Deck 5: Process Costing and Operation Costing

Question 1

Wages paid to a supervisor in a factory are a part of:

A)
B)
C)
D)

Answer 1

D

Question 2

Under Australian accounting standards, which methods can be used to prepare the departmental production report?

A) Weighted average, first in first out and standard costing
B) Last in first out, first in first out and standard costing
C) Last in first out, standard costing, weighted average
D) First in first out, last in first out, weighted average and standard costing

Answer 2

A

Question 3

Given the following information, use the weighted average method to calculate cost per equivalent unit for the following materials.

A) $0.427
B) $0.4235
C) $0.55
D) $0.327

Answer 3

A

Question 4

Which of the following are components of conversion costs?

A) Direct labour and direct materials
B) Indirect materials and manufacturing overhead
C) Direct labour and manufacturing overhead
D) Direct labour and indirect labour

Question 5

Softcloth Textile Pty Ltd manufactures a variety of fabrics. The Weaving Department had 1000 units in work in process on April 1, which were 20 per cent complete as to conversion costs. During April, 8000 units were completed and transferred. On April 30, 4000 units remained in work in process 50 per cent complete as to conversion costs. Using the FIFO method of process costing, calculate the equivalent units of conversion for the month of April.

A) 9000
B) 9800
C) 10 000
D) 12 000

Question 6

Equivalent unit calculations are necessary to allocate manufacturing costs between:

A) cost of goods manufactured and ending work in process.
B) beginning work in process and units completed.
C) cost of goods manufactured and beginning work in process.
D) cost of goods manufactured and cost of goods sold.

Question 7

Softcloth Textile Pty Ltd manufactures a variety of fabrics. The Weaving Department had 1000 units in work in process on April 1, which were 20 per cent complete as to conversion costs. During April, 8000 units were completed and transferred. On April 30, 4000 units remained in work in process 50 per cent complete as to conversion costs. Using the weighted average method process costing, calculate the equivalent units of conversion for the month of April.

A) 12 000
B) 9000
C) 9800
D) 10 000

Question 8

The major difference between weighted average and FIFO is

A) how completed and transferred units are treated.
B) how ending inventory is treated.
C) how beginning inventory is treated.
D) how current period costs are treated.

Question 9

Which of the following represents a correct sequence in preparing a departmental production report?

A) Analysis of physical flow of units, computation of unit costs, calculation of equivalent units and analysis of total costs
B) Analysis of physical flow of units, calculation of equivalent units, computation of unit costs and analysis of total costs
C) Analysis of total costs, calculation of equivalent units, computation of unit costs and analysis of physical flow of units
D) Analysis of total costs, analysis of physical flow of units, computation of unit costs and calculation of equivalent units

Question 10

Rex Company Ltd had 4000 units in work in process at 1 April. During April, 11 000 units were completed. At 30 April, 5000 units remained in work in process. How many units were started during April?

A) 11 000
B) 5000
C) 12 000
D) 16 000

Question 11

Which of the following represents the production units used to calculate equivalent units under the weighted average method?

A) Work to date on ending work in process + units started and completed.
B) All units completed + work to date on ending work in process.
C) Work to complete beginning work in process + work to date on ending work in process.
D) Work to complete beginning work in process + units completed - work done on ending work in process.

Question 12

A company starts work on 1000 physical units and completes 75 per cent of conversion activity. The costs are $1500 for conversion and $5000 for direct material. What is the cost per equivalent unit for conversion?

A) $1.00 per unit
B) $1.50 per unit
C) $2.50 per unit
D) $2.00 per unit

Question 13

Rebex Chemical Company manufactures Compound 2 in two sequential departments. On June 1, Department 2 had 3000 units, which were 50 per cent complete as to conversion cost. During June, 15 000 units were completed and transferred from Department 1. On June 30, Department 2 had 4000 units, which were 20 per cent complete as to conversion costs. How many units were completed and transferred from Department 2 during the month of June?

A) 11 000
B) 12 500
C) 14 000
D) 15 700

Question 14

Which of the following are needed to calculate ending work in process under process costing?

A)
B)
C)
D)

Question 15

If the FIFO method is used, the cost of beginning work in process should be included in:

A)
B)
C)
D)

Question 16

What is the inventory formula that shows the physical flow of production units during a given month, under the weighted average method?

A) Physical units in beginning work in process + units started - units completed and transferred out = units in ending work in process.
B) Units in beginning work in process + units completed and transferred out + units started = units in ending work in process.
C) Units started + units completed and transferred out + units in ending work in process = units in beginning work in process.
D) Units in beginning work in process - units started + units completed and transferred out = units in ending work in process.

Question 17

Costs are accumulated by a responsibility centre for control purposes when using:

A)
B)
C)
D)

Question 18

A company starts work on 1000 physical units and completes 75 per cent of conversion activity. The costs are $1500 for conversion and $5000 for direct material. What is the cost per equivalent unit for direct material?

A) $10.00 per unit
B) $5.00 per unit
C) $6.00 per unit
D) $6.67 per unit

Question 19

Assuming that there was no beginning work in process inventory and the ending work in process inventory is 50 per cent complete as to conversion costs, the number of equivalent units as to conversion costs would be

A) the same as the units completed.
B) the same as the units placed in process.
C) less than the units completed.
D) less than the units placed in process.

Question 20

The FIFO method is a more accurate method than weighted average because:

A) it does not require the calculation of equivalent units.
B) the costs of current period are not combined with the costs of the prior period.
C) it considers prior period costs during the current period.
D) it must be computerised in order to obtain accurate calculations.

Question 21

South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and conversion activity occurs uniformly throughout the process. The following data pertains to the month of May.


Using the weighted average method of process costing, calculate the equivalent units of direct materials and conversion costs for the month of May.

A) DM 75 000; CC 69 400
B) DM 75 000; CC 60 400
C) DM 60 000; CC 60 400
D) DM 68 000; CC 69 400

Question 22

In both job and process costing, the journal entry to record completed goods is.

A) debit work in process and credit manufacturing overhead.
B) credit finished goods inventory and debit cost of goods sold.
C) debit finished goods inventory and credit work in process.
D) debit work in process inventory and credit finished goods inventory.

Question 23

Which of the following statement/s is/are true?

A) Weighted average costs provide a better basis for cost control than FIFO costs.
B) Weighted average costs provide a better basis for performance evaluation than standard costs.
C) Cost per equivalent unit provides a measure of production efficiency.
D) Weighted average costs provide a better basis for cost control than FIFO costs AND cost per equivalent unit provides a measure of production efficiency.

Question 24

South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the end of the process and conversion activity occurs uniformly throughout the process. The following data pertain to the month of May.
Using the FIFO method of process costing, calculate the equivalent units of direct materials and conversion activity for the month of May.

A) DM 75 000; CC 69 400
B) DM 60 000; CC 60 400
C) DM 68 000; CC 69 400
D) None of the given answers

Question 25

South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the end of the process and conversion activity occurs uniformly throughout the process. The following data pertain to the month of May.
Using the weighted average method of process costing, calculate the equivalent units of direct materials and conversion costs for the month of May.

A) DM 75 000; CC 69 400
B) DM 75 000; CC 60 400
C) DM 60 000; CC 60 400
D) DM 68 000; CC 69 400

Question 26

In both job and process costing, the journal entry to record cost of goods sold is.

A) debit finished goods inventory and credit cost of goods sold.
B) debit finished goods inventory and credit work in process.
C) debit cost of goods sold and credit work in process.
D) debit cost of goods sold and credit finished goods inventory.

Question 27

Inventory valuation in operation costing requires

A) direct materials and conversion costs being traced to processes.
B) direct material and conversion costs being traced to batches.
C) direct materials traced to batches and conversion costs traced to processes.
D) direct materials traced to processes and conversion costs traced to batches.

Question 28

Abnormal spoilage costs assist management to

A) control costs.
B) control quality.
C) hold supervisors responsible.
D) All of the given answers

Question 29

In which of the following ways is normal spoilage accounted for?

A) Expensed in the period in which it occurred
B) Included as part of the unit cost of output
C) Written off to cost of goods sold
D) Included in inventory valuation until year-end and then written off

Question 30

South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and conversion activity occurs uniformly throughout the process. The following data pertain to the month of May.
Using the FIFO method of process costing, calculate the equivalent units of direct materials and conversion activity for the month of May.

A) DM 75 000; CC 69 400
B) DM 75 000; CC 60 400
C) DM 60 000; CC 60 400
D) DM 68 000; CC 69 400

Question 31

Healthy Flavour is a food processing company that makes a product called Health Nut soup in two processes-blending and condensing. The output of the blending department is transferred to the condensing department. All materials are added at the beginning of the blending process, and conversion activity occurs uniformly throughout both processes. The following data pertain to the month of April in the blending department.
Using the FIFO method of process costing, calculate the equivalent units of direct materials for the month of April.

A) 60 000
B) 58 000
C) 55 000
D) 50 000

Question 32

Which of the following firms are more likely to use operational costing techniques?
I) Oil refineries
Ii) Food processors
Iii) Large scale clothing manufacturers
Iv) Tourist operators

A) i and ii
B) ii and iii
C) i and iii
D) ii and iv

Question 33

Healthy Flavour is a food processing company that makes a product called Health Nut soup in two processes-blending and condensing. The output of the blending department is transferred to the condensing department. All materials are added at the beginning of the blending process, and conversion activity occurs uniformly throughout both processes. The following data pertain to the month of April in the blending department.
Using the FIFO method of process costing, calculate the cost per equivalent unit of conversion activity for the month of April.

A) $0.5048
B) $0.4169
C) $0.4381
D) None of the given answers

Question 34

Operation costing is appropriate for products with the following characteristics.
I) Repetitive mass production
Ii) Individual products
Iii) Large batches with repetitive processes
Iv) Some unique features, some common features

A) i and iii
B) i and iv
C) ii and iii
D) iii and iv

Question 35

Which of the following statements about operation costing is true?
I) Conversion costs are accumulated by department.
Ii) Direct material costs are accumulated by batch.
Iii) It is a hybrid product costing system.

A) i, ii and iii
B) ii and iii
C) i and iii
D) i and ii

Question 36

In which of the following ways is abnormal spoilage accounted for?

A) Expensed in the period in which it occurred
B) Included as part of the unit cost of output
C) Written off to cost of goods sold
D) Included in inventory valuation until year-end and then written off

Question 37

Operational costing is appropriate where
I) there are different material inputs.
Ii) there are common material inputs.
Iii) processes are identical.
Iv) different combinations of specific processes apply to different products.

A) i and ii
B) ii and iii
C) ii and iv
D) i and iv

Question 38

The technical term for costs moving between one department and the next in a multidepartment process is

A) transferred costs.
B) transferred out costs.
C) transferred in costs.
D) prior costs.

Question 39

The following data apply to Zilch Ltd in its mixing department for the month of April. All material is introduced at the start of the process and conversion occurs evenly through the process. Spoilage occurred at the midpoint in the process.

Using the weighted average method, what are the equivalent units for conversion?

A) 85 000
B) 75 000
C) 77 000
D) 82 000

Question 40

In both job and process costing, the journal entry to record predetermined overhead is.

A) debit work in process and credit raw materials inventory, salaries payable and manufacturing overhead.
B) debit work in process and credit manufacturing overhead applied.
C) debit manufacturing overhead and credit work in process and raw materials inventory.
D) debit manufacturing overhead and credit work in process inventory.

Question 41

Heara Ltd manufactures metal sheets and uses the weighted average method process costing. On 1 May the Rolling Department had 2000 units work in progress, which were 20 per cent completed as to conversion costs. During May 10 000 units were completed and transferred out. The remaining work in progress on 30 May was 50 per cent complete in terms of conversion rate. If the equivalent unit is 12 000 units, what is the 30 May work in progress?

A) 4000 units
B) 2000 units
C) 8000 units
D) 5000 units

Question 42

The difference in cost per equivalent units between the weighted average method and the FIFO method

A) will be higher if there is no beginning work in process.
B) will be higher if there is no ending work in process.
C) will disappear if there is no beginning work in process.
D) will be lower if there is no ending work in process.

Question 43

South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and conversion activity occurs uniformly throughout the process. The following data pertain to the month of May.
What are the unit costs for the period (rounded to two decimal places) assuming FIFO costing?

A) DM $7.25; CC $15.62
B) DM $5.90; CC $13.55
C) DM $5.90; CC $15.62
D) None of the given answers

Question 44

Assume material is added at the beginning of a process, and the beginning WIP inventory is 30 per cent complete as to conversion costs. Using the weighted average method of costing, the total equivalent units for material for this process during this period is equal to

A) units started this period in this process.
B) units started this period in this process plus 70 per cent of beginning inventory.
C) beginning inventory this period for the process.
D) units started this period in this process plus the beginning inventory.

Question 45

Latta Coffee Ltd has two main processes: roasting and packaging. Roasted coffee beans are transferred to the packaging department before the final product is shipped to customers. The following information for the month of April for the Roasting department is available: total cost of goods completed and transferred from Roasting department to Packaging department is $25 000; ending work in progress in April is $1000; number of equivalent units of conversion is 5000 units.
Which of the following journal entries is appropriate at the end of April?

A) Debit Packaging Department $26 000, Credit Roasting Department $26 000
B) Debit Packaging Department $25 000, Credit Roasting Department $25 000
C) Debit Roasting Department $26 000, Credit Packaging Department $26 000
D) Debit Roasting Department $25 000, Credit Packaging Department $25 000

Question 46

Collins Chemicals produces a compound through two processes. For its second process for a particular period, Collins had an opening WIP inventory of 100 units halfway through the process; 2300 units completed in the period; and a closing WIP inventory of 400 units three-quarters of the way through the process. Materials are added at the beginning of the process and conversion costs are incurred uniformly. Calculate the equivalent units for transferred in costs for the period if the firm used FIFO costing.

A) 2300
B) 2400
C) 2500
D) 2600

Question 47

Assume material is added at the beginning of a process, and the beginning WIP inventory is 30 per cent complete as to conversion costs. Using the FIFO method of costing, the total equivalent units for material for this process during this period is equal to

A) units started this period in this process.
B) units started this period in this process plus 70 per cent of beginning inventory.
C) beginning inventory this period for the process.
D) units started this period in this process plus the beginning inventory.

Question 48

The establishment of predetermined conversion costs for operation costing requires which of the following.
I) Budgeted level of the cost driver
Ii) Budgeted direct labour costs
Iii) Budgeted manufacturing overhead costs

A) i
B) i and ii
C) i, ii and iii
D) i and iii

Question 49

In a process costing system the cost of abnormal spoilage should be:

A) prorated between units transferred out and ending inventory.
B) included in the cost of units transferred out.
C) treated as a loss in the period incurred.
D) ignored.

Question 50

Which of the following inventory valuation method/s is/are less suited to cost control?

A) Weighted average costs
B) First in first out cost
C) Standard costs
D) Weighted average costs AND standard costs

Question 51

South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and conversion activity occurs uniformly throughout the process. The following selected data pertain to the month of May.
What are the unit costs for the period (rounded to two decimal places) assuming weighted average costing?

A) DM $7.38; CC $17.03
B) DM $6; CC $14.78
C) DM $7.38; CC $14.78
D) DM $6; CC $17.03

Question 52

Heara Ltd manufactures metal sheets, and uses the weighted average method process costing. On 1 May the Rolling Department had 3000 units work in progress, which were 50 per cent completed as to conversion costs. During May 8000 units were completed and transferred out. The remaining work in progress on 30 May was 2000 units, at 50 per cent complete in terms of conversion rate. What is the equivalent unit of conversion?

A) 1000 units
B) 2000 units
C) 7500 units
D) 9000 units

Question 53

Eldervale Winery produces premium wine in the Hunter Valley. Jasmine Droll, the vineyard manager who is responsible for overseeing the grape harvest, ignores company guidelines and decides to hire some inexperienced harvest workers. As a result a lot of good grapes are wasted. For the purpose of product costing, the losses associated with this grape wastage should be treated as

A) unethical spoilage.
B) abnormal spoilage.
C) normal spoilage.
D) overhead labour costs.

Question 54

For a firm, which produces its product through two processes, the costs transferred into Process 2 from Process 1 can be described as

A) prior process costs.
B) transferred in costs.
C) prior period costs.
D) prior process costs AND transferred in costs.

Question 55

Process costing systems are suitable for firms that produce
I) homogeneous products.
Ii) heterogeneous products.
Iii) individual products.
Iv) repetitive products.

A) i and iii
B) i and iv
C) ii and iv
D) i and ii

Question 56

For a firm, which produces its product through two processes, the costs in opening work in process for Process 2 are best described as

A) prior process costs.
B) transferred in costs.
C) prior period costs.
D) conversion costs.

Question 57

Collins Chemicals produces a compound through two processes. For its second process for a particular period, Collins had an opening WIP inventory of 100 units halfway through the process; 2300 units completed in the period; and a closing WIP inventory of 400 units three-quarters of the way through the process. Materials are added at the beginning of the process and conversion costs are incurred uniformly. Calculate the equivalent units for transferred in costs for the period if the firm used weighted average costing.

A) 2300
B) 2500
C) 2600
D) 2700

Question 58

Raphael's Refining uses a FIFO process costing system. For a particular period, its opening inventory consisted of 100 items (60 per cent complete as to conversion costs) whose costs were $1600 made up of material $300 and conversion cost $1300. During the month, 1000 items were started and 950 were completed. Ending inventory of WIP was one-third complete. There was no spoilage. Costs placed in process during the month were materials $1785 and conversion costs $13 865. Materials are added at the halfway point. What is the amount of cost that would be allocated to goods completed in the period?

A) $16 513
B) $16 900
C) $16 150
D) $14 913

Question 59

Raphael's Refining uses a weighted average process costing system. For a particular period, its opening inventory consisted of 100 items (60 per cent complete as to conversion costs) whose costs were $1600 made up of material $300 and conversion cost $1300. During the month, 1000 items were started and 950 were completed. Ending inventory of WIP was one-third complete. There was no spoilage. Costs placed in process during the month were materials $1600 and conversion costs $13 700. Materials are added at the halfway point. What is the amount of cost that would be allocated to goods completed in the period?

A) $14 615
B) $16 513
C) $16 900
D) $16 150

Question 60

Heara Ltd manufactures metal sheets, and uses the FIFO process costing. On 1 May the Rolling Department had 3000 units work in progress, which were 50 per cent completed as to conversion costs. During May 8000 units were completed and transferred out. The remaining work in progress on 30 May was 2000 units at 50 per cent complete in terms of conversion rate. What is the equivalent unit of conversion?

A) 2000 units
B) 7500 units
C) 9000 units
D) 10 500 units

Question 61

Management uses predetermined overhead costs when costs and cost drivers are

A) reliable.
B) predictable.
C) unstable.
D) stable.

Question 62

Standard costs are based on estimates of cost of materials, labour and overheads. Standard costs are also known as

A) actual costs.
B) forecasted costs.
C) expected costs.
D) budgeted costs.

Question 63

Banana Shirts produces t-shirts in large batches. Most of its t-shirts are made of regular cotton, although some are made from ethically produced cotton. The manufacturing process is relatively simple; most t-shirts go through similar processes; the main difference is whether the t-shirt requires embroidery or printing. The most appropriate costing system for Banana Shirts is

A) process costing system.
B) job costing system.
C) operation costing systems.
D) both job costing system and operation costing system are appropriate.

Question 64

Owl's Hours produces herbal tea and prides itself in having one of the largest ranges of herbal teas in Australia. It sells more than 50 varieties of tea leaves with a wide range of prices (depending on where the tea leaves are grown). The production processes of its products is simple, but vary depending on whether the tea is sold as loose leaves (which requires packing tea leaves in various sized boxes) or tea bags (which requires additional process in packaging tea in specially designed tea bags). Owl's Hours decides to use an operation costing system. This decision is

A) correct, because the company uses a large variety of tea leaves as direct materials and yet has simple production processes.
B) correct, because the company uses a large variety of tea leaves as direct materials and the different products require different sequences of processes.
C) incorrect, because the different production lines require the tea leaves to be packaged in very distinctive methods.
D) incorrect, because the company has a very homogenous product - it produces and sells only tea.

Question 65

Eldervale Winery produces premium wine in the Hunter Valley. During the bottling process, small amount of spillage is often unavoidable. How should the costs associated with the spillage be treated?

A) It should be included in the work in progress.
B) It should be expensed in the period the cost is incurred.
C) It should be ignored in the work in progress account and reported only in the internal production reports.
D) It should be expensed immediately under the FIFO method, but included in the work in progress in the weighted average method.

Question 66

To calculate equivalent units, multiply the partially completed physical units in the process by the percentage of completion.

Question 67

For a manufacturer that produces large batches of automotive parts, which type of costing system would you recommend? Justify your answer.

Question 68

In process costing, equivalent units are the same under both the weighted average method and the FIFO method.

Question 69

When accounting for the costs of abnormal spoilage at the end of the period, the costs of abnormal spoilage are

A) included as part of the cost of unit completed.
B) expensed as loss on abnormal spoilage in the current period.
C) included in the cost of finished goods.
D) expensed as closing work in process in the current period.

Question 70

Discuss why management would elect to use predetermined overhead and conversion costs.

Question 71

Which of the following product features would best suit a hybrid costing system?

A) Identical and unique features
B) Identical and very similar features
C) Some unique and common features
D) Some unique and individual features

Question 72

Abnormal spoilage is identified to assist managers in tracking the costs of wasted resources.

Question 73

Describe the weighted average method used in process costing and explain how the unit costs are calculated.

Question 74

Briefly explain the four steps in process costing with work in process inventories.

Question 75

Explain the term 'normal spoilage' and why management is unable to eliminate this production cost.

Question 76

A standard cost is a budgeted cost per unit.

Question 77

Process costing is only suitable for products that are

A) heterogeneous.
B) homogeneous.
C) harmonious.
D) None of the given answers

Question 78

Which of the following is not required when calculating the equivalent units for conversion?
I Percentage of conversion for ending work in progress
Ii Percentage of conversion for physical units that have been completed and transferred out of the department
Iii) Cost of direct materials

A) i only
B) i and ii
C) i, ii and iii
D) i and iii

Question 79

At Hilltop Dairy Producers Pty Ltd, an employee ignored the standard sterilising procedures before beginning the new batch of low fat milk causing the batch to curdle. This would be regarded as

A) spoilage.
B) normal spoilage.
C) expected spoilage.
D) abnormal spoilage.

Question 80

Operation costing is just another name for process costing as both systems trace all production costs to processes or departments.