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Process Costing Overview for Students

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This document provides a sample multiple choice quiz on process costing concepts. It includes 13 multiple choice questions related to process costing, with explanations and references to fig…

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Abriel Bumatay
  • Chapter 5—Process Costing

Chapter 5—Process Costing

SAMPLE MCQ FOR PROCESS COSTING

THIS IS TO GIVE STUDENTS YET ANOTHER OPPORTUNITY TO PRACTICE


THEIR PROBLEM SOLVING SKILLS IN PREPARATION FOR YOUR TEST.

These MCQ are posted on blackboard to high light and complement


certain aspects of the topic, facilitate those students who may have
missed my lecture, balance traditional with internet based learning and
overall enhance student’s learning. The MCQ are not meant to suggest
what questions may be in the exams, replace textbook studying and or
homework of any kind.
George
MULTIPLE CHOICE

1. The appropriate cost accounting system to use when inventory items are produced on an
assembly line is
a. job-order costing.
b. process costing.
c. weighted average.
d. perpetual method.
ANS: B PTS: 1 DIF: Easy OBJ: 6-1
NAT: AACSB Reflective

2. What system would a manufacturer of unique special orders or batch processes most likely use to
accumulate costs?
a. process costing
b. contract costing
c. variable costing
d. job-order costing
ANS: D PTS: 1 DIF: Moderate OBJ: 6-1
NAT: AACSB Reflective

3. In process costing, costs are accounted for by


a. year.
b. batch.
c. process.
d. job.
ANS: C PTS: 1 DIF: Easy OBJ: 6-1
NAT: AACSB Reflective
4. _______________ accumulates production costs by process and uses a work-in-process
account for each process.
a. Process costing
b. Joint costing
c. Variable costing
d. Job-order costing
ANS: A PTS: 1 DIF: Easy OBJ: 6-1
NAT: AACSB Reflective

5. Which is NOT a difference between the job-order costing system and the process costing system?
a. They accumulate their costs to different cost objectives.
b. The number of work-in-process accounts is different.
c. One does not use the finished goods account.
d. All of these.
ANS: C PTS: 1 DIF: Moderate OBJ: 6-1
NAT: AACSB Reflective
6. When products and their costs are moved from one process to the next process, these costs are
referred to as
a. unit costs.
b. transferred-in costs.
c. WIP inventory costs.
d. equivalent unit costs.
ANS: B PTS: 1 DIF: Easy OBJ: 6-1
NAT: AACSB Reflective

Figure 6-1

Allen Company has the following information for the Assembly Department for October 2011:

Materials purchased $ 40,000


Materials used 44,000
Direct labor 30,000
Actual manufacturing overhead 56,000
Cost of goods completed and transferred to the Finishing Dept. 120,000

Overhead rate is 200 percent of direct labor costs.

Allen Company uses a process costing system for the Assembly Department.

7. Refer to Figure 6-1. The journal entry to record materials purchased would include a
a. debit to Materials Inventory for $40,000.
b. debit to Materials Inventory for $44,000.
c. credit to Accounts Payable for $44,000.
d. both b and c.
ANS: A PTS: 1 DIF: Moderate OBJ: 6-1
NAT: AACSB Analytic

8. Refer to Figure 6-1. What is the total amount of debits to Work in Process-Assembly Department
for October?
a. $120,000
b. $126,000
c. $134,000
d. cannot be determined
ANS: C
SUPPORTING CALCULATIONS:
$44,000 + $30,000 + ($30,000  2) = $134,000

PTS: 1 DIF: Moderate OBJ: 6-1 NAT: AACSB Analytic

9. Refer to Figure 6-1. The journal entry to record goods completed and transferred out of the
Assembly Department would include a
a. debit to Finished Goods Inventory for $120,000.
b. credit to Materials Inventory for $120,000.
c. debit to Work in Process-Assembly Department for $120,000.
d. debit to Work in Process-Finishing Department for $120,000.
ANS: D PTS: 1 DIF: Moderate OBJ: 6-1
NAT: AACSB Analytic
Figure 6-2

Speakeasy Co. manufactures podiums. Production consists of three processes: cutting, assembly,
and finishing. The following costs are given for May:
Cutting Assembly Finishing
direct materials $7,000 $10,000 $3,000
direct labor 3,000 14,000 2,000
applied overhead 4,000 5,000 6,000

There were no work in process inventories and 1,000 podiums were produced.

10. Refer to Figure 6-2. What is the cost transferred out of the assembly department.
a. $14,000
b. $29,000
c. $43,000
d. $54,000
e. none of these
ANS: C
Cutting Assembly Finishing
DM $ 7,000 $10,000 $ 3,000
DL 3,000 14,000 2,000
MOH 4,000 5,000 6,000
Total $14,000 $29,000 $11,000
Transferred-in 0 $14,000 43,000
Transferred-out $14,000 $43,000 $54,000

PTS: 1 DIF: Moderate OBJ: 6-1 NAT: AACSB Analytic

11. Refer to Figure 6-2. Record the journal entries to record the transfer of goods from
process to process.
a. Work in Process - Assembly 14,000
Work in Process - Cutting 14,000
Work in Process - Finishing 43,000
Work in Process - Assembly 43,000
Finished Goods 54,000
Work in Process - Finishing 54,000
b. Work in Process - Assembly 29,000
Work in Process - Cutting 29,000
Work in Process - Finishing 11,000
Work in Process - Assembly 11,000
Finished Goods 54,000
Work in Process - Finishing 54,000
c. Work in Process - Cutting 14,000
Raw Materials 14,000
Work in Process - Assembly 29,000
Raw materials 29,000
Work in Process - Finishing 11,000
Raw Materials 11,000
d. none of these
ANS: A
Cutting Assembly Finishing
DM $ 7,000 $ 10,000 $3,000
DL 3,000 14,000 2,000
MOH 4,000 5,000 6,000
Total $14,000 $29,000 $11,000
Transferred-in 0 14,000 43,000
Transferred-out $14,000 43,000 $54,000

PTS: 1 DIF: Moderate OBJ: 6-1 NAT: AACSB Analytic

12. Refer to Figure 6-2. The journal entry to assign costs to the Assembly process would be
a. Raw Materials 10,000
Payroll 14,000
Overhead Control 5,000
Work in Process - Assembly 29,000
b. Raw Materials 20,000
Payroll 19,000
Overhead Control 15,000
Work in Process - Assembly 54,000
c. Work in Process - Assembly 29,000
Raw Materials 10,000
Payroll 14,000
Overhead Control 5,000
d. Work in Process - Assembly 54,000
Raw Materials 20,000
Payroll 19,000
Overhead Control 15,000
e. none of the above
ANS: C
Cutting Assembly Finishing
DM $ 7,000 $ 10,000 $ 3,000
DL 3,000 14,000 2,000
MOH 4,000 5,000 6,000
Total $14,000 $29,000 $11,000
Transferred-in 0 14,000 43,000
Transferred-out $14,000 $43,000 $54,000

PTS: 1 DIF: Moderate OBJ: 6-1 NAT: AACSB Analytic

13. As production occurs, materials, direct labor, and applied manufacturing overhead are recorded in
a. materials.
b. finished goods.
c. work in process.
d. cost of goods sold.
ANS: C PTS: 1 DIF: Easy OBJ: 6-1
NAT: AACSB Reflective
14. In a process costing system, which of the following would be TRUE?
a. A process costing system is more expensive because it has more work-in-process
accounts.
b. There is no need to track materials to processes.
c. There is no need to use time tickets to assign costs to processes.
d. All of these are true.
ANS: C PTS: 1 DIF: Moderate OBJ: 6-1
NAT: AACSB Reflective

15. Which is NOT a feature of a process costing system?


a. Standardized products pass through standardized processes.
b. Each unit is treated uniquely in receiving a process.
c. Manufacturing costs are accumulated by a process for a given time period.
d. Unit costs are calculated for each department.
ANS: B PTS: 1 DIF: Difficult OBJ: 6-1
NAT: AACSB Reflective

Figure 6-21

Ring Company produces two types of product: Small and Large. Two work orders for two
batches of the products are shown below, along with some additional cost information:

Small Large
Work Order 10 Work Order 11
Direct materials (actual costs) $45,000 $75,000

Applied conversion costs:


Mixing ? ?
Cooking $12,000 $12,000
Bottling $10,000 $15,000

Batch size (bottles) 5,000 5,000

In the Mixing Department, conversion costs are applied on the basis of direct labor hours.
Budgeted conversion costs for the department for the year were $50,000 for labor and
$125,000 for overhead. Budgeted direct labor hours were 2,500. It takes three minutes to
mix the ingredients needed for each bottle.

Small (Work Order 10) and Large (Work Order 11) flow through the Mixing Department
first, then through the Cooking and Bottling departments.

114. Refer to Figure 6-21. What are Ring Company's conversion costs applied to Small (Work
Order 10) from the Mixing Department for each batch?
a. $17,500
b. $35
c. $175,000
d. $35,000
ANS: A
SUPPORTING CALCULATIONS:
Conversion cost rate (Mixing) = ($125,000 + $50,000)/2,500 = $70 per DLH

Applied conversion costs = $70  5,000  3/60 = $17,500

115. Refer to Figure 6-21. What is Ring Company's amount transferred from the Mixing
Department to the Bottling Department for Work Order 10?
a. $45,000
b. $84,500
c. $39,500
d. $62,500
ANS: D
SUPPORTING CALCULATIONS:

Direct materials $45,000


Conversion costs 17,500
$62,500

116. Refer to Figure 6-21. What is Ring Company's amount transferred from the Bottling
Department to Finished Goods for Work Order 10?
a. $45,000
b. $84,500
c. $39,500
d. $67,000
ANS: B
SUPPORTING CALCULATIONS:

Direct materials $45,000


Applied conversion costs:
Mixing 17,500
Cooking 12,000
Bottling 10,000
Total $84,500

117. Refer to Figure 6-21. What is Ring Company's unit cost of Small?
a. $3.50
b. $16.90
c. $23.90
d. $70.00
ANS: B
SUPPORTING CALCULATIONS:

Direct materials $45,000


Applied conversion costs:
Mixing 17,500
Cooking 12,000
Bottling 10,000
Total $84,500
$84,500/5,000 = $16.90

[Link] to Figure 6-21. What is Ring Company's unit cost of Large?


a. $3.50
b. $16.90
c. $23.90
d. $20.40
ANS: C
SUPPORTING CALCULATIONS:

Direct materials $ 75,000


Applied conversion costs:
Mixing 17,500
Cooking 12,000
Bottling 15,000
Total $119,500
$119,500/5,000 = $23.90

119. Refer to Figure 6-21. What is Ring Company's journal entry to record materials used in the
Mixing Department for Work Order 10?
a. Materials 45,000
Work in Process-Mixing 45,000
b. Work in Process-Mixing 17,500
Conversion Costs Control 17,500
c. Conversion Costs Control 17,500
Work in Process-Mixing 17,500
d. Work in Process-Mixing 45,000
Materials 45,000
ANS: D

120. Refer to Figure 6-21. What is Ring Company's journal entry to apply conversion costs in
the Mixing Department for Work Order 10?
a. Materials 45,000
Work in Process-Mixing 45,000
b. Work in Process-Mixing 17,500
Conversion Costs Control 17,500
c. Conversion Costs Control 17,500
Work in Process-Mixing 17,500
d. Work in Process-Mixing 45,000
Materials 45,000
ANS: B
121. Which of the following would NOT be true when there is spoilage?
a. Equivalent units must be calculated for spoiled units.
b. Normal and abnormal spoilage are distinguished.
c. The units to account for are greater than the total units accounted for indicating spoilage.
d. The total units accounted for are greater than the total units to account for indicating
spoilage.
ANS: D

122. Spoilage in a process costing process means


a. fewer units leave the process than enter it.
b. fewer units enter a process than leave it.
c. a process is no longer viable.
d. products are receiving too much attention.
ANS: A PTS: 1 DIF: Moderate OBJ: 6-8
NAT: AACSB Reflective
Figure 6-22
The following information is available for Department A for the month of January:
Units Cost
Work in process, January 1 (70% complete) 10,000
Direct materials $ 36,000
Direct labor 18,000
Manufacturing overhead 24,000
Total work in process, January 1 $ 78,000
Started in production during January 40,000
Costs added:
Direct materials $108,000
Direct labor 48,000
Manufacturing overhead 61,040
Total costs added during January $217,040
Work in process, January 31 (80% complete) 4,000
Units completed and transferred out 42,000
Materials are added at the beginning of the process. Inspection takes place at the 50 percent
point in the conversion process to determine spoiled units. Round unit costs to two decimal
places. The company uses the weighted average cost flow assumption.
123. Refer to Figure 6-22. Department A's equivalent units of production for materials using the
weighted average method is
a. 44,800.
b. 47,200.
c. 50,000.
d. 54,000.
ANS: C
Supporting Calculations
Conversion
Units Completed 42,000
Ending Work in Process 4,000
Spoilage 4,000
Equivalent Units of Production 50,000
124. Refer to Figure 6-22. Department A's cost per unit for materials using the weighted average
method is
a. $2.16.
b. $2.88.
c. $3.43.
d. $3.60.
ANS: B
SUPPORTING CALCULATIONS:

Conversion
Units completed 42,000
Ending work in process 4,000
Spoilage 4,000
Equivalent units of production 50,000

Conversion
Costs to account for:
Beginning work in process $ 36,000
Incurred during period 108,000
Total costs to account for $144,000

Cost per equivalent unit ($144,000/50,000) $2.88

125. Refer to Figure 6-22. Department A's conversion cost per unit using the weighted average
method is
a. $2.18.
b. $2.22.
c. $2.31.
d. $3.20.
ANS: D
SUPPORTING CALCULATIONS:

Conversion
Units completed 42,000
Ending work in process 3,200
Spoilage (4,000 × 0.50) 2,000
Equivalent units of production 47,200

Conversion
Costs to account for:
Beginning work in process $ 42,000
Incurred during period 109,040
Total costs to account for $151,040

Cost per equivalent unit ($151,040/47,200) $3.20


126. Refer to Figure 6-22. Department A's equivalent units of production for conversion using
the weighted average method is
a. 44,800.
b. 47,200.
c. 50,000.
d. 54,000.
ANS: B
SUPPORTING CALCULATIONS:
42,000 + (4,000  0.80) + (4,000  0.50) = 47,200

127. Abnormal spoilage is treated differently from normal spoilage in what way?
a. Normal spoilage is absorbed as part of the product cost but abnormal spoilage costs are
treated separately.
b. Equivalent units are calculated for normal spoilage but not for abnormal spoilage.
c. Equivalent units are calculated for abnormal spoilage but not for normal spoilage.
d. Abnormal spoilage is not assigned costs but normal spoilage is.
ANS: A

Common questions

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The fundamental difference between job-order costing and process costing systems in terms of production output is that job-order costing is used for unique, special orders or batch processes, where each job can have different production requirements and costs . In contrast, process costing is used in assembly line production environments where the output is uniform and costs are accumulated by process, enabling the calculation of equivalent units of production .

Distinguishing between normal and abnormal spoilage in process costing is crucial because it impacts financial reporting and cost measurement. Normal spoilage, being an expected part of production, is absorbed into product costs and affects the valuation of inventory. Conversely, abnormal spoilage indicates inefficiencies; its costs are typically reported as a separate expense, providing transparency in financial statements and highlighting areas that may need management attention and process improvement .

In a process costing system, normal spoilage is treated as part of the production costs and absorbed into the cost of goods, while abnormal spoilage is treated separately and often expensed as a loss . Normal spoilage arises from the inherent characteristics of the production process and is expected, therefore it is included in the cost of goods sold. Abnormal spoilage, however, results from unexpected and avoidable factors and requires separate accounting to highlight inefficiencies in the production process .

In a process costing environment, having multiple work-in-process accounts enables the company to track costs for each specific production department separately. This setup allows for detailed monitoring of costs associated with each stage of production, facilitating accurate cost control and analysis of efficiency within departments. It also allows for accurate calculation of equivalent units for each department, essential for generating precise cost reports and identifying areas for potential improvement .

To determine applied conversion costs in the Mixing Department for a specific work order, the conversion cost rate is first calculated by dividing the total budgeted conversion costs (sum of labor and overhead) by the total budgeted direct labor hours. This rate is then applied to the actual number of hours worked for the work order. For example, with a conversion cost rate of $70 per direct labor hour and labor hours converted by the mixing time required, the applied conversion cost can be calculated as $70 times the equivalent hours worked for the work order .

In a process costing system, conversion costs are applied based on specific allocation bases relevant to each department. For instance, in the Mixing Department, conversion costs may be allocated based on direct labor hours, whereas subsequent departments like Cooking and Bottling may follow different bases such as machine hours or another measure appropriate to their operations. The application involves calculating a conversion cost rate, which is then multiplied by the actual activity level (e.g., labor hours) within a department to apply the costs .

An organization would opt for a job-order costing system instead of a process costing system when it engages in bespoke or customized production, where each job or order is unique and has distinct production requirements. Examples include manufacturers of custom furniture, construction projects, or specialized equipment, where costs need to be accumulated for each specific job rather than for a process or series of identical products .

The use of equivalent units of production in process costing is significant as it allows for the conversion of partially completed units into an equivalent number of fully completed units, facilitating accurate cost allocation across total units produced. This calculation is essential for assigning costs fairly and consistently among goods at various stages of completion, enabling precise cost reports, and ensuring that inventories and cost of goods sold are accurately valued .

Process costing systems ensure uniform allocation of manufacturing costs by accounting for costs at each stage of production and then averaging those costs over all units produced during that period. This involves calculating equivalent units of production for costs like materials, labor, and overheads, providing a per-unit cost derived from total costs divided by total equivalent units. This uniformity ensures that each unit absorbs an equal share of costs, reflecting the standardized nature of the production environment .

To calculate the cost per equivalent unit for materials using the weighted average method, you first sum the total costs related to direct materials, including both the beginning work in process inventory and the costs incurred during the period. This total cost is then divided by the equivalent units of production for materials, which includes both completed and transferred out units as well as the equivalent of ending work in process, reflecting percentage completion .

Chapter 5—Process Costing SAMPLE MCQ FOR PROCESS COSTING THIS IS TO GIVE STUDENTS YET ANOTHER OPPORTUNITY TO PRACTICE THEIR
4. _______________ accumulates production costs by process and uses a work-in-process account for each process. a. Process c
6. When products and their costs are moved from one process to the next process, these costs are referred to as a. unit cost
ANS: D PTS: 1 DIF: Moderate OBJ: 6-1 NAT: AACSB Analytic
Figure 6-2 Speakeasy Co. manufactures podiums. Production consists of three processes: cutting, assembly, and finishing. The
ANS: A Cutting Assembly Finishing DM $ 7,000 $ 10,000 $3,000 DL 3,000 14,000 2,000 MOH 4,000 5,000 6,000
14. In a process costing system, which of the following would be TRUE? a. A process costing system is more expensive because
ANS: A SUPPORTING CALCULATIONS: Conversion cost rate (Mixing) = ($125,000 + $50,000)/2,500 = $70 per DLH Applied conversion c
Total $84,500 $84,500/5,000 = $16.90 118.Refer to Figure 6-21. What is Ring Company's unit cost of Large? a. $3.50 b. $16.90
121. Which of the following would NOT be true when there is spoilage? a. Equivalent units must be calculated for spoiled unit

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