Test 2

Question 1

Process Costing assumes that all units are ___________.

Answer 1

homogenous, identical
e.g., ice cream, cereal, soda

and follow the same path through the production process

Question 2

For Job Costing, each job is considered _________

Answer 2

unique

accumulate costs on a “per job” basis

Question 3

T/F: In a continuous process industry, individual units are difficult to distinguish

Answer 3

TRUE - the individual units are difficult to distinguish

Question 4

T/F: In a continuous process industry, a reasonable assumption is that all units in a large group cost DIFFERENTLY

Answer 4

FALSE - it is assumed that all units cost the same

i.e., each “batch” has the same cost

Question 5

What are Equivalent Units?

Answer 5

number of COMPLETE PHYSICAL UNITS to which units in inventories are EQUAL in terms of work done to date

i.e., how “complete” are the units in WIP inventory

Question 6

What is the formula fo the Basic Cost Flow Model?

Answer 6

BB + TI = TO + EB

Question 7

What is the 5-Step Process in assigning costs to production?

Answer 7

1. Determine “physical flow”
2. Calculate equivalent units of production (EUPs) (Mat., Conv.,)
3. Identify the product costs to account for materials and conversion costs
4. Calculate unit costs
5. Allocate costs incurred to inventories (F/G Inv., WIP Inv.)

Question 8

What does the Weighted-Average Process Costing Method do?

Answer 8

combines costs and equivalent units of a period with the costs and equivalent units from the beginning inventory of the last period

These are then averaged

Question 9

What does the FIFO Process Costing Method do?

Answer 9

the first goods received are the first units CHARGED OUT when sold or transferred

SEPARATES the costs of current work and the work in beginning WIP (assuming that all beg. WIP units are transferred out first)

Question 10

Why are Equivalent Units under FIFO Method less than or equal to those under the Weighted-Average Method?

Answer 10

FIFO computations refer to the current period’s production ONLY

Weighted-Average considers ALL units in the department, whether produced in this period or previous period

Question 11

If the department has NO beginning inventory, then the Weighted-Average and FIFO equivalent units are _________.

Answer 11

Equal

Question 12

When costs are RISING, which TO $ are greater?

Answer 12

Weighted-Average

Question 13

When costs are DECREASING, which TO $ are greater?

Answer 13

FIFO

Question 14

What is a cost of the Weighted-Average Process Costing Method?

Answer 14

It is impossible to know how much it cost to make a product of this period as it combines the work and costs for the TWO PERIODS (Previous and Current) into a SINGLE COST

Question 15

T/F: Under FIFO, the two periods (current and previous) are kept separate

Answer 15

TRUE

Question 16

What is a benefit of the FIFO method?

Answer 16

gives managers better information about the work done in the current period

Question 17

T/F: Under Weighted-Average, it is possible for units in Beg. WIP to be in End. WIP

Answer 17

TRUE

Question 18

What are the uses of Product Costing Systems?

Answer 18

-used to develop inventory balances
-used to compute COGS
-used to make internal product decisions

Question 19

What are the 3 types of predetermined allocation rates?

Answer 19

1. Machine Hours
2. Direct Labor Hours
3. Direct Labor Dollars ($)

Question 20

The predetermined OH rate is applied as if OH costs were _________ with respect to the allocation base.

Answer 20

Variable

Question 21

What are faults in the Traditional Product Costing System?

Answer 21

some OH could be fixed and some OH could vary with DIFFERENT COST DRIVERS

allocates less MOH costs to low-volume products, and more MOH costs to high-volume products than ABC

Question 22

Under Plant-wide Allocation Method, how many cost pools are there, and rates?

Answer 22

ONE cost pool for entire plant (single-stage approach)

ONE overhead allocation rate

Question 23

Under Department Allocation Method, how many cost pools are there, and rates?

Answer 23

SEPARATE cost pools for EACH DEPARTMENT (two-stage process)

Each department has its OWN allocation rate or set of rates

Question 24

Under ABC costing, what makes this method different than Plant-wide and Department?

Answer 24

Two-stage product costing method

First assigns costs to ACTIVITIES and then allocates them to PRODUCTS based on each product’s consumption of activities

“products consume activities, activities consume resources”

Question 25

What is the benefit of ABC costing?

Answer 25

provides more DETAILED MEASURES of costs than plant-wide or department allocation

Question 26

What is a drawback of ABC costing?

Answer 26

requires more recordkeeping due to more cost pools (and associated cost drivers)

“cost/benefit tradeoff”

Question 27

ABC costing recognizes that OH costs are caused by activities and that activities MAY NOT be caused solely by volume.

What are other activities that could affect OH costs?

Answer 27

-Volume-related
-Batch-related
-Product-related
-Facility-related

Question 28

T/F: Installing ABC costing does not require teamwork between other departments, like accounting, production, marketing, management, etc.

Answer 28

FALSE - teamwork is required!

Question 29

What are the 3 problems with identifying users of ABC?

Answer 29

1. ABC means different things to different observers
2. ABC can be applied in parts to an organization, but not everywhere
3. While firms may publically announce the adoption of ABC, they are less likely to announce its discontinuance

Question 30

In FIFO Costing Method, how are EUPs calculated?

*HELPFUL FOR PROBLEM I and II!!

Answer 30

% Units to COMPLETE in Beg. WIP
+ Units started and completed TO
+% Units completed in End. WIP

*Same as Weighted-Average, but the addition of % Units to COMPLETE in Beginning. WIP

Question 31

In Weighted-Average Costing Method, how are EUPs calculated?

*HELPFUL FOR PROBLEM I and II!!

Answer 31

Units started and completed TO
+ % Units completed in End. WIP

Question 32

In Weighted-Average Costing Method, how are Costs Per EUP calculated?

Answer 32

Beg. WIP $
+ Current Costs $
/ EUPS

*NOTICE: Beg. WIP is here for wgt-avg, but is included in EUP calculation for FIFO

Question 33

In FIFO Costing Method, how are Costs Per EUP calculated?

Answer 33

Current Costs / EUPS

*NOTICE: Beg. WIP is not included here because it was included in the EUP calculation….for wgt.-avg it is here