Deck 16: Process Costing

Question 1

The FIFO method of process costing has slightly different objectives from the weighted-average method of process costing.

Answer 1

False

Question 2

A process cost summary for a production department accounts for all costs assigned to that department during the period plus costs that were in the department's Goods in Process Inventory account at the beginning of the period.

Answer 2

True

Question 3

The FIFO method of process costing computes equivalent units of production in a slightly different manner than the computation used in the weighted-average method of process costing.

Answer 3

True

Question 4

To determine unit cost under a process cost accounting system,equivalent units produced must be calculated if the company has goods in process inventories.

Question 5

The last step in the four-step accounting procedure for process costing is the calculation of equivalent units of production.

Question 6

Equivalent units of production need to be determined only if a processing department adds materials and labor to its products at different rates.

Question 7

"Equivalent units of production" is an engineering term used to describe the process by which one company attempts to manufacture units of a product that are equivalent to the product manufactured by a competitor.

Question 8

Equivalent units of production are always the same as the total number of physical units finished during the period.

Question 9

Process manufacturing usually reflects a manufacturer that produces large quantities of identical products.

Question 10

A process cost summary is an accounting report that describes the costs charged to a department,the equivalent units of production by the department,and how the costs were assigned to the output.

Question 11

A production department is an organizational unit of a factory that has the responsibility for at least partially manufacturing or producing a product or service.

Question 12

The process cost summary is an important managerial accounting report produced by a process cost accounting system.

Question 13

The process cost summary presents calculations of the cost of units completed during the reporting period but does not present any information about the ending goods in process inventory.

Question 14

In a process manufacturing system,products pass through a series of sequential processes.

Question 15

A process cost summary includes the amounts of equivalent finished units of production for the period.

Question 16

A process cost summary shows the cost of a particular job manufactured in the reporting period.

Question 17

The managers of process manufacturing systems focus on the series of processes needed to complete the production of products.

Question 18

Equivalent units of production refer to the number of units that would be completed if all effort during a period had been applied only to those units that were started and completed in a period.

Question 19

In a process cost accounting system,a department's production should be measured in terms of equivalent units when its beginning or ending inventory includes goods in process.

Question 20

The FIFO method of process costing assigns costs to units assuming a first-in,first-out flow of product.

Question 21

In process cost accounting,the classification of materials as direct or indirect depends on whether they are clearly linked with a specific process.

Question 22

The use of process costing is of little benefit to a service type of operation.

Question 23

Process cost accounting systems consider overhead costs to include those costs that cannot be readily identified with any specific process.

Question 24

A unique feature of process costing systems is the use of a single Goods in Process Inventory control account.

Question 25

Process and job order manufacturing operations both combine materials,labor,and overhead items in the process of producing products.

Question 26

Hybrid systems contain aspects of both process and job order operations.

Question 27

The weighted-average method of process costing computes the cost per equivalent unit based solely on the current period's EUPs and costs.

Question 28

In process cost accounting,all labor that is applied exclusively in a single production department is considered to be direct labor.

Question 29

Process cost accounting systems consider direct costs to include those costs that can be readily identified with a particular process.

Question 30

Direct costs in process cost accounting include only those costs that can be readily identified with particular product units.

Question 31

Accountants use the term "process cost accounting system" because these systems use a number of trained individuals and computers to process the collected cost information.

Question 32

Companies that use a series of manufacturing processes to produce standardized products should use a process cost accounting system.

Question 33

Process cost accounting systems are commonly used by companies that manufacture standardized products by passing them through a series of manufacturing steps.

Question 34

When defining direct costs and indirect costs in process costing,the process is the cost object.

Question 35

Process cost accounting systems are used only by companies that manufacture physical products; companies and other organizations that provide services to their customers do not use process cost accounting.

Question 36

Process costing is applied to operations with repetitive production and heterogeneous products.

Question 37

A company that uses a process cost accounting system maintains separate Goods in Process Inventory accounts for each of its manufacturing departments.

Question 38

Process cost accounting systems are commonly used by companies that produce a large volume of standardized units on a continuous basis.

Question 39

In process cost accounting,materials are always classified as indirect if they are not physically incorporated into the final product.

Question 40

A manufacturing company may choose to use either a job order cost accounting system or a process cost accounting system,without considering the manner in which it produces its products.

Question 41

In a process costing system,factory labor costs incurred in a reporting period are presented on the income statement as Factory Labor Expense.

Question 42

If Department T uses $89,000 of direct labor and Department V uses $11,000 of direct labor,the following journal entry would be recorded by the process cost accounting system:
$\begin{array}{llr} \text { Goods in Process Inventory, Department T} &89,000\\ \text {Goods in Process Inventory, Department V } &11,000\\ \text { Factory Overhead} &&100,000\end{array}$

Question 43

When a process cost accounting system records the purchase of raw materials,the Raw Materials Inventory account is debited.

Question 44

If Department J uses $40,000 of direct materials and Department K uses $70,000 of direct materials,the following journal entry would be recorded by the process cost accounting system:
$\begin{array}{llr} \text { Raw Materials Inventory } &70,000\\ \text { Goods in Process Inventory, Department J } &40,000\\ \text { Goods in Process Inventory, Department K } &30,000\end{array}$

Question 45

When a process cost accounting system assigns the cost of materials to a production department,the journal entry debits the Raw Materials Inventory account and credits the Goods in Process Inventory account for that department.

Question 46

If Department A uses $10,000 of direct materials and Department B uses $15,000 of direct materials,the following journal entry would be recorded by the process cost accounting system:
$\begin{array}{llr} \text { Goods in Process Inventory, Department A } &10,000\\ \text { Goods in Process Inventory, Department B } &15,000\\ \text { Raw Materials Inventory } &25,000\end{array}$

Question 47

In some circumstances,a process cost accounting system can classify wages paid to maintenance workers as direct labor costs instead of factory overhead.

Question 48

After all process cost accounting journal entries are recorded and posted for a reporting period,the Factory Payroll account should have a zero balance.

Question 49

If Department Q uses $60,000 of direct materials and Department T uses $15,000 of direct materials,the following journal entry would be recorded by the process cost accounting system:
$\begin{array} { l l } \text { Goods in Process Inventory, Department Q } & 60,000 \\ \text { Goods in Process Inventory, Department } T & 15,000 \\\text {Finished Goods Inventory}&75,000\end{array}$

Question 50

If Department G uses $53,000 of direct labor and Department H uses $21,000 of direct labor,the following journal entry would be recorded by the process cost accounting system:
$\begin{array}{llr} \text {Goods in Process Inventory, Department G } &53,000\\ \text { Goods in Process Inventory, Department H } &21,000\\ \text { Factory Payroll} &&74,000\end{array}$

Question 51

If the factory labor cost for a month was $123,000 (paid in cash),the following journal entry would be recorded by the process cost accounting system:
$\begin{array}{llr} \text { Factory Payroll } &123,000\\ \text {Cash } &&123,000\\\end{array}$

Question 52

When a process cost accounting system records the purchase of raw materials,the Raw Materials Inventory account is credited.

Question 53

In process cost accounting,direct labor includes only the labor that is applied directly to the products.

Question 54

A materials consumption report is a source document that summarizes the materials used during a reporting period.

Question 55

The following journal entry would be made to record the use of direct materials in the reporting period covered by the information:
$\begin{array}{llr} \text {Goods in Process Inventory, Pickling Dept } &16,000\\ \text { Goods in Process Inventory, Canning Dept } &3,000\\ \text {Raw Materials Inventory } &19,000\end{array}$

Question 56

If Department N incurred direct labor cost of $22,000 and Department O incurred direct labor cost of $43,000,the following journal entry would be recorded by the process cost accounting system:
$\begin{array}{llr} \text {Factory Payroll } &65,000\\ \text { Goods in Process Inventory, Department N } &&22,000\\ \text { Goods in Process Inventory, Department O } &&43,000\end{array}$

Question 57

Factory overhead costs can be allocated by a process cost accounting system to the output of production departments by using a predetermined overhead allocation rate.

Question 58

If the indirect materials cost for a reporting period was $37,500,the following journal entry would be recorded by the process cost accounting system:
$\begin{array}{llr} \text { Factory Overhead } &37,500\\ \text { Raw Materials Inventory} &&37,500\\\end{array}$

Question 59

The following journal entry would be made to record the use of direct labor in the reporting period covered by the information:
$\begin{array}{llr} \text {Factory Payroll } &6,100\\ \text {Goods in Process Inventory, Pickling Dept } &&4,000\\ \text { Goods in Process Inventory, Canning Dept } &&2,100\end{array}$

Question 60

Hybrid costing systems can only be applied to agricultural products.

Question 61

Reference: 16_01
Refer to the following table of cost information:
$\begin{array}{llr}&\text { Goods in } & \text { Goods in } & \\&\text { Process- } & \text { Process- } & \text { Finished } \\&\underline{\text { Pickling }} & \underline{\text { Canning }} &\underline{ \text { Goods }}\\ \text { Beginning inventory } &\$25,000&\$7,500&\$10,000\\ \text {Costs incurred: } &\\ \text { Direct materials } &16,000&3,000\\ \text { Direct labor } &4,000&2,100\\ \text {Overhead applied } &6,000&4,200\\ \text { Coststransferred out } &(29,000)&(35,000)\\ \text { Coststransferred in.} &&29,000&35,000\\ \text { Cost of goods sold } &\underline{\quad\quad}&\underline{\quad\quad}&\underline{(39,000)}\\ \text {Ending inventory } & \underline{\$22,000}& \underline{\$10,800}& \underline{\$6,000}\\\end{array}$


-The company uses the same predetermined overhead allocation rate (based on direct labor)for the Pickling and Canning Departments.

Question 62

All costs of the processes in a process costing system ultimately pass through the Cost of Goods Sold account.

Question 63

Reference: 16_02
Refer to the following table of cost information:
$\begin{array}{llr}&\text { Goods in } & \text { Goods in } & \\&\text { Process- } & \text { Process- } & \text { Finished } \\&\underline{\text { Pickling }} & \underline{\text { Canning }} &\underline{ \text { Goods }}\\ \text { Beginning inventory } &\$100,000&\$150,000&\$90,000\\ \text {Costs incurred: } &\\ \text { Direct materials } &40,000&50,000\\ \text { Direct labor } &12,000&70,000\\ \text {Overhead applied } &60,000&105,000\\ \text { Coststransferred out } &(29,000)&(35,000)\\ \text { Coststransferred in.} &&(250,000)&(249,000)\\ \text { Cost of goods sold } &\underline{\quad\quad}&\underline{\quad\quad}&\underline{(525,000)}\\ \text {Ending inventory } & \underline{\$70,000}& \underline{\$130,000}& \underline{\$60,000}\\\end{array}$


-The following journal entry would be made to record the use of direct labor in the reporting period covered by the information:
$\begin{array}{llr} \text { Goods in Process Inventory, Pushing Dept } &120,000\\ \text { Goods in Process Inventory, Shoving Dept } &70,000\\ \text { Factory Payroll } &&190,000\end{array}$

Question 64

One section of the process cost summary describes the equivalent units of production for the department during the reporting period and presents the calculations of the costs per equivalent unit.

Question 65

Reference: 16_02
Refer to the following table of cost information:
$\begin{array}{llr}&\text { Goods in } & \text { Goods in } & \\&\text { Process- } & \text { Process- } & \text { Finished } \\&\underline{\text { Pickling }} & \underline{\text { Canning }} &\underline{ \text { Goods }}\\ \text { Beginning inventory } &\$100,000&\$150,000&\$90,000\\ \text {Costs incurred: } &\\ \text { Direct materials } &40,000&50,000\\ \text { Direct labor } &12,000&70,000\\ \text {Overhead applied } &60,000&105,000\\ \text { Coststransferred out } &(29,000)&(35,000)\\ \text { Coststransferred in.} &&(250,000)&(249,000)\\ \text { Cost of goods sold } &\underline{\quad\quad}&\underline{\quad\quad}&\underline{(525,000)}\\ \text {Ending inventory } & \underline{\$70,000}& \underline{\$130,000}& \underline{\$60,000}\\\end{array}$


-If the predetermined overhead allocation rates were based on direct labor costs,the rates for the Pushing and Shoving Departments were 50% and 150%,respectively.

Question 66

Once equivalent units are calculated for materials,this number will also be used for direct labor and factory overhead.

Question 67

A process cost accounting system records all factory overhead costs directly in the Goods in Process Inventory accounts.

Question 68

If a department that applies process costing starts the reporting period with 50,000 physical units that were 25% complete with respect to direct materials and 40% complete with respect to direct labor,it must add 12,500 equivalent units of direct materials and 20,000 equivalent units of direct labor to complete them.

Question 69

The number of equivalent units of production assigned to ending goods in process inventory should usually be equal to or less than the number of physical units in ending goods in process inventory.

Question 70

If the predetermined overhead allocation rate is 85% of direct labor cost and the Polishing Department's direct labor cost for the reporting period is $20,000,the following entry would be made to record the allocation of overhead to the products processed in this department:
$\begin{array}{llr} \text { Factory Overhead } &17,000\\ \text { Goods in Process Inventory, Painting Dept } &&17,000\\\end{array}$

Question 71

Since the process cost summary describes the activities of a production department for a specified reporting period,it does not present information about any costs incurred in prior periods.

Question 72

If the predetermined overhead allocation rate is 350% of direct labor cost and the Painting Department's direct labor cost for the reporting period is $20,000,the following entry would record the allocation of overhead to the products processed in this department:
$\begin{array}{llr} \text {Goods in Process Inventory, Painting Dept } &70,000\\ \text { Factory Overhead} &&70,000\\\end{array}$

Question 73

In the same time period,it is possible that a production department can produce 1,000 equivalent finished units with respect to direct materials and 1,200 equivalent finished units with respect to direct labor.

Question 74

If a department that applies process costing starts the reporting period with 100,000 physical units that were 20% complete with respect to direct labor,it must add 80,000 equivalent units of labor to complete them.

Question 75

In process costing there is never a balance remaining in Factory Overhead that needs to be closed at period end.

Question 76

In process costing,indirect materials are charged directly to Goods in Process Inventory.

Question 77

Reference: 16_01
Refer to the following table of cost information:
$\begin{array}{llr}&\text { Goods in } & \text { Goods in } & \\&\text { Process- } & \text { Process- } & \text { Finished } \\&\underline{\text { Pickling }} & \underline{\text { Canning }} &\underline{ \text { Goods }}\\ \text { Beginning inventory } &\$25,000&\$7,500&\$10,000\\ \text {Costs incurred: } &\\ \text { Direct materials } &16,000&3,000\\ \text { Direct labor } &4,000&2,100\\ \text {Overhead applied } &6,000&4,200\\ \text { Coststransferred out } &(29,000)&(35,000)\\ \text { Coststransferred in.} &&29,000&35,000\\ \text { Cost of goods sold } &\underline{\quad\quad}&\underline{\quad\quad}&\underline{(39,000)}\\ \text {Ending inventory } & \underline{\$22,000}& \underline{\$10,800}& \underline{\$6,000}\\\end{array}$


-If the allocated overhead equaled the actual overhead,then total manufacturing costs incurred in both departments during the reporting period were $35,300.

Question 78

The Packing Department transferred out completed units with a cost of $74,000.This transfer should be recorded with the following entry:
$\begin{array}{llr} \text { Finished Goods Inventory } &74,000\\ \text { Goods in Process Inventorv Packing Dept } &&74,000\\\end{array}$

Question 79

If a production department has 100 equivalent units of production with respect to direct materials in a given reporting period,the equivalent units of production with respect to direct labor also must be 100.

Question 80

If the predetermined overhead allocation rate is 225% of direct labor cost and the Mixing Department's direct labor cost for the reporting period is $10,000,the following entry would be made to record the allocation of overhead to the products processed in this department:
$\begin{array}{llr} \text { Goods in Process Inventory, Mixing Dept } &225,000\\ \text { Factory Overhead } &&225,000\\\end{array}$