Question 1

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

Accepted Answer

Normal spoilage is a normal and expected part of the production process, and its cost is allocated to the good units produced. This is because the cost of producing goods includes the cost of materials and labor required to produce them, and some level of spoilage is typically factored into the cost of producing goods. As a result, the cost of normal spoilage is allocated to the final cost of the good units produced.

Question 2

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

Accepted Answer

Spoilage costs from an unusual natural disaster would be considered as abnormal costs and would not be allocated to good units produced in a process costing system. Abnormal costs are typically treated as separate line items and charged directly to the period's income statement, rather than being allocated to specific products or batches of production.

Question 3

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

Conversion costs consist of direct labour and overhead costs. It is common practice to separate them when it is easy to track direct labour and when the use of labour occurs in a different pattern than the use of overhead resources. Direct labour refers to the cost of labour directly involved in the production process, while overhead costs include all other indirect costs related to production.

Question 4

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

Accepted Answer

Equivalent units are a measure of the resources needed to complete partially completed units. It takes into account the proportion of resources already used in the partially completed units to give a more accurate measure of the resources needed to complete them.

Question 5

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.

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

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 does calculate the cost per equivalent unit separately for materials costs and conversion costs. This is because these costs are incurred at different points in the manufacturing process and require different calculations to determine their costs per unit.

Question 8

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

Accepted Answer

In a process costing system, a certain amount of spoilage may be expected as a normal part of the production process. The cost of this normal spoilage is included in the cost of the good units produced. Abnormal spoilage, on the other hand, refers to spoilage that is not expected or considered part of the normal production process. The cost of abnormal spoilage is treated as a separate cost and is not included in the cost of the good units produced.

Question 9

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 10

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 11

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 12

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 FIFO costing. The current period costs are divided by the equivalent units completed in the current period to determine the cost per unit.

Question 13

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

Accepted Answer

Process costing provides valuable information about the cost of materials, labor and overhead incurred in the production process. This information can be used to measure the efficiency of the process and identify areas for improvement. It also helps to monitor costs and ensure that they are kept under control.

Question 14

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 15

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

Accepted Answer

The answer of Process costing is simplified when a company...

Question 16

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 17

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

Accepted Answer

Managers have the option to use the weighted average method or the first-in, first-out (FIFO) method when calculating costs per equivalent unit in process costing.

Question 18

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

Accepted Answer

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

Question 19

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 is the correct description of the weighted average method.

Question 20

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.

Quiz 6: Process Costing