Question 1

The equivalent units of production must be computed before the value of ending inventory can be determined in a process costing system.

Accepted Answer

The equivalent units of production represent the total amount of work done during a period, measured in units of fully completed output. It is necessary to calculate the equivalent units of production in order to allocate the costs of production (direct materials, direct labor, and manufacturing overhead) to units of output. Only after the equivalent units of production have been calculated can the value of ending inventory be determined in a process costing system.

Question 2

The basis used in computing unit cost for the process costing system is made up of certain specific jobs worked on during the fiscal year.

Accepted Answer

The process costing system does not use specific jobs as the basis for computing unit cost. Instead, it calculates the average cost per unit of all the units produced during the fiscal year.

Question 3

One of the steps in preparing the process cost report requires dividing current costs charged to the Work in Process Inventory account of each department or production process by equivalent units to calculate the cost per equivalent unit.

Accepted Answer

Dividing current costs charged to the Work in Process Inventory account of each department or production process by equivalent units is necessary to calculate the cost per equivalent unit for the process cost report.

Question 4

Process costing is a system of

Accepted Answer

Process costing is a system of product costing, which is used to determine the cost of producing products or services. It is used in industries where similar products are produced in a continuous flow, such as in chemical, food processing, and oil refining industries. The cost of each process is accumulated and averaged over the total output. This results in a cost per unit that is used to determine the selling price of the product. Therefore, process costing is not related to inventory costing or cost flow assumptions, and it does not involve product pricing.

Question 5

Which of the following items most likely would be manufactured using a process costing system?

Accepted Answer

Process costing systems are used for mass-produced items that are identical and produced in large quantities. Soup is a product that can be produced in large quantities and is identical in nature, making it a good fit for a process costing system. The other choices are service-based and do not involve mass production of identical products.

Question 6

Under the average costing method in process costing system, the costs in beginning inventory are combined with current period costs to compute an average product unit cost.

Accepted Answer

This is the correct definition of the average costing method in process costing.

Question 7

In a process costing system, the amount of total costs to be accounted for is made up of direct materials and conversion costs incurred during the current period plus those costs included in the beginning Work in Process Inventory account.

Accepted Answer

In a process costing system, the total costs to be accounted for includes direct materials and conversion costs incurred during the current period as well as the costs included in the beginning Work in Process Inventory account.

Question 8

The type of product costing system used by a company is dictated by the

Accepted Answer

The type of product costing system used by a company is mainly dictated by the production process it uses. Different production processes require different costing methods such as job costing, process costing or activity-based costing. The project manager, company president or plant supervisor may influence the decision-making process for the costing system, but ultimately the type of costing system used is dependent on the production process.

Question 9

In process costing system, the average costing method assumes that cost flows do follow the logical physical flow of production.

Accepted Answer

The average costing method, also known as the weighted average method, does not assume that cost flows follow the physical flow of production. Instead, it averages out costs over all units, regardless of when they were produced.

Question 10

The average process costing method disregards the ending inventory assuming that direct material costs and conversion costs are pertaining to the immediate next period.

Accepted Answer

The average process costing method considers both beginning and ending inventories to calculate the cost per unit, averaging costs over all units produced during the period.

Question 11

It is not necessary to ascertain the portion of ending Work in Process Inventory applicable to direct materials costs versus conversion costs.

Accepted Answer

It is necessary to ascertain the portion of ending Work in Process Inventory applicable to direct materials costs versus conversion costs for accurate cost accounting and to determine the cost of goods manufactured.

Question 12

In a process cost report, accounting for physical units excludes the physical units in beginning inventory to arrive at "units to be accounted for."

Accepted Answer

In a process cost report, accounting for physical units includes both the units in beginning inventory and the units started into production during the period to arrive at "units to be accounted for."

Question 13

Process costing information can inform managers about the amounts and types of products ordered by specific customers.

Accepted Answer

Process costing focuses on the cost of producing a large number of identical products. While managers can use information from process costing to determine the total cost of production and the cost per unit, it does not provide information about specific customers and their orders.

Question 14

One reason for preparing a process cost report for a particular department is to determine the amount of costs to transfer to the next department or to the Finished Goods Inventory account at the end of the period.

Accepted Answer

The process cost report summarizes the total costs incurred in a particular department and the amount of units produced. This information is used to calculate the cost per unit and determine the value of inventory to transfer to the next department or to the Finished Goods Inventory account. Therefore, the statement is true.

Question 15

Process costing is applicable to production operations that

Accepted Answer

Process costing is typically used in operations that involve several sequential processes or stages of production, such as in chemical manufacturing, oil refining, or food processing. This method allows for the allocation of costs to each process or department, which is then combined to determine the total cost of the product. Option B is incorrect because overhead costs are assigned in process costing. Option C is incorrect because process costing is used for mass-produced goods, not custom-made items. Option D is incorrect because process costing is used across a variety of industries.

Question 16

A company should use process costing rather than job order costing if

Accepted Answer

Process costing is best used when producing homogeneous products in large quantities. This is because process costing assigns costs to each production process or department rather than to each individual job or batch. This method is more efficient in large-scale production environments where the same cost is incurred for each unit of output. Therefore, choice C is the best answer.

Question 17

Regardless of beginning inventory levels, the unit costs are determined by dividing the equivalent units by the total costs of the period.

Accepted Answer

The unit costs are determined by dividing the total costs of the period by the total equivalent units, not the other way around.

Question 18

Under the average process costing method, both the direct materials costs
and the conversion costs of beginning inventory as if they were incurred in the current period.

Accepted Answer

Under the average process costing method, beginning inventory costs are averaged in with current period costs, treating them as if they were incurred in the current period. This is done for both direct materials costs and conversion costs.

Question 19

A process costing system accounts for product costs

Accepted Answer

A process costing system accounts for product costs for a specific period of time, typically over a certain production cycle or accounting period. The costs are accumulated and assigned to the products produced during that period. The costs may be tracked in multiple work-in-process inventory accounts if there are multiple stages or departments within the production process. The system is designed to allocate costs based on the process that created the cost, rather than for specific orders.

Question 20

Unit costs are determined by dividing the total costs of the period by the equivalent units.

Accepted Answer

The answer of Unit costs are determined by dividing the...

Quiz 21: Costing Systems Process Costing