TEST BANK MANAGERIAL ACCOUNTING 2ND EDITION DAVIS tf2

T2 – Topic Focus: Process Costing TRUE-FALSE STATEMENTS Companies that mass produce similar products or employ a continuous production process typically use a process costing system LO1 – True LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management Companies that mass produce similar products or employ a continuous production process typically use a job order system LO1 – False – Companies that mass produce similar products or employ a continuous production process typically use a process costing system LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management In a process costing system, all product costs for the period are accumulated and divided evenly over all units produced during the period LO1 – True LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management In a job order costing system, all product costs for the period are accumulated and divided evenly over all units produced during the period LO1 – False - In a process costing system, all product costs for the period are accumulated and divided evenly over all units produced during the period LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management The soft drink bottler Dr Pepper is an example of a company that would use a process costing system LO1 – True LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management The accounting firm PriceWaterhouseCoopers is an example of a company that would use a process costing system LO1 – False - The accounting firm PriceWaterhouseCoopers is an example of a company that would use a job order costing system LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management Costs incurred in a process costing system include direct material, direct labor and overhead LO1 – True LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-1 The costs incurred in a process costing system, direct material, direct labor and overhead, are the same as the costs incurred in a job order costing system LO1 – True LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management The inventories used in a process costing system include work-in-process and finished goods, but not raw materials LO1 – False – The inventories used in a process costing system include raw materials, work-in-process and finished goods LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management 10 The inventories used in a process costing system are the same as those used in a job order costing system LO1 – True LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management 11 Both process costing systems and job order costing systems accumulate costs on a job cost sheet LO1 – False – In a job order costing system, the costs of each job are accumulated on a job cost sheet In process costing, by contrast, the costs are accumulated by department LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 12 In a job order costing system, the costs of each job are accumulated on a job cost sheet, while in process costing, the costs are accumulated by department LO1 – True LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 13 In process costing, all materials are added at the beginning of the production process, then labor and overhead is added during the production process LO1 – False – Direct materials may be added at different points of the department’s production process LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 14 In process costing, direct materials may be added at different points of a department’s production process LO1 – True LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 15 The journal entries used to record cost flows in a process costing system are the same as those used to record cost flows in a job order costing system LO1 – True LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-2 16 The journal entries used to record cost flows in a process costing system differ from those used to record cost flows in a job order costing system LO1 – False – The journal entries used to record cost flows in a process costing system are the same as those used to record cost flows in a job order costing system LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 17 Both the process costing and job order costing systems accumulate product costs throughout the production process and assign those costs to individual units of production LO1 – True LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 18 Like process costing, job order costing makes no attempt to track an individual product’s costs, all the products have similar costs LO1 – False – Job order costing tracks individual product costs LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Difficult, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 19 When there is no work in process inventory at the end of a period, cost accumulation and reporting is extremely easy under process costing, as the product costs are simply added up and divided evenly among the products produced LO1 – True LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 20 When work is in process at the end of an accounting period, cost accumulation and reporting is extremely easy under process costing, as the product costs are simply added up and divided evenly among the products produced LO1 – False - When work is in process at the end of an accounting period, cost accumulation and reporting is more complicated as cost must be assigned to the completed units and to the partially completed units that remain in work in process inventory LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Difficult, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 21 Equivalent units (EU) of production is based on the percentage of completion for work in process inventory at the end of the period LO3 – True LO: 3, Bloom: K, Unit: TF02-3, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 22 In a process costing system, labor and overhead costs are typically combined and referred to as conversion costs LO2 – True LO: 2, Bloom: K, Unit: TF02-2, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management T2-3 23 In a process costing system, labor and overhead costs are typically combined and referred to as equivalent costs LO2 – False – In a process costing system, labor and overhead costs are typically combined and referred to as conversion costs LO: 2, Bloom: K, Unit: TF02-2, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management 24 Equivalent units for direct materials and conversion costs should be added separately to total units completed to arrive at the total equivalent units for materials and the total equivalent units for conversion LO3 – True LO: 3, Bloom: K, Unit: TF02-3, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 25 The objective of process costing is the same as job order costing: to assign all costs to specific jobs LO1 – False – The object for process costing is the same as job order costing: to develop a product unit cost to use in decision making and inventory valuation LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-4 MULTIPLE-CHOICE QUESTIONS 26 Companies that mass-produce similar products or employ a continuous production process typically use which of the following costing systems? a Job order b Process c Accumulation d Variable LO1 – B LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management 27 Companies that mass-produce similar products or employ a continuous production process typically use which of the following costing systems? a Process b Job order c Either process or job order d Neither process nor job order LO1 –A LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management 28 The costing systems in which all product costs for the period are accumulated and divided evenly over all units produced during the period is referred to as a Job order costing system b Accumulation costing system c Departmental costing system d Process costing system LO1 – D LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 29 Which of the following types of entities would probably use a process costing system? a Construction b Ship building c Soft drink bottler d CPA firm LO1 – C LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management 30 Which of the following types of entities would probably use a process costing system? a Automobile repair shop b Paint manufacturer c Printing company d Law firm LO1 – B LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management T2-5 31 Which of the following types of entities would probably use a process costing system? a Oil refiner b Construction company c Airplane manufacturer d CPA firm LO1 – A LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management 32 Which of the following costs are incurred in a process costing system? a Direct material b Direct labor c Manufacturing overhead d All of these answer choices are correct LO1 – D LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management 33 Which of the following inventory accounts is not used in a process costing system? a Work in process b Finished goods c Cost of goods sold d All of these answer choices are used in a process costing system LO1 – C LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management 34 Which of the following inventory accounts is used in a process costing system? a Raw materials b Work in process c Finished goods d All of these answer choices are correct LO1 – D LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Communication, IMA: Cost Management 35 In a job order costing system, the costs of each job are accumulated on a a Job cost sheet b Departmental cost sheet c End-of-job accumulation sheet d None of these answer choices are correct LO1 – A LO: 1, Bloom: K, Unit: TF02-1, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 36 In a process costing system, when raw material is received in which of the following balance sheet accounts is it recorded? a Raw materials inventory b Work in process inventory T2-6 LO1 – A c Finished goods inventory d Cost of goods sold LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 37 In a process costing system, when raw materials are moved into the mixing department, in which of the following balance sheet accounts is it recorded? a Raw materials inventory – mixing b Work in process inventory – mixing c Finished goods inventory – mixing d Cost of goods sold LO1 – B LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 38 Which of the following is a similarity between job order costing and process costing systems? a Both accumulate product costs throughout the production process and assign those costs to individual units of production b Both track individual product costs c Both accumulate product costs in each production department during the period d Both accumulate costs on a job cost sheet LO1 – A LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 39 Which of the following is a similarity between job order costing and process costing systems? a Both mass-produce identical products b Both accumulate direct materials, direct labor and manufacturing overhead costs c Both accumulate product cost on a departmental production report d None of these answer choices are similarities between job costing and process costing systems LO1 – B LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 40 Which of the following is a similarity between job order costing and process costing systems? a Both accumulate costs on a job cost sheet b Both accumulate product costs in each production department during the period c Both systems track cost flows from raw materials to work in process, from work in process to finished goods, and from finished goods to cost of goods sold d Both produce many different types of products, often to customer specifications LO1 – C LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-7 41 Which of the following is a similarity between job order costing and process costing systems? a Both accumulate product costs throughout the production process and assign those costs to individual units of production b Both accumulate direct materials, direct labor, and manufacturing overhead costs c Both track cost flows from raw materials to work in process, from work in process to finished goods, and from finished goods to cost of goods sold d All of these answer choices are similarities between job costing and process costing systems LO1 – D LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 42 Which of the following is a difference between job order costing and process costing systems? a Companies that use a process costing system mass-produce identical products while companies that use a job order costing system produce many different types of products b Companies that use a process costing system accumulate product costs throughout the production process while companies that use a job order costing system accumulate product cost only at the end of the production process c Companies that use a process costing system accumulate direct material and direct labor, but not manufacturing overhead while companies that use a job order costing systems accumulate direct material, direct labor and manufacturing overhead d All of these answer choices are differences between process costing and job order costing systems LO1 – A LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 43 Which of the following is a difference between job order costing and process costing systems? a Companies that use a process costing system accumulate product costs throughout the production process while companies that use a job order costing system accumulate product cost only at the end of the production process b Companies that use a process costing system accumulate product costs in each production department and allocate the costs evenly across all units produced in the department during the period while companies that use job order costing accumulate product costs by job and allocate those costs only to the units in that particular job c Companies that use a process costing system accumulate direct material and direct labor, but not manufacturing overhead while companies that use a job order costing systems accumulate direct material, direct labor and manufacturing overhead d All of these answer choices are differences between process costing and job order costing systems LO1 – B LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-8 44 Which of the following is a difference between job order costing and process costing systems? a Companies that use a process costing system accumulate product costs throughout the production process while companies that use a job order costing system accumulate product cost only at the end of the production process b Companies that use a process costing system accumulate direct material and direct labor, but not manufacturing overhead while companies that use a job order costing systems accumulate direct material, direct labor and manufacturing overhead c Companies that use a process costing system accumulate product costs on the departmental production report while companies that use a job order costing system accumulate product costs on the job cost sheet d All of these answer choices are differences between process costing and job order costing systems LO1 – C LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 45 When a department has work in process at the end of the period, the incomplete units must be converted to a Actual units b Equivalent units c Transferred-in units d None of these answer choices are correct LO3 – B LO: 3, Bloom: C, Unit: TF02-3, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 46 When a department has work in process at the end of the period, we need to determine the percentage of completion for the work in process Based on that percentage we calculate a Actual units of production b Particular units of production c Equivalent units of production d Half-units of production LO3 – C LO: 3, Bloom: K, Unit: TF02-3, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 47 At the end of January, Monroe Industries had completed 65,000 units and left 8,000 units in Work In process, 60% complete with respect to materials and 80% complete with respect to conversion How many equivalent units will be used to determine the cost per equivalent unit for materials? a 66,600 b 68,200 c 69,800 d 71,400 LO3 – C LO: 3, Bloom: AP, Unit: TF02-4, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management Solution: 65,000 units + (60% x 8,000 units) = 69,800 equivalent units T2-9 48 At the end of January, Monroe Industries had completed 65,000 units and left 8,000 units in Work In process, 60% complete with respect to materials and 80% complete with respect to conversion Conversion costs will be assigned to how many equivalent units in the ending work in process inventory? a 1,600 b 6,400 c 4,800 d 8,000 LO3 – B LO: 3, Bloom: AP, Unit: TF02-4, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management Solution: 8,000 units x 80% = 6,400 equivalent units 49 The mixing department of the Glasson Company started the month with 20,000 units in its beginning work in process inventory An additional 309,000 units were transferred into the mixing department during the month At the end of the month 29,000 units were in ending work in process inventory in the mixing department How many units were transferred out of the mixing department during the period? a 280,000 b 300,000 c 318,000 d 329,000 LO3 - B LO: 3, Bloom: AP, Unit: TF02-4, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management Solution: 20,000 + 309,000 – 29,000 = 300,000 units 50 On December 31, Berry Company recorded the following information in the Mixing Department’s Work in Process account: Beginning balance (80% complete) Started into production Completed and transferred to Packaging Ending balance (60% complete) LO4 – C Units 5,000 100,000 95,000 10,000 Cost $50,000 $500,000 Assume that the unfinished units in ending inventory are 60% complete for both materials and conversion What is the cost per equivalent unit? a $5.18 b $5.23 c $5.44 d $5.55 LO: 4, Bloom: AP, Unit: TF02-5, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management Solution: ($500,000 + $50,000) ÷ [95,000 + (10,000 x 60%) = $5.44 T2-10 51 On December 31, Berry Company recorded the following information in the Mixing Department’s Work in Process account: Beginning balance (80% complete) Started into production Completed and transferred to Packaging Ending balance (60% complete) Units 5,000 100,000 95,000 10,000 Cost $50,000 $500,000 Assume that the unfinished units in ending inventory are 60% complete for both materials and conversion What is balance in the ending Work in Process on December 31? a $32,640 b $33,300 c $51,800 d $52,300 LO4 – A LO: 4, Bloom: AP, Unit: TF02-5, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management Solution: (10,000 x 60%) x $5.44 = $32,640 52 On March 31, Morgan Company recorded the following information in the Assembly Department’s Work in Process account: Beginning balance (70% complete) Started into production Completed and transferred to Packaging Ending balance (80% complete) LO4 – B Units 14,000 80,000 90,000 4,000 Cost $60,000 $229,852 Assume that the unfinished units in ending inventory are 80% complete for both materials and conversion What is the total cost assigned to ending work in process? a $9,856 b $9,952 c $12,880 d $14,480 LO: 4, Bloom: AP, Unit: TF02-6, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management Solution: (4,000 x 80%) x [($229,852 + $60,000) ÷ [90,000 + (4,000 x 80%)] = $9,952 T2-11 53 Bemis Corporation’s Assembly Department had 2,000 units in beginning inventory that were 70% complete with respect to conversion An additional 60,000 units were transferred into Assembly during the period Assembly had 12,000 units remaining in work in process at the end of the period These units were 60% complete with respect to conversion What were the equivalent units for conversion? a 54,800 b 57,200 c 64,800 d 72,000 LO3 – B LO: 3, Bloom: AP, Unit: TF02-4, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management Solution: 2,000 + 48,000 + (12,000 x 60%) = 57,200 equivalent units 54 Which of the following is not a step in calculating the unit product cost? a Calculate the equivalent units of production b Allocate the equivalent unit costs of production c Divide the total equivalent costs by the total units d Reconcile the costs of production LO4 – C LO: 4, Bloom: K, Unit: TF02-5, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 55 Which of the following is not a step in calculating the unit product cost? a Calculate the physical unit flow b Calculate the equivalent units of production c Calculate the cost per equivalent unit d Multiply the physical unit flow by the equivalent unit cost LO4 – D LO: 4, Bloom: K, Unit: TF02-5, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 56 When using a process costing system, the formula to reconcile the physical unit flow is a Beginning WIP units + Units started = Units transferred out + Ending WIP units b Beginning WIP units + Units transferred out = Units started + Ending WIP units c Units started – Beginning WIP units= Units transferred out + Ending WIP units d Beginning WIP units + Units transferred out = Units started – Ending inventory LO4 – A LO: 4, Bloom: K, Unit: TF02-5, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 57 The units of product in the ending work in process inventory must be converted to equivalent units of production separately for the direct materials and conversion costs because a The units may be in different departments at the end of the period b The units may not be at the same stage of completion c The conversion cost may have been added at the beginning of the process d None of these answer choices are correct LO4 – B LO: 4, Bloom: C, AN, Unit: TF02-5, Difficulty: Difficult, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-12 58 To determine the equivalent units produced, a Multiply the percentage of completion for each cost category by the number of physical units in the ending work in process inventory b Divide the percentage of completion for each cost category by the number of physical units in the ending work in process inventory c Add the cost of production to beginning work in process inventory and divide this total by the physical units transferred out d Multiply the number of physical units in ending work in process by the cost per physical units LO3 – A LO: 3, Bloom: K, Unit: TF02-3, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 59 When using a process costing system, the formula for reconciling the costs of production is a Beginning WIP balance + Costs transferred out during the period + Ending WIP = Total costs accounted for b Beginning WIP balance + Cost added during the period = Cost transferred out during the period + Ending WIP balance c Cost added during the period – Beginning WIP balance = Cost transferred out during the period + Ending WIP balance d Beginning WIP balance + Cost transferred out – Ending inventory = Total costs to accounted for LO4 – B LO: 4, Bloom: K, Unit: TF02-5, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-13 MATCHING 60 Match the following terms to the appropriate statement by placing the letter to the left of each statement a b c d _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Brewery Conversion costs e f Reconciliation of physical unit flow formula Reconciliation of costs of production formula Equivalent units Process costing system g h Shipbuilding Work in process Beginning WIP units + Units started = Units transferred out + Ending WIP units A way of representing partially completed units in completed form Units in ending inventory at the end of the period An example of a company that would use process costing Beginning WIP balance + Costs added during the period = Costs transferred out during the period + Ending WIP balance Labor plus manufacturing overhead Used by companies that mass-produce similar products or employ a continuous production process An example of a company that would not use process costing LO1, 2, 3, 4, 5, Solution: e – Reconciliation of physical unit flow formula c– Equivalent units h – Work in process a –Brewery f –Reconciliation of costs of production formula b– Conversion costs d –Process costing system g – Shipbuilding LO: 1,2,3,4,5,6, Bloom: C, K, Unit: TF02-1, TF02-2, TF02-3, TF02-4, TF02-5, TF02-6, Difficulty: Moderate, Min: 8, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-14 BRIEF EXERCISES 61 Identify which costing method is more likely to be used to accumulate costs for the following products or services by marking an “X” in the appropriate column Process Job Order High-rise office building Cooking oil Artwork M&M candy Light bulbs LO1 Solution: Process High-rise office building Cooking oil Artwork M&M candy Light bulbs Job Order X X X X X LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 5, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 62 Identify which costing method is more likely to be used to accumulate costs for the following products or services by marking an “X” in the appropriate column Process Job Order Process Job Order X Movies Cotton fabric Sculptures Rice-A-Roni Auto repair LO1 Solution: Movies Cotton fabric Sculptures Rice-A-Roni Auto repair X X X X T2-15 LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 5, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 63 Fill in the missing data (ignore indirect materials) Beginning Balance Material purchased Direct material used Conversion costs incurred Completed units transferred Cost of goods sold Ending balance Raw Materials Inventory $ 4,000 10,000 12,000 (a) WIP - Mixing WIP - Assembly $6,000 $10,000 10,000 8,000 (c) 3,000 (d) 21,000 (b) (e) $3,000 LO2 Solution: Beginning Balance Material purchased Direct material used Conversion costs incurred Completed units transferred Cost of goods sold Ending balance Raw Materials Inventory $ 4,000 10,000 12,000 WIP - Mixing $6,000 $10,000 10,000 8,000 (c)2,000 3,000 (d)21,00 21,000 (a)$2,000 WIP - Assembly (b) $3,000 (e)33,000 $3,000 LO: 2, Bloom: AN, Unit: TF02-1, Difficulty: Moderate, Min: 10, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 64 In March, Connor’s, Inc completed 150,000 units; 12,000 units still in process at the end of the period were 60% complete with respect to materials and conversion Required: a How many equivalent units were in Connor’s ending work in process inventory? b How many equivalent units will be used to calculate the cost per equivalent unit? LO4 Solution: T2-16 a 12,000 x 60% = 7,200 with respect to materials and conversion b 150,000 + 7,200 = 157,200 with respect to materials and conversion LO: 4, Bloom: AP, Unit: TF02-4, Difficulty: Moderate, Min: 8, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management EXERCISES 65 Identify which costing method is more likely to be used to accumulate costs for the following products or services by marking an “X” in the appropriate column Process Job Order Bricks Law firm Advertising agency Beverages Appliance repair Baby diapers Airplanes Chemicals Movie studio Breakfast cereal LO1 Solution: Process X Bricks Law firm Advertising agency Beverages Appliance repair Baby diapers Airplanes Chemicals Movie studio Breakfast cereal Job Order X X X X X X X X X LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 10, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-17 66 Identify which costing method is described in the statements below by marking an “X” in the appropriate column (some items may apply to both) Process Job-Order Process X X Job-Order Accumulates cost by department Manufacturing costs include direct material, direct labor and overhead Many different products produced, each with different material, labor and/or overhead requirements Key document is job cost sheet Accumulates cost by job Cost flows from Raw Materials to Work in Process to Finished Goods to Cost of Goods Sold Requires calculation of equivalent units Key document is department production report Identical products produced over a long period, often in a continuous production process LO1 Solution: Accumulates cost by department Manufacturing costs include direct material, direct labor and overhead Many different products produced, each with different material, labor and/or overhead requirements Key document is job cost sheet Accumulates cost by job Cost flows from Raw Materials to Work in Process to Finished Goods to Cost of Goods Sold Requires calculation of equivalent units Key document is department production report Identical products produced over a long period, often in a continuous production process X X X X X X X X X LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 10, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 67 Stewart Manufacturing uses a process costing system Information regarding units processed and processing costs for the Packaging Department for the most recent period are given below: Beginning work in process inventory Units started into production Units completed and transferred out of Packaging Ending work in process inventory T2-18 Number of Units 1,200 10,000 9,400 1,800 Percentage Complete 25% 35% The beginning work in process had processing costs of $10,000 During the month, an additional $290,000 in processing costs were incurred Materials and conversion costs are incurred at the same rate Required: a What are the equivalent units for processing costs for the Packaging Department for the month? b What is the cost per equivalent unit for the month? LO3,4 Solution: a Equivalent units: Units to account for: Work in process, beginning Started into production Total units Units accounted for: Transferred out Ending inventory Total Units b Cost per equivalent unit Cost to account for: Work in process, beginning Cost added Total cost 1,200 10,000 11,200 9,400 1,800 11,200 EU – Materials & Conversion 9,400 630 10,030 $ 10,000 290,000 $300,000 Cost per equivalent: $300,000 ÷ 10,030 = $29.91 LO: 3, 4, Bloom: AP, Unit: TF02-4, TF02-5, TF02-6, Difficulty: Moderate, Min: 10-12, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-19 68 Morgan Company reported the following data for the operations of its Mixing Department for the month of July Beginning work in process (90% complete with respect to material) (40% complete with respect to conversion) Started into production Transferred out Ending work in process (50% with respect to materials) (30% with respect to conversion) T2-20 Units 200 Material $1,120 Costs Conversion $7,488 15,000 13,600 1,600 $32,000 $360,000 Required: a Calculate the equivalent units of production for materials and conversion costs b Determine the cost per equivalent unit for materials and conversion costs c Determine the cost of units transferred out of the Mixing Department during the period d Determine the cost of ending work in process inventory in the Mixing Department LO3,4 Solution Units to account for: Work in process, beginning Started into production Total units Units accounted for Transferred out Work in process, ending Cost per equivalent unit Work in process, beginning Cost added during period Total cost Equivalent units Cost per equivalent unit Cost per whole unit Cost accounted for Transferred out Work in process, ending Materials Conversion Total work in process, ending Total Cost 200 15,000 15,200 13,600 1,600 15,200 EU – Material 13,600 800 14,400 EU – Conversion 13,600 480 14,080 Total Cost $8,608 $392,000 $400,608 Materials $1,120 $32,000 $33,120 Conversion $7,488 $360,000 $367,488 14,400 $2.30 14,080 $26.10 Total Cost $386,240 EU -Materials 13,600 EU - Conversion 13,600 $1,840 $12,528 $14,368 $400,608 800 $28.40 LO: 3,4, Bloom: AP, Unit: TF02-4, TF02-5, TF02-6, Difficulty: Difficult, Min: 18-20, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-21 480 SHORT ANSWER 69 List three goods or services likely to use a process costing system and three that are likely to use a job order costing system LO1 Solution: Answer will vary, Examples goods or services that are likely to use a process costing system include textiles, refining, foods, paint, bricks or tiles Example of goods or services that are likely to use job order costing include airplanes, furniture, designer dresses, CPA firms, law firms, hospital procedures LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Moderate, Min: 5-7, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management 70 List three similarities between process costing and job-order costing LO1 Solution: The objective of both is to accumulate and assign manufacturing cost to products Manufacturing costs for both consist of direct material, direct labor and manufacturing overhead The cost flows are the same: from Raw Materials Inventory to Work in Process to Finished Goods to Cost of Goods Sold LO: 1, Bloom: C, Unit: TF02-1, Difficulty: Easy, Min: 5-7, AACSB: Analytic, AICPA FN: Reporting, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-22 ESSAY 71 When using a process costing system, explain the steps you use in assigning costs to units completed and transferred out of a department and to ending work in process LO3, Solution: Calculate the physical unit flow by adding the number of units started into production during the period to the number of units in beginning inventory, then deduct the units transferred to calculate ending work in process units Calculate the equivalent units of production separately for materials and conversion To determine the number of equivalent units produced, multiply the percentage of completion for each cost category by the number of physical units in the ending work in process inventory Add these results to the number of units transferred out of the department to obtain the total equivalent units of production for the period Calculate the cost per equivalent unit by adding the cost of direct materials incurred during the period to the direct material cost in beginning work in process Divide this total by the equivalent units for direct materials Next the same calculation for conversion Allocate the equivalent unit costs of production by multiplying the number of equivalent units in the ending work in process inventory by the cost per equivalent unit to determine the amount of ending work in process Then multiply the number of units transferred out by the cost per equivalent unit to determine the total cost transferred out of the department Separate calculations should be done for materials and conversion Reconcile the costs of production using the following equation: Beginning WIP balance + Costs added during the period = Costs transferred out during the period + Ending WIP balance Repeat the above steps for each department LO: 3,4, Bloom: K, Unit: TF02-3, TF02-4, TF02-5,TF02-6, Difficulty: Moderate, Min: 15-20, AACSB: Analytic, AICPA FN: Measurement, AICPA PC: Problem Solving and Decision Making, IMA: Cost Management T2-23 ... Problem Solving and Decision Making, IMA: Cost Management 20 When work is in process at the end of an accounting period, cost accumulation and reporting is extremely easy under process costing, as the... divided evenly among the products produced LO1 – False - When work is in process at the end of an accounting period, cost accumulation and reporting is more complicated as cost must be assigned