Question 1

A company uses a process cost accounting system. Its Assembly Department's beginning inventory consisted of 50,000 units, 3/4 complete with respect to direct labor and overhead. The department started and finished 127,500 units this period. The ending inventory consists of 40,000 units that are 1/4 complete with respect to direct labor and overhead. All direct materials are added at the beginning of the process. The department incurred direct labor costs of $24,000 and overhead costs of $32,000 for the period. Assuming the weighted average method, the direct labor cost per equivalent unit (rounded to the nearest cent) is:

Accepted Answer

First, we need to calculate the equivalent units of production for direct labor.

Units to account for:
Beginning inventory: 50,000
Started and completed: 127,500 
Total units: 177,500

Units accounted for:
Ending inventory: (40,000)

Equivalent units of production:
Beginning inventory: 50,000 x 3/4 = 37,500 
Started and completed: 127,500 
Ending inventory: 40,000 x 1/4 = 10,000 
Total equivalent units: 175,000

Next, we calculate the cost per equivalent unit of direct labor:

Total direct labor costs = $24,000 
Total equivalent units of production for direct labor = 175,000

Cost per equivalent unit of direct labor = $24,000 ÷ 175,000 = $0.137 = $0.17 (rounded to the nearest cent)

Therefore, the correct answer is C) $0.17.

Question 2

Equivalent units of production are equal to:

Accepted Answer

Equivalent units of production refer to the units of output that have been completed during a period, as well as the units that are in process and are expected to be completed. This means that they take into consideration the work that has been done on the units that are still in process, as if they were completed. Choice A accurately describes this concept.

Question 3

Hou Company applies factory overhead to its production departments on the basis of 90% of direct labor costs. In the Assembly Department, Hou had $125,000 of direct labor cost, and in the Finishing Department, Hou had $35,000 of direct labor cost. The entry to apply overhead to these production departments is:

Accepted Answer

The correct entry to apply overhead involves debiting the Goods in Process Inventory for both departments (Assembly and Finishing) by the overhead amounts calculated (90% of their respective direct labor costs) and crediting Factory Overhead for the total overhead applied. Assembly's overhead is 90% of $125,000 = $112,500, and Finishing's overhead is 90% of $35,000 = $31,500. The total overhead applied is $112,500 + $31,500 = $144,000.

Question 4

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.

Accepted Answer

This is a correct description of what is included in the process cost summary.

Question 5

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.

Accepted Answer

The answer of If a department that applies process costing...

Question 6

Which of the following characteristics applies to process cost accounting but not to job order cost accounting?

Accepted Answer

Equivalent units of production are specific to process cost accounting, which deals with mass production of similar items where costs are averaged over units. Job order costing, in contrast, tracks costs for individual jobs or batches, making the concept of equivalent units irrelevant.

Question 7

The Machining Department started the current month with a beginning goods in process inventory of $10,000. During the month, it was assigned the following costs: direct materials, $76,000; direct labor, $24,000; and factory overhead, 50% of direct labor cost. Also, inventory with a cost of $109,000 was transferred out of the department to the next phase in the process. The ending balance of the Goods in Process Inventory account for the Machining Department is:

Accepted Answer

The ending balance of the Goods in Process Inventory is calculated as follows: Beginning inventory ($10,000) + Direct materials ($76,000) + Direct labor ($24,000) + Factory overhead (50% of $24,000 = $12,000) - Transferred out ($109,000) = $13,000.

Question 8

Which of the following is the best explanation for why it is necessary to calculate equivalent units of production in a process costing environment?

Accepted Answer

Calculating equivalent units of production is necessary in process costing because not all the work required to make a unit complete may be completed in a single time period. Equivalent units help account for partially completed units and enable accurate measurement of the total units produced during a specific time frame.

Question 9

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.

Accepted Answer

The process cost summary includes calculations of the cost of units completed during the reporting period and also presents information about the ending goods in process inventory, showing both the units and the costs associated with them.

Question 10

A measure of the productivity of a process with respect to its use of direct materials, direct labor, or overhead, and an expression of the activity of a process as the number of units that would have been processed during a period if all effort had been applied to units that were started and finished during the period, is called:

Accepted Answer

Equivalent units of production is a measure of productivity that takes into account the work done on in-progress units as well as completed ones, and expresses this activity as the equivalent number of finished units. This calculation is necessary when using process costing, which tracks the costs of each stage of a manufacturing process instead of the costs of individual jobs.

Question 11

The Packing Department transferred out completed units with a cost of $74,000. This transfer should be recorded with the following entry:

Accepted Answer

The question does not provide options for selecting, but the correct entry for transferring completed units with a cost of $74,000 would be to debit the Finished Goods Inventory account for the cost of the units transferred and credit the Work in Process Inventory account for the same amount. Therefore, an entry is required to record the transfer of completed units from the Packing Department to the Finished Goods Inventory account.

Question 12

Which of the following characteristics does not usually apply to process manufacturing systems?

Accepted Answer

In process manufacturing systems, the finished product is produced through a series of steps or processes, which may involve blending, mixing, refining, or chemical reactions. The units of product are not usually separately identifiable, as the finished product is often a mixture of various inputs. The other characteristics listed (B, C, D) are common to process manufacturing systems.

Question 13

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.

Accepted Answer

The process cost summary can include costs from prior periods if those costs are related to work in process at the beginning of the current period.

Question 14

The cost of units transferred from Goods in Process Inventory to Finished Goods Inventory is called the cost of goods manufactured.

Accepted Answer

This statement is correct. The cost of goods manufactured is the total cost of the goods that were produced during the period and transferred to finished goods inventory. This cost includes direct materials, direct labor, and manufacturing overhead expenses.

Question 15

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.

Accepted Answer

A process cost summary includes all costs assigned to the department during the period, including any costs that were already in the department's inventory at the beginning of the period.

Question 16

Which of the following statements is most accurate?

Accepted Answer

The weighted average method combines costs of the beginning inventory and the costs incurred during the current period to calculate the cost per equivalent unit, whereas the FIFO method calculates the cost per equivalent unit based solely on the costs incurred during the current period, ignoring the costs associated with the beginning inventory. This fundamental difference in approach is accurately captured in statement C.

Question 17

Which of the following is not one of the four steps in accounting for production activity and assigning costs during a period under a process cost system?

Accepted Answer

Determining over or underapplied overhead is not one of the four steps in accounting for production activity and assigning costs during a period under a process cost system. The four steps are determining the physical flow of units, computing equivalent units of production, computing the cost per equivalent unit, and assigning and reconciling costs.

Question 18

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

Accepted Answer

Equivalent units for materials, direct labor, and factory overhead are often calculated separately because the flow of costs and the stage of completion can vary for each of these elements across the production process.

Question 19

A production department's output for the most recent month consisted of 10,000 units completed and transferred to the next stage of production and 10,000 units in ending goods in process inventory. The units in ending goods in process inventory were 50% complete with respect to both direct materials and conversion costs. There were 1,000 units in beginning goods in process inventory, and they were 70% complete with respect to both direct materials and conversion costs. Calculate the equivalent units of production for the month, assuming the company uses the weighted average method.

Accepted Answer

The answer of A production department's output for the most...

Question 20

Which of the following products is least likely to be produced in a process manufacturing system?

Accepted Answer

Custom cabinets are least likely to be produced in a process manufacturing system because process manufacturing involves producing goods in bulk and is continuous, which is not suitable for highly customized products like custom cabinets.

Quiz 20: Process Cost Accounting