Chapter 4: Process Cost Accounting

Question 1

Who typically uses process cost systems?

Answer 1

Companies mass-producing similar products continuously, like Refresco, Apotex, Saputo, and Agropur.

Question 2

What is the main similarity between job-order and process cost systems?

Answer 2

Both track three manufacturing cost components: direct materials, direct labour, and manufacturing overhead.

Question 3

How does the flow of costs differ between job-order and process cost systems?

Answer 3

In job-order, costs are assigned to individual jobs, while in process costing, they’re tracked through connected processes or departments.

Question 4

What is a significant difference in work in process inventory accounts between the two systems?

Answer 4

Job-order uses one, process costing uses multiple.

Question 5

How do unit cost calculations differ between job-order and process cost systems?

Answer 5

Job-order divides total cost per job by units produced; process costing divides total costs by equivalent units of production.

Question 6

What is operations costing?

Answer 6

Operations costing is a hybrid cost system combining aspects of both process costing and job-order costing systems.

Question 7

How is operations costing similar to process costing?

Answer 7

Operations costing is similar to process costing as both use standardized methods to manufacture a product.

Question 8

Why might a company like Ford Motor Company of Canada use operations costing?

Answer 8

Operations costing allows for the use of the same assembly line for different materials and products, which is beneficial for manufacturing various vehicles.

Question 9

What key decision tool is mentioned for costing systems?

Answer 9

Cost-benefit analysis is a decision tool that helps managers decide which costing system to use.

Question 10

What is a major drawback of implementing a job-order cost system?

Answer 10

The major drawback is the high cost of accounting for each job individually.

Question 11

When should job-order costing be used according to the action plan?

Answer 11

Job-order costing should be used when unit costs are high, volume is low, and products are unique.

Question 12

When is process costing appropriate to use?

Answer 12

Process costing is appropriate when there is a large volume of relatively homogeneous products.

Question 13

What are the three types of manufacturing costs assigned in a process cost system?

Answer 13

The three types of manufacturing costs are raw materials, factory labor, and manufacturing overhead.

Question 14

How does the flow of costs in a process cost system work?

Answer 14

Costs are assigned to Work in Process Inventory for each department, then transferred to Finished Goods Inventory, and finally to Cost of Goods Sold upon sale.

Question 15

How does the assignment of manufacturing costs in a process cost system differ from a job-order cost system?

Answer 15

In a process cost system, costs are assigned to processes rather than to specific jobs, and fewer requisitions are generally used because materials are used for processes rather than for specific jobs.

Question 16

When are materials added in a process cost system?

Answer 16

Materials are usually added at the beginning of the process, but subsequent processes might add more materials at various points.

Question 17

What is the major driver of overhead costs in continuous manufacturing operations?

Answer 17

Machine time used is a major driver of overhead costs in continuous manufacturing operations, not direct labor.

Question 18

How are labor costs assigned in a process cost system?

Answer 18

Labor costs are assigned based on time tickets from payroll summaries or department’s payroll, and are allocated to the Work in Process Inventory of the respective departments.

Question 19

What is the entry to record the transfer of completed units to finished goods?

Answer 19

The entry debits Finished Goods Inventory and credits Work in Process Inventory—Assembly for the cost of the completed units.

Question 20

What is the journal entry for recording the cost of goods sold upon sale of finished goods?

Answer 20

The journal entry debits Cost of Goods Sold and credits Finished Goods Inventory for the recorded cost of the units sold.

Question 21

What is the purpose of calculating equivalent units of production in a process cost system?

Answer 21

The purpose is to calculate the cost of partially completed goods by converting them into the amount of completed goods they represent.

Question 22

How do you calculate the cost per full-time equivalent student?

Answer 22

The cost per full-time equivalent student is calculated by dividing the total cost of instruction by the number of full-time equivalent students.

Question 23

What is the weighted-average method in the context of equivalent units of production?

Answer 23

The weighted-average method calculates equivalent units of production by considering the degree of completion of units completed and transferred out and the ending work in process inventory.

Question 24

What does the equivalent unit of production formula account for?

Answer 24

The formula accounts for both the units completed and transferred out, and the work in process inventory at the end of a period.

Question 25

When are two equivalent unit calculations necessary?

Answer 25

When there are different completion percentages for direct materials and conversion costs at the beginning and end of a period, two separate calculations are necessary.

Question 26

How does IFRS require inventory costs to be calculated?

Answer 26

IFRS requires inventory costs to include purchase costs and costs of conversion, and allows for the use of the FIFO or weighted-average cost formulas.

Question 27

What is the purpose of a production cost report?

Answer 27

A production cost report is used to show the production quantity and cost data for a department, which helps management understand the activities within that department.

Question 28

What are the four necessary steps to prepare a production cost report?

Answer 28

The four steps are
(1) calculate the physical unit flow,
(2) calculate the equivalent units of production,
(3) calculate the unit production costs, and (4) prepare a cost reconciliation schedule.

Question 29

How are physical units accounted for in a production cost report?

Answer 29

Physical units are accounted for by adding the units started into production to the work in process at the beginning of the period, and then adding the units completed and transferred out plus any units in process at the end of the period.

Question 30

Why are equivalent units of production calculated?

Answer 30

Equivalent units of production are calculated to measure a department’s output in terms of fully completed units, considering the degree of completion for materials and conversion costs.

Question 31

How are unit production costs determined in a process cost system?

Answer 31

Unit production costs are determined by dividing the total costs for direct materials and conversion by the equivalent units of production for each.

Question 32

What does the cost reconciliation schedule in a production cost report indicate?

Answer 32

The cost reconciliation schedule indicates the assignment of the total costs to the units completed and transferred out and to the ending work in process inventory.

Question 33

How is the total manufacturing cost per unit calculated?

Answer 33

The total manufacturing cost per unit is calculated by adding the direct materials cost per unit to the unit conversion cost.

Question 34

What is a production cost report?

Answer 34

A production cost report is an internal document for management that shows the production quantity and cost data for a production department.

Question 35

What are the four necessary steps to prepare a production cost report?

Answer 35

The four steps are:
1) Calculate the physical unit flow,
2) Calculate the equivalent units of production,
3) Calculate the unit production costs,
4) Prepare a cost reconciliation schedule.