods inventory accounts are not needed.

Question 35

What is automation?

Answer 35

Combines labor with overhead, so the focus is on conversion costs per equivalent units.