Question 1

A company uses a process costing system. Its Assembly Department's beginning inventory consisted of 30,000 units, 75% complete with respect to direct labor and overhead. The department completed and transferred out 127,500 units this period. The ending inventory consists of 20,000 units that are 25% 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.

Equivalent units of production = Units completed and transferred out + (Ending inventory units * Completion percentage) - Beginning inventory units
Equivalent units of production = 127,500 + (20,000 * 25%) - 30,000 
Equivalent units of production = 127,500 + 5,000 - 30,000 
Equivalent units of production = 102,500

Next, we need to calculate the total direct labor cost per unit.

Total direct labor cost = Direct labor costs for the period = $24,000 
Total equivalent units of production = 102,500 
Direct labor cost per unit = Total direct labor cost / Total equivalent units of production 
Direct labor cost per unit = $24,000 / 102,500 
Direct labor cost per unit ≈ $0.234

Finally, we need to round the direct labor cost per unit to the nearest cent, which is $0.18. Therefore, the answer is B.

Question 2

The following refers to units processed by a breakfast cereal maker in August. Compute the total equivalent units of production with respect to conversion for August using the weighted-average inventory method.$\begin{array} { l c c } 
& \begin{array} { c } 
\text { Units of } \
\text { Product }
\end{array} & \begin{array} { c } 
\text { Percent of } \
\text { Conversion Added }
\end{array} \
\text { Beginning Work in Process } & 230,000 & 60 \% \
\text { Units started } & 570,000 & 100 \% \
\text { Units completed } & 620,000 & 100 \% \
\text { Ending Work in Process } & 180,000 & 70 \%
\end{array}$

Accepted Answer

The answer of The following refers to units processed by...

Question 3

A company's beginning Work in Process inventory consisted of 20,000 units that were 20% complete with respect to direct labor. These beginning units were completed and another 90,000 units were started during the current period. Of those started, 60,000 were finished and the remaining 30,000 were 40% complete at the end of the period. Using the weighted-average method, the equivalent units of production with regard to direct labor were:

Accepted Answer

The answer of A company's beginning Work in Process inventory...

Question 4

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 Work in Process inventory. The units in ending Work in Process inventory were 50% complete with respect to both direct materials and conversion costs. There were 1,000 units in beginning Work 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 weighted average method assigns costs to units based on the percentage of completion of the units in ending Work in Process inventory. In this case, the units in ending Work in Process inventory were 50% complete with respect to both direct materials and conversion costs. This means that the equivalent units of production for direct materials and conversion costs are both 5,000 units (10,000 units x 50%). The equivalent units of production for the month are therefore 10,000 units (10,000 units completed and transferred to the next stage of production + 5,000 equivalent units of production in ending Work in Process inventory).

Question 5

The combined costs of direct labor and factory overhead per equivalent unit used by many businesses with process operations is called:

Accepted Answer

The combined costs of direct labor and factory overhead per equivalent unit is called the conversion cost per equivalent unit. This cost represents the expenses incurred in converting raw materials into finished goods. Therefore, the best choice is E.

Question 6

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

Accepted Answer

Process costing uses the concept of equivalent units of production to allocate costs to partially completed units, which is not used in job order cost accounting.

Question 7

Which of the following statements is most accurate?

Accepted Answer

The FIFO method computes equivalent units based only on the production activity in the current period, excluding the percentage of completion in the beginning Work in Process inventory.

Question 8

Equivalent units of production are equal to:

Accepted Answer

Equivalent units of production are a measure used in process costing to express the total amount of partially completed units as a proportion of fully completed units that could have been produced given the costs incurred during a period. This calculation takes into account the stage of completion of partially completed units, and allows managers to compare the costs of production between different departments or periods. Therefore, the correct answer is B.

Question 9

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

The four steps in accounting for production activity and assigning costs during a period under a process cost system are (1) Determine the physical flow of units, (2) Compute the equivalent units of production, (3) Compute the cost per equivalent unit of production, and (4) Assign and reconcile costs. Determining over or underapplied overhead is not one of the four steps.

Question 10

A key idea in process costing that refers to the number of units that could have been started and completed given the costs incurred during the period is known as:

Accepted Answer

Equivalent units of production refer to the number of units that could have been started and completed given the costs incurred during the period. This method is used in process costing to calculate the cost per equivalent unit of production, which is then used to determine the total cost of goods completed and transferred out of a production process.

Question 11

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

Accepted Answer

The overhead applied to the Assembly Department is 90% of $125,000, which is $112,500. The overhead applied to the Finishing Department is 90% of $35,000, which is $31,500. The total overhead applied is $144,000. The correct entry is to debit Work in Process Inventory for each department and credit Factory Overhead for the total applied overhead.

Question 12

A company's beginning Work in Process inventory consisted of 20,000 units that were 80% complete with respect to direct labor. A total of 90,000 were finished during the period and 25,000 remaining in Work in Process inventory were 40% complete with respect to direct labor at the end of the period. Using the weighted-average method, the equivalent units of production with regard to direct labor were:

Accepted Answer

The answer of A company's beginning Work in Process inventory...

Question 13

The Fabricating Department started the current month with a beginning Work 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 Work in Process Inventory account for the Fabricating Department is:

Accepted Answer

The ending balance of Work in Process Inventory is calculated as: Beginning WIP ($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 14

A company uses the weighted average method for inventory costing. During a period, Department B finished and transferred 50,000 units to Department C. Also in Department B during the period, 10,000 units were started but brought only to a stage of being 60% completed. The number of equivalent units produced by Department B during the period was:

Accepted Answer

The equivalent units are calculated by adding the fully completed units (50,000) to the partially completed units (10,000 * 60% = 6,000), resulting in 56,000 equivalent units.

Question 15

A production department's output for the most recent month consisted of 8,000 units completed and transferred to the next stage of production and 5,000 units in ending Work in Process inventory. The units in ending Work in Process inventory were 50% 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

To calculate the equivalent units of production using the weighted average method, we need to add the units completed during the month to the equivalent units of the ending work in process inventory. 
Equivalent units of production for direct materials = Units completed + (Units in ending work in process inventory x Percentage complete for direct materials)
Equivalent units of production for conversion costs = Units completed + (Units in ending work in process inventory x Percentage complete for conversion costs)
For direct materials: 8,000 + (5,000 x 50%) = 10,500
For conversion costs: 8,000 + (5,000 x 50%) = 10,500
Therefore, the equivalent units of production for the month using the weighted average method is 10,500 units.

Question 16

At the beginning of the recent period, there were 900 units of product in a department, 35% completed. These units were finished and an additional 5,000 units were started and completed during the period. 800 units were still in process at the end of the period, 25% completed. Using the weighted average method, the equivalent units produced by the department were:

Accepted Answer

Weighted average method: Equivalent units = Beginning WIP + (Units started and completed * % completed) + Ending WIP= 900 * 35% + 5000 * 100% + 800 * 25%= 315 + 5000 + 200= 6100 units

Question 17

Metaline Corp. uses the weighted average method for inventory costs and had the following information available for the year. The number of units transferred to finished goods during the year is: $\begin{array} { l r r } 
\text { Beginning Work in Process } ( 40 \% \text { complete, } \$ 1,100 ) & 200 & \text { units } \
\text { Ending inventory of Work in Process } ( 80 \% \text { complete) } & 400 & \text { units } \
\text { Total units started during the year } & 320 & \text { units }
\end{array}$

Accepted Answer

Using the weighted average method, the cost of goods sold and ending inventory are determined using the weighted average cost per unit.

To find the number of units transferred to finished goods, we need to subtract the ending inventory from the total units started during the year.

Total units started during the year = beginning inventory + units started during the year
= 0 + 3,200 = 3,200 units

Ending inventory = 400 units (given in the problem as the final inventory balance)
Weighted average cost per unit = total cost of beginning inventory + total cost of units started during the year / total units available for sale 
= ($0 x 0) + ($5,000 x 3,200) / 3,200 = $5,000

Cost of goods sold = weighted average cost per unit x units sold 
= $5,000 x (3,200 - 400) = $14,400

Therefore, the number of units transferred to finished goods = total units started during the year - ending inventory 
= 3,200 - 400 = 3,000 units.

The answer is C, 3,000 units.

Question 18

Clarksen Company uses a process costing system. The company requisitioned $93,000 of materials for Department A and $67,000 of materials for Department D. The entry to record the use of the direct materials by these two departments is:

Accepted Answer

Since Clarksen Company uses a process costing system, raw materials are added as the work-in-process inventory moves through the production process. Therefore, the entry to record the use of direct materials is to debit the Work in Process Inventory for each department and credit the Raw Materials Inventory. Option A and B are incorrect because the raw materials inventory should be credited and not the accounts payable. Option C is incorrect because it does not record the use of direct materials by each department. Option E is incorrect because it does not differentiate the use of direct materials by each department.

Question 19

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

Equivalent units of production are necessary in process costing because units may be partially completed at the end of a period, and assigning costs based on physical units may result in inaccurate cost accounting. Equivalent units take into account the degree of completion of each unit, allowing for more accurate costs of goods produced.

Question 20

Using conversion cost per equivalent unit is appropriate for many businesses that use process costing because:

Accepted Answer

Conversion cost per equivalent unit is appropriate for process costing businesses because it combines the cost of direct labor and factory overhead, which are both considered conversion costs. Direct labor and factory overhead costs are incurred simultaneously, making it reasonable to combine them when calculating the equivalent unit cost.

Quiz 20: Process Costing