Question 1

Which of the following cost flow assumptions most closely follows the logical product flow in a process costing environment?

Accepted Answer

FIFO (First-In-First-Out) assumes that the first costs incurred in the production process are the first costs transferred out to the next stage of production or to finished goods inventory. This closely follows the logical product flow in a process costing environment, where costs are allocated to products in the order that they were incurred.

Question 2

If a company uses a process costing system to account for costs in its four production departments, how many Work in Process accounts will it use?

Accepted Answer

A process costing system tracks costs by department or by process. Therefore, each of the four production departments will have its own work in process account, resulting in a total of four work in process accounts.

Question 3

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 amount of total costs to be accounted for includes direct materials, conversion costs, and the costs included in the beginning Work in Process Inventory account.

Question 4

One of the steps in preparing the process cost report under FIFO method 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

This statement is true. As per the FIFO method of process costing, the cost per equivalent unit is calculated by dividing the current costs charged to the Work in Process Inventory account of each department or production process by equivalent units.

Question 5

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 (EUP) are used to allocate costs between completed and partially completed units in a process costing system. The value of ending inventory can be determined by multiplying the cost per equivalent unit by the number of equivalent units in ending inventory. Therefore, EUP must be computed before determining the value of ending inventory.

Question 6

In a process costing system, the cost of ending work in process inventory for a period can be verified by reference to supporting analysis in

Accepted Answer

The cost recap included in the process cost report summarizes the costs incurred in the production process for a period, including the costs of beginning and ending work in process inventory. Therefore, it is the best supporting analysis to verify the cost of ending work in process inventory. Materials requisitions and labor time tickets provide information about the direct materials and direct labor costs incurred for specific jobs or processes, but they do not directly relate to the ending work in process inventory. The cost recap included in the statement of production is not a standard report in a process costing system.

Question 7

Which of the following is not a characteristic of a process costing system?

Accepted Answer

Process costing systems are used for the manufacturing of homogeneous products and do not accommodate customized products.

Question 8

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...

Question 9

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 statement accurately describes the process of computing the average product unit cost under the average costing method in a process costing system.

Question 10

A process costing system accounts for product costs

Accepted Answer

A process costing system accounts for product costs for a specific period of time, usually a month or a quarter. It accumulates costs incurred in each department or process and assigns those costs to the units produced during that period.

Question 11

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 12

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

Accepted Answer

Process costing is suitable for products that are composed of mass-produced homogeneous units, such as pharmaceuticals, chemicals, or food products. In process costing, the costs are accumulated by department or process, and the average cost per unit is calculated by dividing the total cost by the total units produced in the period. Job order costing, on the other hand, is used when products are made to order, customized, or have unique characteristics, and the costs are accumulated by job or order. Therefore, option C is the best choice for using process costing.

Question 13

Which of the following entities probably would use a process costing system?

Accepted Answer

An oil refinery would use a process costing system because it involves large quantities of identical products being produced in batches. This is ideal for process costing where the costs can be spread across the batches rather than trying to allocate costs to individual units. Yacht building involves producing unique goods which would require a job costing system. Custom furniture and custom screw manufacturing are also likely to use job costing systems as they are producing unique goods.

Question 14

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

Accepted Answer

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

Question 15

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 16

Process costing is applicable to production operations that

Accepted Answer

Process costing is used for production operations that involve multiple processes, departments or work cells in a series. This enables the cost to be calculated for each process or department, allowing managers to identify areas where costs can be reduced or efficiencies can be improved. Process costing is commonly used in industries such as chemical, oil refining, and food and beverage production.

Question 17

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 basis used in computing unit cost for the process costing system is the total cost incurred in a particular department or process during the fiscal year divided by the total units produced in that department or process during the same period. It is not based on specific jobs worked on.

Question 18

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

Accepted Answer

Process costing is used for products that are mass-produced in a continuous flow, such as soup, where each unit is identical and the cost per unit can be calculated based on the total cost of the production process. Income tax services, a hotel, and wedding invitations are not products that would be manufactured using process costing.

Question 19

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

This is correct as a process cost report is used to summarize the costs incurred in a particular department and determine the total cost of production for the period. This information is then used to allocate costs to the next department or to the Finished Goods Inventory account.

Question 20

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

Accepted Answer

Process costing information is used to determine the cost of producing a particular product or service within a manufacturing process. It does not provide information about the specific customers who may have ordered those products.

Quiz 3: Costing Systems- Process Costing