Question 1

In a process costing system, normal spoilage is allocated to good units produced.

Accepted Answer

Normal spoilage is considered a normal part of the production process and is expected to occur. Therefore, it is allocated to good units produced to spread out the cost and not impact the cost of individual units significantly.

Question 2

In the weighted average method, cost per equivalent unit is often calculated separately for materials costs and conversion costs.

Accepted Answer

The weighted average method separates the costs into material costs and conversion costs and calculates the cost per equivalent unit for each separately.

Question 3

In FIFO costing, the costs of units in beginning work in process are merged with current period costs to calculate the cost per equivalent unit.

Accepted Answer

In FIFO costing, the costs of the beginning work in process are kept separate from the costs of the current period; only the costs of the current period are used to calculate the cost per equivalent unit.

Question 4

In a process costing system with multiple production departments, costs from the first department's ending work in process are transferred to the second department's finished goods before going into the second department's work in process.

Accepted Answer

In a process costing system, costs from the first department's ending work in process are transferred to the second department's work in process, not directly to finished goods. Costs move through each department's work in process before being transferred to finished goods upon completion.

Question 5

Managers can calculate costs per equivalent unit using the weighted average or the FIFO method.

Accepted Answer

Managers can use either the weighted average or the FIFO method to calculate costs per equivalent unit in process costing.

Question 6

In a process costing system, direct materials are added during every production process.

Accepted Answer

In a process costing system, direct materials may not be added during every production process; they are added at specific stages depending on the nature of the production process and the product being manufactured.

Question 7

Process costing is simplified when a company uses just-in-time inventory methods.

Accepted Answer

Just-in-time inventory methods reduce the amount of work-in-process inventory, simplifying the tracking and costing of production in process costing systems.

Question 8

Conversion costs refer to the cost of direct labour and production overhead.

Accepted Answer

Conversion costs only include the cost of direct labour and production overhead, and exclude the cost of direct materials.

Question 9

Process costing information is useful for measuring and monitoring production processes.

Accepted Answer

Process costing provides information about the cost of manufacturing a product or providing a service. It helps in measuring and monitoring the production processes by identifying areas of inefficiency that may be causing waste or delays. This information can then be used to improve the production process and reduce costs. Therefore, process costing information is useful for measuring and monitoring production processes.

Question 10

Conversion costs must be incurred uniformly throughout the production process to calculate equivalent units.

Accepted Answer

Conversion costs can vary at different stages of the production process, and equivalent units can still be calculated by considering the degree of completion for materials, labor, and overhead at each stage.

Question 11

In the weighted average method, costs from beginning work in process are averaged with costs incurred during the current period and then allocated to units completed and ending work in process.

Accepted Answer

This statement accurately describes the weighted average method.

Question 12

Equivalent units measure the resources used in partially completed units relative to the resources needed to complete the units.

Accepted Answer

Equivalent units are used to measure the resources used in partially completed units and are calculated by combining the completed units with the partially completed units based on the proportion of work completed. This allows for an accurate measurement of the resources used in the production process.

Question 13

Spoilage costs from an unusual natural disaster would be allocated to good units produced in a process costing system.

Accepted Answer

Spoilage costs caused by an unusual natural disaster would be considered as an abnormal loss and would not be allocated to good units produced under a process costing system. Instead, abnormal losses are treated as a separate cost item and allocated separately.

Question 14

When an organization uses a long-term procurement contract, direct labour costs are normally stable over long periods of time.

Accepted Answer

Direct labour costs may not be stable over long periods of time due to factors such as changes in wages or employment regulations.

Question 15

When using the weighted average method to calculate cost per equivalent unit, the cost is calculated as current period costs / equivalent units for total work.

Accepted Answer

The weighted average method calculates the cost per equivalent unit by adding the costs from the current period to the costs associated with the work in progress at the beginning of the period, and then dividing by the equivalent units for total work done during the period.

Question 16

All spoilage in a process costing system is considered abnormal spoilage.

Accepted Answer

In a process costing system, there are generally two types of spoilage: normal and abnormal. Normal spoilage is an expected amount of spoilage that occurs in the production process and is included in the cost of the finished goods. Abnormal spoilage, on the other hand, is unexpected and is generally considered a separate cost item.

Question 17

In calculating the cost per equivalent unit using FIFO costing, the appropriate formula is current period costs / equivalent units for work performed this period.

Accepted Answer

This is the correct formula for calculating the cost per equivalent unit using the FIFO costing method.

Question 18

Conversion costs may be separated into direct labour and overhead when it is relatively easy to track direct labour, and the use of labour occurs in a different pattern than the use of overhead resources.

Accepted Answer

This statement is true as conversion costs can be separated into direct labour and overhead based on their different usage patterns and ease of tracking direct labour.

Question 19

Equivalent units are calculated for work in process and finished goods inventory.

Accepted Answer

Equivalent units are calculated for work in process inventory to measure the amount of work done during a period, but not for finished goods inventory, as finished goods are already completed products.

Question 20

Managers can only use FIFO process costing if it is reflected in the physical flow of units.

Accepted Answer

Managers can choose FIFO (First-In, First-Out) process costing method for accounting purposes even if it does not match the actual physical flow of units through the production process. The choice of costing method is an accounting decision that does not have to mirror the physical movement of goods.

Quiz 6: Process Costing