Question 1

An organization specializes in manufacturing wooden wardrobes. It gives its customers a choice of woods including teak wood, satin wood, Sal wood, Indian rosewood etc. For the purpose of ascertainment of total cost, which costing system needs to be implemented?

Accepted Answer

This question requires familiarity with operation costing. To calculate the total cost assigned to each kind of jeans in the batch, calculate the total cost of each type of jeans within the batch. Acid Wash Jeans: ($1.42 × 2,000) + ($1.31 × 2,000) + ($0.48 × 2,000) + ($1.09 × 2,000) + ($1.00 × 2,000) = $2,840 + $2,620 + $960 + $2,180 + $2,000 = $10,600. Sand Blasted Jeans: ($1.42 × 2,280) + ($1.31 × 2,280) + ($0.52 × 2,280) + ($1.09 × 2,280) + ($1.00 × 2,280) = $3,237.60 + $2,986.80 + $1,185.60 + $2,485.20 + $2,280 = $12,175.20 = $12,175.

Question 2

All Terrain manufacturers bicycles for various sporting goods stores, and their top sellers include a cruiser bike and a mountain bike. They recently completed a batch that included 497 cruiser bikes and 766 mountain bikes. A second batch for a different supplier included 545 cruiser bikes and 812 mountain bikes. Costing information for the bikes is as follows:
 The cost of materials is $6.78 for each cruiser bike and $7.86 for each mountain bike. What is the total cost assigned to the first batch?

Accepted Answer

This question requires familiarity with operation costing. To calculate the total cost assigned to the first batch, calculate the total cost of each type of bike within the batch. Cruiser Bike: ($4.25 × 497) + ($3.58 × 497) + ($1.02 × 497) + ($1.89 × 497) + ($2.42 × 497) + ($2.89 × 497) + ($6.78 × 497) = $2,112.25 + $1,779.26 + $506.94 + $939.33 + $1,202.74 + $1,436.33 + 3,369.66 = $11,346.51. Mountain Bike: ($4.25 × 766) + ($3.58 × 766) + ($1.58 × 766) + ($2.42 × 766) + ($2.89 × 766) + ($7.86 × 766) = $3,255.50 + $2,742.28 + $1,210.28 + $1,853.72+ $2,213.74 + 6,020.76 = $17,296.28. Lastly, combine the total costs of each type of bike to get the total cost for the batch: $11,346.51 + $17,296.28 = $28,642.79.

Question 3

All Terrain manufacturers bicycles for various sporting goods stores, and their top sellers include a cruiser bike and a mountain bike. They recently completed a batch that included 497 cruiser bikes and 766 mountain bikes. A second batch for a different supplier included 545 cruiser bikes and 812 mountain bikes. Costing information for the bikes is as follows:
 The cost of materials is $6.78 for each cruiser bike and $7.86 for each mountain bike. What is the total cost assigned to the second batch?

Accepted Answer

This question requires familiarity with operation costing. To calculate the total cost assigned to the second batch, calculate the total cost of each type of bike within the batch. Cruiser Bike: ($4.25 × 545) + ($3.58 × 545) + ($1.02 × 545) + ($1.89 × 545) + ($2.42 × 545) + ($2.89 × 545) + ($6.78 × 545) = $2,316.25 + $1,951.10 + $555.90 + $1,030.05 + $1,318.90 + $1,575.05 + $3,695.10 = $12,442.35. Mountain Bike: ($4.25 × 812) + ($3.58 × 812) + ($1.58 × 812) + ($2.42 × 812) + ($2.89 × 812) + ($7.86 × 812) = $3,451.00 + $2,906.96 + $1,282.96 + $1,965.04 + $2,346.68 + $6,382.32 = $18,334.96. Lastly, combine the total costs of each type of bike to get the total cost for the batch: $12,442.35 + $18,334.96 = $30,777.31.

Question 4

A shoe company designs and manufactures a variety of shoes including their two top sellers, wedge heels and stilettos. The company has been debating a new advertising campaign in an effort to ramp up sales for these offerings. In order to decide, they feel that getting a handle on their costing information is critical. The company took the advice of their head accountant and implemented an operation costing system that cost them extra on the front end. The company has calculated the following predetermined cost for each of the key processes:
 Each pair of wedge heels has a selling price of $25 and Direct Materials (DM) cost of $10. Each pair of stilettos has a selling price of $40 and DM cost of $12. A recent batch of 130 stilettos was sold to a high-end retailer. A second batch containing 85 wedge heels was sold to a bargain shoe store. What is total cost assigned to each batch? (Round answers to two decimal places.)

Accepted Answer

This question requires calculating the total cost of each batch using operational costing. For the batch of 130 stilettos, calculate the cost as follows: (130 × $2.26) + (130 × $2.15) + (130 × $0.89) + (130 × $1.58) + (130 × $12.00) = $293.80 + $279.50 + $115.70 + $205.40 + $1,560.00 = $2,454.40. For the batch of 85 wedge heels, calculate the cost as follows: (85 × $2.26) + (85 × $2.15) + (85 × $0.34) + (85 × $0.42) + (85 × $1.58) + (85 × $10.00) = $192.10 + $182.75 + $28.90 + $35.70 + $134.30 + $850.00 = $1,423.75.

Question 5

A shoe company designs and manufactures a variety of shoes including their two top sellers, wedge heels and stilettos. The company has been debating a new advertising campaign in an effort to ramp up sales for these offerings. In order to decide, they feel that getting a handle on their costing information is critical. The company took the advice of their head accountant and implemented an operation costing system that cost them extra on the front end. The company has calculated the following predetermined cost for each of the key processes:
 Each pair of wedge heels has a selling price of $25 and Direct Materials (DM) cost of $10. Each pair of stilettos has a selling price of $40 and DM cost of $12. A recent batch of 130 stilettos was sold to a high-end retailer. A second batch containing 85 wedge heels was sold to a bargain shoe store. What is the gross profit percentage for each batch? (Round calculations to two decimal places.)

Accepted Answer

This question requires calculating the total cost of each batch using operational costing. For the batch of 130 stilettos, calculate the cost as follows: (130 × $2.26) + (130 × $2.15) + (130 × $0.89) + (130 × $1.58) + (130 × $12.00) = $293.80 + $279.50 + $115.70 + $205.40 + $1,560.00 = $2,454.40. Now, calculate the total sales amount for that batch: 130 × $40.00 = $5,200. Next, calculate the gross profit: $5,200 - $2,454.40 = $2,745.60. Lastly, calculate the gross profit percentage: $2,745.60/$5,200 = 52.8%. For the batch of 85 wedge heels, calculate the cost as follows: (85 × $2.26) + (85 × $2.15) + (85 × $0.34) + (85 × $0.42) + (85 × $1.58) + (85 × $10.00) = $192.10 + $182.75 + $28.90 + $35.70 + $134.30 + $850.00 = $1,423.75. Now, calculate the total sales amount: 85 x $25.00 = $2,125.00. Next, calculate the gross profit: $2,125.00 - $1,423.75 = $701.25. Lastly, calculate the gross profit percentage: $701.25/$2,125 = 33.00%.

Question 6

Samantha is compiling the key processes of the factory where she works. Her focus on been on the key processes of the conversion work. All units require cutting and assembly, but not all units require quality control. Since the company is set up to create their products in batches while using the benefits of process costing, they have implemented an operation costing system. Samantha has collected the following budgeted costs and production volumes for the current year:
 The company recently completed a batch of 1,280 units where the first half of the batch required cutting, assembly, and quality control, and the second half of batch only required cutting and assembly. The cost of Direct Materials (DM) associated with each type of these units is $4.89 per unit, and each unit has a selling price of $19.75 per unit. What is the total amount of Conversion Costs (CC) assigned to this batch? (Round answers to two decimal places.)

Accepted Answer

This question requires familiarity with calculating Conversion Costs using an operation costing system. The first step entails calculating the per-unit budgeted cost for each key process. Cutting: $198,500/70,000 = $2.84 per unit, Assembly: $76,400/70,000 = $1.09 per unit, and Quality Control: $49,006/36,000 = $1.36 per unit. Since half of the units need all three processes and half need only cutting and assembly, the total amount of Conversion Costs will be (1,280 × $2.84) + (1,280 × $1.09) + (640 × $1.36) = $3,635.20 + $1,395.20 + $870.40 = $5,900.80.

Question 7

Samantha is compiling the key processes of the factory where she works. Her focus on been on the key processes of the conversion work. All units require cutting and assembly, but not all units require quality control. Since the company is set up to create their products in batches while using the benefits of process costing, they have implemented an operation costing system. Samantha has collected the following budgeted costs and production volumes for the current year:
 The company recently completed a batch of 1,280 units where first half required cutting, assembly, and quality control, and the second half only required cutting and assembly. The total Direct Materials (DM) associated with either type of these units is $4.89 per unit, and each unit has a selling price of $19.75 per unit. What is the gross profit percentage per unit for each half of this batch? (Round calculations to two decimal places.)

Accepted Answer

This question requires familiarity with calculating Conversion Costs (CC) using an operation costing system. The first step entails calculating a per-unit budgeted cost for each key process. Cutting: $198,500/70,000 = $2.84 per unit, Assembly: $76,400/70,000 = $1.09 per unit, and Quality Control: $49,006/36,000 = $1.36 per unit. The first half of the batch needs all three processes, and the second half only needs cutting and assembly. 1^st half: $2.84 + $1.09 + $1.36 + $4.89 = $10.18. Now, subtract from sales price to arrive at the gross profit: $19.75 - $10.18 = $9.57. Next, divide the gross profit by sales to arrive at the gross profit percentage: $9.57/$19.75 = 48.46%. 2nd half: $2.84 + $1.09 + $4.89 = $8.82. Now, subtract from sales price to arrive at the gross profit: $19.75 - $8.82 = $10.93. Lastly, divide the gross profit by sales to arrive at the gross profit percentage: $10.93/$19.75 = 55.34%.

Question 8

Operation costing, also known as hybrid costing, is a method employed by organizations that would like to have features in their system of both job costing and process costing. Which of the following scenarios would most likely lead to the exploration of implementing an operation costing system instead of using only a job costing or only a process costing system?

Accepted Answer

This question requires familiarity with the features of operation costing as compared to job costing and process costing. Choice A is the only answer listed that correctly identifies a situation that would lead to the implementation of operation costing. The other choices are either inaccurate or apply to only job costing or only process costing.

Question 9

What is the purpose of Process Costing? When is it typically used? What are the different ways that inventory can be costed?

Accepted Answer

The answer of What is the purpose of Process Costing?...

Question 10

Why is Cost of Goods Manufactured (COGM) a very important number to management? How does COGM vary between Process Costing and Job Costing? At a high level, what implications does the use of Process Costing have on periodic financial reporting?

Accepted Answer

The answer of Why is Cost of Goods Manufactured (COGM)...

Question 11

How many steps are involved in process costing? Please list each step, and describe what that step will entail.

Accepted Answer

The answer of How many steps are involved in process...

Question 12

Process Costing affords companies the opportunity to select between First-In, First-Out (FIFO) or Weighted-Average for costing their inventory. When is it appropriate to use each method? How are FIFO and Weighted-Average similar? How are they different? Which method should a company that produces chemical liquid bleach utilize?

Accepted Answer

The answer of Process Costing affords companies the opportunity to...

Question 13

If a manager were trying to better understand the way in which Process Costing works, then how should the concept of equivalent units be explained to him? The manager would further like to understand how First-In, First-Out (FIFO) varies from Weighted-Average when determining equivalent units. How could this difference be described to the manager?

Accepted Answer

The answer of If a manager were trying to better...

Question 14

What is an operation costing system? Which systems are integrated and reflected using this method? Would the manufacturer of laptop computers be a suitable candidate for using operation costing? Please fully explain the rationale used.

Accepted Answer

The answer of What is an operation costing system? Which...

Question 15

Zesty Corp. produces bottles of ranch dressing in their regional factory. Jonah, the head cost accountant, would like to gather some data for the most recent year to calculate their unit costs. Jonah compiled the following cost information: Dressing Materials (DM), $34,500; Plastic Bottles and Labels, $18,428; Assembly Line Wages, $56,708; Packaging Wages, $33,303; and Manufacturing Overhead (MOH), $76,402. Their Beginning Work-in-Progress (WIP) Inventory was $6,500, and their Ending WIP Inventory was $9,803. During the year, Zesty Corp. produced 127,990 bottles of ranch dressing. What is the unit cost for the bottles of ranch based on the information Jonah has gathered?

Accepted Answer

The answer of Zesty Corp. produces bottles of ranch dressing...

Question 16

Cheshire Inc. manufactures chewy salmon-flavored cat treats. Cheshire is currently selling to vendors in their state, but they have plans to begin producing these treats for stores across the entire US within the next year. Susan, the accountant, is currently gathering costing data about the month of November at the request of management. She has documented the following information:
  What are the equivalent units of production for the conversion costs of Cheshire Inc., if Susan employs the First-In, First-Out (FIFO) method? (Round your final answer to the nearest whole unit.)

Accepted Answer

The answer of Cheshire Inc. manufactures chewy salmon-flavored cat treats....

Question 17

Luminous Tile manufactures ceramic subway tiles, producing tiles that are identical in size and thickness. The tiles are created from different materials, and they have different colors that also have the option of being metallic or matte. Not all tiles require the use of all processes utilized by Luminous. They have estimated the following predetermined costs per tile for their key processes:
  Luminous completed a batch of 16,720 tiles that it then divided into boxes of 44 tiles each. If this batch required the use of the Blending, Pressing, Matte, Glazing, and Firing processes, and the tile materials cost $6,792 for the entire batch, how much total cost would be assigned to each box of 44 tiles in this batch? (Round all calculations to two decimal places.)

Accepted Answer

The answer of Luminous Tile manufactures ceramic subway tiles, producing...

Question 18

Sheldon is the senior manager at Stellar Corp., a factory that manufactures small containers of silver glitter that it sells to various crafting stores. Sheldon has started to become more involved in understanding how the Process Costing they use impacts their overall operations. He has asked their controller to gather and present their most recent data for the year that just ended. The following information pertains to units produced for that year along with the percentage of completion for conversion costs:
  The controller suggested that they use the Weighted-Average method for their Process Costing calculations. Sheldon would like to know what their equivalent units of production would be for the most recent year. (Round your answer to the nearest whole unit.)

Accepted Answer

The answer of Sheldon is the senior manager at Stellar...

Question 19

Picture This Company manufactures 8.5" × 11" black plastic picture frames that it sells through an e-commerce site. They are now in their third month of operations, and the Beginning Work-in-Progress (WIP) Inventory included the following costs: Direct Materials (DM), $1,980; and Conversion Costs (CC), $2,330. During the month of June, they added the following costs: DM, $9,780; and CC, $12,568. Picture This will be using the First-In, First-Out (FIFO) method for their Process Costing. How much total conversion costs will they have to account for, and how much will they include in their cost of equivalent units for conversion costs?

Accepted Answer

The answer of Picture This Company manufactures 8.5" × 11"...

Question 20

Fresh Mint Co. produces packs of mint-flavored chewing gum that are sold to businesses in boxes that contain 50 packs each. Business has been steady, and Fresh Mint is gearing up to launch a new campaign with the hopes of increasing sales by at least 5% within the next quarter. They would like to use the current quarter to evaluate their Process Costing Costs and are going to look into both the First-In, First-Out (FIFO) and Weighted-Average methods. They began the quarter with the following costs: Direct Materials (DM), $3,400; and Conversion Costs (CC), $5,687, and during the quarter they added the following costs: DM - $18,977; and CC - $27,654. How much cost should they include in their calculation for equivalent unit costs for Direct Materials under both the FIFO and Weighted-Average methods?

Accepted Answer

The answer of Fresh Mint Co. produces packs of mint-flavored...

Quiz 11: Process Costing

An organization specializes in manufacturing wooden wardrobes. It gives its customers a choice of woods including teak wood, satin wood, Sal wood, Indian rosewood etc. For the purpose of ascertainment of total cost, which costing system needs to be implemented?

What is the purpose of Process Costing? When is it typically used? What are the different ways that inventory can be costed?

Why is Cost of Goods Manufactured (COGM) a very important number to management? How does COGM vary between Process Costing and Job Costing? At a high level, what implications does the use of Process Costing have on periodic financial reporting?

How many steps are involved in process costing? Please list each step, and describe what that step will entail.

What is an operation costing system? Which systems are integrated and reflected using this method? Would the manufacturer of laptop computers be a suitable candidate for using operation costing? Please fully explain the rationale used.