Process Costing

Question 1

Both process and job order cost systems maintain perpetual inventory accounts with subsidiary ledgers.

True/false

Answer 1

True

Question 2

If the products of a manufacturing process are produced to customer specifications, a process cost system is more appropriate than a job order cost system.

True/false

Answer 2

False

Question 3

In a process costing system, each process will have a work in process inventory account.

True/false

Answer 3

True

Question 4

Equivalent units are the sum of direct materials used and direct labor incurred.

True/false

Answer 4

False

Question 5

If 16,000 units of materials enter production during the first year of operations, 12,000 of the units are finished, and 4,000 are 75% completed, the number of equivalent units of production would be 15,000.

True/false

Answer 5

True

Question 6

The cost of production report reports the cost charged to production and the costs allocated to finished goods and work in process.

True/false

Answer 6

True

Question 7

The journal entry to transfer goods in process from Department X to Department Y includes a debit to Work in Process—Department X.

True/false

Answer 7

False

Question 8

Companies that use the weighted average method for process costing have unit costs that include costs from more than one accounting period.

True/false

Answer 8

True

Question 9

If a company uses the weighted average method instead of FIFO, it will still get the same unit costs.

True/false

Answer 9

False

Question 10

The production report of a company using the FIFO cost method likely would show goods transferred from a department in two parts–one part consisting of units from the beginning inventory completed and transferred, and the other part consisting of units that were both started and completed during the month.

True/false

Answer 10

True

Question 11

In computing the cost per equivalent unit on the production report, costs in the beginning work in process inventory are kept separate from current period costs when the FIFO method is used.

True/false

Answer 11

True

Question 12

Under the FIFO method of product costing, equivalent units of production consider units in the beginning inventory as if they were started and completed during the current period.

True/false

Answer 12

False

Question 13

The equivalent units in beginning work in process inventory plus the equivalent units for the work done during the period equals the units transferred out plus the equivalent units in ending work in process inventory.

True/false

Answer 13

True

Question 14

There is no difference in the unit costs computed under the weighted-average and FIFO methods of process costing if there are no beginning work in process inventories.

True/false

Answer 14

True

Question 15

The four steps necessary to complete a cost of production report in a process cost system are

1. allocate costs to units transferred out and partially completed units
2. determine the units to be assigned costs
3. determine the cost per equivalent unit
4. compute equivalent units of production

Answer 15

2, 4, 3, 1

Question 16

Which of the following journal entries would be used to record direct labor costs in a company having two processing departments (Department A and Department B)?
a.Work in Process XXX
Salaries and Wages Payable XXX
b.Salaries and Wages Expense XXX
Salaries and Wages Payable XXX
c.Work in Process-Department A XXX
Work in Process-Department B XXX
Salaries and Wages Payable XXX
d.Salaries and Wages Payable XXX
Work in Process XXX

Answer 16

c.Work in Process-Department A XXX
Work in Process-Department B XXX
Salaries and Wages Payable XXX

Question 17

Which of the following statements about process costing system is incorrect?

a. In a process costing system, each processing department has a work in process account.
b. In a process costing system, equivalent units are separately computed for materials and for conversion costs.
c. In a process costing system, overhead can be under- or overapplied just as in job-order costing.
d. In a process costing system, materials costs are traced to units of products.

Answer 17

d.In a process costing system, materials costs are traced to units of products.

Question 18

Equivalent units for a process costing system using the FIFO method would be equal to:

a. units completed during the period plus equivalent units in the ending work in process inventory.
b. units started and completed during the period plus equivalent units in the ending work in process inventory. c.units completed during the period and transferred out. d.units started and completed during the period plus equivalent units in the ending work in process inventory plus work needed to complete units in the beginning work in process inventory.

Answer 18

d.units started and completed during the period plus equivalent units in the ending work in process inventory plus work needed to complete units in the beginning work in process inventory.

Question 19

Which of the following types of entities would be most likely to use a process costing system?

a. a shipbuilder
b. a furniture manufacturer
c. a law firm
d. a utility producing natural gas

Answer 19

d.a utility producing natural gas

Question 20

Which of the following statements is most accurate?

a. In process costing, estimating the degree of completion of units is usually more accurate for conversion costs than for direct materials.
b. The FIFO method includes the cost of the beginning Work in Process inventory account in calculating cost per equivalent units.
c. The FIFO method computes equivalent units based only on production activity in the current period, ignoring the percentage of completion in beginning Work in Process inventory.
d. The FIFO method of calculating equivalent units of production merges the work and the costs of the beginning inventory with the work and the costs done during the current period. e.It is not possible for there to be a significant difference between the cost of completed units between the weighted average and the FIFO methods.

Answer 20

c.The FIFO method computes equivalent units based only on production activity in the current period, ignoring the percentage of completion in beginning Work in Process inventory.