Chapter 18 Process Costing

Chapter 18 Process Costing Answer Key

 

True / False Questions

 

1. As companies become more automated overhead costs increase and direct labor costs
decrease. 
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

2. An equivalent unit measures the percentage of a completed unit's cost that is present in a
partially finished unit. 
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

3. Conversion costs include direct labor and overhead costs and direct materials associated
with converting units so that they can be transferred out of Work-in-Process. 
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

18-1
Chapter 18 Process Costing

4. A process cost system is highly desirable when a company is producing mass produced,
identical goods. 
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

5. Direct materials and overhead may be referred to as conversion costs. 

FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

6. Debiting Work-in-Process in Department Two and crediting Work-in-Process in

Department One represents costs transferred from Department Two to Department One. 
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

7. A company may choose to use process costing or job costing but never both
simultaneously. 
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

18-2
Chapter 18 Process Costing

8. Process costing provides information on a total and per-unit bases as well as the per-unit
cost of performing each step in the production process. 
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 4
 

9. United Construction Company, which manufactures residential buildings, would most

likely use a process costing system. 
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

10. A process cost system is suitable for a company with a large volume of standard products
produced on a relatively continuous basis, for example, golf balls or petroleum. 
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

11. Manufacturing overhead is not applied to products when a process cost system is used. 
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

18-3
Chapter 18 Process Costing

12. Costs flow through a process cost system in the same sequence as actual products move
through the assembly process. 
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

13. In most process cost systems, the number of units "in process" at any one time is usually
significant relative to the total production output of the period. 
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

14. As costs flow from one production department to the next in a process cost system, one
Work-in-Process Inventory account shows all the changes to the units in production. 
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

15. If there is no over or under applied overhead, equivalent units of production will equal the
exact number of units actually produced. 
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
Learning Objective: 5
 

18-4
Chapter 18 Process Costing

16. Completing 3,000 units which were each 75% complete at the beginning of the period
represents 2,250 equivalent full units of work during the current period. 
FALSE

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

17. Equivalent full units of production significantly differ from units completed and
transferred during the period only when no significant differences exist between beginning
and ending work in process. 
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5
 

18. In a process cost system that uses equivalent full units of production, the per-unit cost of
direct materials equals the total cost of materials used in the current month divided by the
number of units completed and transferred during the current month. 
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5
 

18-5
Chapter 18 Process Costing

19. The number of equivalent full units of production during a period may be greater than,
equal to, or smaller than the actual number of units completed and transferred to the finished
goods warehouse. 
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5
 
 

Multiple Choice Questions

 

20. Process costing: 
A. Traces direct costs to a specific production process.
B. Applies overhead using an activity base.
C. Averages direct and indirect costs across mass-produced identical units.
D. All of the above.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

21. Process costing would be suitable for: 

A. Automobile repair.
B. Production of television sets.
C. Boat building.
D. Kitchen remodeling.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

18-6
Chapter 18 Process Costing

22. All of the following are characteristics of the products of process costing except: 
A. High volume.
B. Different amounts of direct materials.
C. Identical amounts of direct materials.
D. Repetitive operations.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

23. A summary of work completed with related unit and total costs in a process costing
system is called a(n): 
A. Equivalent units production form.
B. Cost requisition form.
C. Summary of conversion costs.
D. Production cost report.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 6
 

24. The best cost system to use for a company producing a continuous stream of similar items
would be a: 
A. Job order system.
B. Process costing system.
C. Production costing system.
D. No cost system is required when jobs are similar.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

18-7
Chapter 18 Process Costing

25. Process cost systems: 

A. Are good when companies produce homogeneous units.
B. May have work-in-process accounts for each department.
C. Use equivalent units of production.
D. All of the above.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

26. If 8,000 units were in beginning inventory, 26,000 units were started and 6,000 units were
in the ending inventory, how many units were completed and transferred out? 
A. 40,000
B. 26,000
C. 28,000
D. 24,000

8,000 + 26,000 - 6,000 = 28,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

27. Equivalent units of production are: 

A. A measure representing the percentage of a unit's cost that has been completed.
B. May be computed separately for each input added during production.
C. May be assigned to beginning work-in-process or ending work-in-process.
D. All of the above.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

18-8
Chapter 18 Process Costing

28. A typical production cost report will contain all of the following except: 
A. The number of equivalent units.
B. The total cost of production.
C. The costs per equivalent units.
D. The costs assigned to each job.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 6
 

29. Per-unit costs: 
A. Are relevant only when a company is engaged in manufacturing activities.
B. Are determined in job order cost systems but cannot be computed when a process cost
system is in use.
C. Are relevant in manufacturing, merchandising, and service industries, regardless of the
type of cost accounting system in use.
D. Are determined by relating manufacturing costs to the number of units sold.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 4
 

30. Which company would most likely use a process costing system? 

A. Bic Pens.
B. Pepsi Cola.
C. Mars Candy.
D. All three.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

18-9
Chapter 18 Process Costing

31. In either a job order or a process cost system, credits to the Materials Inventory account
represent: 
A. The cost of materials purchased during the period.
B. The cost of materials relating to finished goods.
C. The cost of unused materials returned to the inventory.
D. The cost of materials placed into production.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

32. When either a job order cost system or a process cost system is in use, the Direct Labor
account is debited: 
A. When work is performed, even if not paid immediately.
B. When direct labor charges are assigned to work in process.
C. When employees are paid.
D. Instead of using a Salaries Expense account.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

33. When either a job order cost system or a process cost system is in use, the Direct Labor
account is credited: 
A. When work is performed, even if not paid immediately.
B. When direct labor charges are assigned to work in process.
C. When employees are paid.
D. Instead of using a Salaries Expense account.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

18-10
Chapter 18 Process Costing

34. Equivalent units are usually computed for: 

A. Only direct materials.
B. Only direct labor.
C. Only factory overhead.
D. All three of the above.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

35. Which of the following is not a characteristic of a process cost system? 

A. The costs incurred in each process are accumulated in separate Work-in-Process Inventory
accounts.
B. It is suitable for mass-produced operations.
C. Costs are accumulated separately for each unit of production as it moves through the
factory.
D. The cost of a finished unit is the sum of the unit costs of performing each manufacturing
process.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

36. A process cost system differs from a job order cost system in that: 
A. There is no need for overhead application rates in process cost systems.
B. Process cost systems are used primarily in service industries, whereas job order cost
systems are used in manufacturing operations.
C. Per-unit costs are not computed in process cost systems.
D. Process cost systems are used when production involves large volumes of standardized
products, whereas job cost systems are used when each job or batch of products is uniquely
different.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

18-11
Chapter 18 Process Costing

 Duffy Brothers manufactures a single product using a process involving (1) mixing
ingredients and (2) a subsequent packaging operation. Duffy uses a process cost system to
account for the flow of costs through its production process.

37. Refer to the information above. In the production process described, what is the Work-in-
Process Inventory: Packaging Department debited for? 
A. Costs transferred from the Work-in-Process Inventory: Mixing Department only.
B. The cost of materials, direct labor, and overhead applicable to the packaging operation
only.
C. Costs transferred from the Work-in-Process Inventory: Mixing Department, as well as
materials, direct labor, and overhead applicable to the packaging operation.
D. Costs transferred to the Finished Goods Inventory.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

38. Refer to the information above. In Duffy's operation, the Finished Goods Inventory
account is debited for: 
A. The cost of units transferred directly from the Mixing Department.
B. The cost of units transferred directly from the Packaging Department.
C. The cost of units transferred directly from both the Mixing Department and the Packaging
Department.
D. The cost of the units sold.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

18-12
Chapter 18 Process Costing

39. In most process cost systems, per-unit costs are determined by: 
A. Dividing the number of units completed during the period by the total manufacturing costs
incurred during the period.
B. Dividing the total manufacturing costs incurred during the period by the number of units
worked on during the period.
C. Dividing the total manufacturing costs incurred during the period by the equivalent number
of units completed during the period.
D. Unit costs cannot be determined in a process cost system.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

40. In a process cost system, costs flow from one Work-in-Process Inventory account to the
next in the same sequence as: 
A. Units flow through production.
B. In a LIFO periodic inventory system.
C. Shipped to customers.
D. In a job order cost system.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

41. In a process cost system, the number of units started and completed for a period is equal
to: 
A. Units transferred out less units in beginning work in process.
B. Units transferred out less units in ending work in process.
C. Units transferred out plus units of beginning work in process.
D. Units transferred out plus units in ending work in process.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

18-13
Chapter 18 Process Costing

42. The number of equivalent full units of production: 

A. Is equal to the number of units completed by a department.
B. May not be greater than the number of units completed by a department.
C. Is used to complete the overhead application rate.
D. May be less than, equal to, or greater than the number of physical units completed during
the period.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

43. Equivalent full units of production represent units of: 

A. Finished goods inventory.
B. Units of work-in-process inventory.
C. Work performed during the period.
D. Sales generated during the period.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

44. Companies that compute equivalent full units of production do so to: 

A. Comply with income tax regulations.
B. Compute total manufacturing costs for the period.
C. Determine a manufacturing overhead application rate.
D. Determine departmental per-unit costs.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

18-14
Chapter 18 Process Costing

45. The computation of equivalent full units is generally not necessary when: 

A. Beginning work-in-process inventories are significantly larger than ending work-in-
process inventories.
B. Beginning and ending work-in-process inventories differ only slightly.
C. The number of units in ending work-in-process exceeds the number of units completed and
transferred to finished goods during the period.
D. Per-unit costs become distorted as a result of not computing equivalent full units of
production.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

 Use the following to answer questions 46-49:

Sue's Soup Products uses a process cost system with two processing departments: the Mixing
Department and the Canning Department. Work-in-process inventories are reduced to zero
each month. In March, the Mixing Department incurred manufacturing costs of $63,000 to
mix 42,000 gallons of soup. The Canning Department incurred manufacturing costs of
$9,000. A total of 170,000 cans of soup were transferred to the finished goods warehouse
during the month.

46. Refer to the information above. The journal entry to record the transfer of soup out of the
Mixing Department during March would include: 
A. A debit to Work-in-Process Inventory, Mixing Department of $63,000.
B. A credit to Work-in-Process Inventory, Canning Department of $72,000.
C. A debit to Finished Goods Inventory of $72,000.
D. A credit to Work-in-Process Inventory, Mixing Department of $63,000.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

18-15
Chapter 18 Process Costing

47. Refer to the information above. The journal entry to record the transfer of soup out of the
Canning Department during March would include: 
A. A credit to Work-in-Process Inventory, Canning Department of $9,000.
B. A credit to Work-in-Process Inventory, Canning Department of $63,000.
C. A debit to Finished Goods Inventory of $72,000.
D. A credit to Finished Goods Inventory, Mixing Department of $72,000.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

48. Refer to the information above. The unit cost per gallon of soup transferred to the Canning
Department during March was: 
A. $1.50.
B. $1.62.
C. $1.71.
D. $1.83

$63,000/42,000 = $1.50

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
 

49. Refer to the information above. The unit cost per can of soup transferred to the finished
goods warehouse during March was: 
A. $0.05.
B. $0.42.
C. $0.37.
D. $1.71.

($63,000 + $9,000)/170,000 = $0 .42

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
 

18-16
Chapter 18 Process Costing

 Use the following to answer questions 50-52:

Evans Products uses a process cost system with two processing departments: the Mixing
Department and the Finishing Department. In June, unit costs incurred by the Mixing
Department amounted to $4.00 per unit. Unit costs transferred to the finished goods
warehouse during the month amounted to $22. Work-in-process inventories are reduced to
zero each month.

50. Refer to the information above. The transfer of 35,000 units of paint to the Finishing
Department in June required: 
A. A debit to Finished Goods Inventory of $770,000.
B. A credit to Work-in-Process Inventory, Mixing Department of $770,000.
C. A credit to Work-in-Process Inventory, Finishing Department of $140,000.
D. A debit to Work-in-Process Inventory, Finishing Department of $140,000.

35,000  $4 = $140,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

51. Refer to the information above. The entry to record the sale of 3,500 units in June would
include: 
A. A debit to Work-in-Process Inventory, of $77,000.
B. A debit to Finished Goods Inventory of $77,000.
C. A debit to Cost of Goods Sold of $77,000.
D. A credit to Cost of Goods Sold of $77,000.

3,500  $22 = $77,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

18-17
Chapter 18 Process Costing

52. Refer to the information above. If 80% of all inventory was sold at $32 per unit and 3,500
units were sold, what is the cost of the finished goods inventory at year-end? 
A. $16,800.
B. $77,000.
C. $19,250.
D. $96,250.

80 x = 3,500; x = 4,375; therefore 875 units remain at year-end x $22 = $19,250

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

53. During July, the equivalent full units of direct materials added to the product worked on
by Department A amounted to a total of 90,000 applied as follows: beginning inventory,
20,000 units; units started and completed in July, 60,000 units; and ending inventory, 10,000
units. Assuming that the cost of direct materials requisitioned by the department in July was
$135,000; the amount of the materials cost to be assigned to the ending inventory would be: 
A. $16,875.
B. $54,000.
C. $15,000.
D. $18,000.

$135,000  (10,000/90,000) = $15,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
 

18-18
Chapter 18 Process Costing

54. The Finishing Department of Berle Industries works on only one product, and all costs are
incurred uniformly while these units remain in the department. On March 1, 6,000 units were
in process that were 45% completed. An additional 60,000 units were transferred into the
Finishing Department during March. At March 31, there were 25,000 units in process that
were 75% completed. Compute the equivalent full units of production for the Finishing
Department during March. 
A. 81,450.
B. 60,000.
C. 82,050.
D. 69,550.

(6,000  55%) + 60,000 + (25,000  75%) = 82,050

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

55. Department X of a manufacturing company works on only one product, and all costs are
incurred uniformly as the product goes along the assembly line. The 8,000 units in process on
December 1 were 60% completed. An additional 50,000 units were placed in production
during December. At December 31, the 10,000 units in process were 60% completed. The
equivalent full units of production during December amounted to: 
A. 59,200.
B. 60,800.
C. 57,200.
D. 58,800.

(8,000  .4) + 50,000 + (10,000  .6) = 59,200

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

18-19
Chapter 18 Process Costing

 Aves Treats, Inc. produces bird seeds. All direct materials used in the production process are
added at the beginning of the manufacturing process. Labor and overhead are added evenly
thereafter, as each unit is mixed and packaged. Aves Treats uses process costing and had the
following unit production information available for the months of June and July;

   
The units remaining in work-in-process at the end of June were 30% complete. During the
month of July, all of the beginning work in process units w as completed and the units
remaining in work-in-process at the end of the month were 60% complete.

56. Refer to the information above. For the month of June, the number of equivalent units of
direct materials produced was: 
A. 750.
B. 600.
C. 150.
D. Some other amount.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

57. Refer to the information above. For the month of June, the number of equivalent units of
labor and overhead produced was: 
A. 750.
B. 600.
C. 645
D. 595.

(750 - 600)  30% + 600 = 645

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

18-20
Chapter 18 Process Costing

58. Refer to the information above. For the month of July, the number of equivalent units of
direct materials produced was: 
A. 700.
B. 800.
C. 900.
D. 950.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

59. Refer to the information above. For the month of July, the number of equivalent units of
labor and overhead produced was: 
A. 830.
B. 320.
C. 975.
D. Some other amount.

(200  .7) + 650 + (300  .6) = 970

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

 During May, the number of equivalent full units of materials applied to units produced by
Department Q totaled 48,000, computed as follows: beginning inventory, 6,000 equivalent
full units; units started and completed in May, 34,000 equivalent full units; and ending
inventory, 7,680 equivalent full units.

18-21
Chapter 18 Process Costing

60. Refer to the information above. Assuming that the cost of direct materials used by
Department Q in May was $440,000, the materials cost assigned to unfinished units at May 31
would be: 
A. $55,000.
B. $26,400.
C. $70,400.
D. Impossible to determine unless we know the percentage of completion for ending
inventory units.

$440,000  (7,680/48,000) = $70,400

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
 

61. Refer to the information above. On the basis of this information only: 

A. The number of units transferred in May from Department Q to the next process or
department was 34,000.
B. There were more units in Department Q's ending inventory than in Department Q's
beginning inventory for May.
C. Department Q completed 48,000 units of product during May.
D. Department Q used enough materials during May to produce 48,000 completed units.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

18-22
Chapter 18 Process Costing

62. During August, Department Z started and completed 90,000 units and also finished 18,000
units that were 75% completed on July 31. On August 31, Department Z's ending inventory
consisted of 26,000 units that were 45% completed. All manufacturing costs are incurred at a
uniform rate throughout Department Z's production process. The number of equivalent full
units of production for Department Z during August is: 
A. 106,200.
B. 90,000.
C. 94,500.
D. 117,800.

90,000 + (18,000  .25) + (26,000  .45) = 106,200

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

    

63. Refer to above. How many units were started in June? 

A. 92,000
B. 60,000
C. 160,000
D. 110,000

110,000 + 50,000 = 160,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

18-23
Chapter 18 Process Costing

64. Refer to above. What are the equivalent units for materials? 

A. 92,000
B. 60,000
C. 160,000
D. 110,000

110,000 + 50,000 = 160,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

65. Refer to above. What are the equivalent units for direct labor and overhead? 
A. 140,000
B. 80,000
C. 160,000
D. 130,000

110,000 + (50,000  .6) = 140,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

66. Refer to above. If direct labor and overhead costs totaled $172,000, what would be the
unit cost? 
A. $1.23
B. $1.08
C. $1.56
D. $3.44

$172,000/140,000 = $1.23

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
 
 

18-24
Chapter 18 Process Costing

Essay Questions
 

67. Selecting an appropriate cost accounting system

Listed below are seven businesses. In the spaces provided, identify whether a job order cost
system or a process cost system would most likely be appropriate.
(a) Nancy's Paper Plate Company
(b) Two Leg Pants Manufacturers Inc.
(c) Solid Residential Contractors
(d) Float's Boats
(e) Big Heart Hospital
(f) Fizz Soda, Inc.
(g) Sugarmore Candies, Inc. 

(a) Process cost system (b) Process cost system (c) Job order cost system (d) Job order cost
system (e) Job order cost system (f) Process cost system (g) Process cost system

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 1
 

18-25
Chapter 18 Process Costing

68. Process cost system-determining unit costs

Houston Oil Company uses a process cost system with two departments: (a) a Refining
Department, and (b) a Packaging Department. During June, its first month of operations, the
company manufactured and sold 650,000 gallons of motor oil, generating total revenue of
$3,845,000. The company incurred the following manufacturing costs in June:

   
(a) How much was the unit cost per gallon of oil processed by the Refining Department in
June?
(b) If each case of oil contains four gallons how much was the unit cost per case incurred by
the Packaging Department in June?
(c) How much was the unit cost per case transferred to finished goods in June?
(d) The total gross profit (sales less cost of goods sold) generated by the company in June was
how much? 

(a) The unit cost per gallon of oil processed by the Refining Department: ($770,000 +
$220,000 + $957,000)/650,000 gallons = $3.00 per gallon.
(b) The unit cost per case incurred by the Packaging Department: ($192,500 + $55,000 +
$110,000)/650,000 gallons = $0.55 per gallon; $0.55per gallon x 4 gallons per case = $2.20
per case.
(c) The unit cost per case transferred to finished goods: ($3.00 per gallon x 4 gallons per case)
+ $2.20 per case = $14.20 per case.
(d) The total gross profit (sales less total manufacturing costs incurred by both departments):
$3,845,000 - ($1,947,000 + $357,500) = $1,540,500.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
Learning Objective: 4
 

18-26
Chapter 18 Process Costing

69. Process cost system-journal entries

Milton Manufacturing uses a process cost system. Products are processed successively by
Department X and Department Y and are then transferred to the finished goods warehouse.
Shown below is cost information for Department Y during the month of May:

   
The cost of work in process in Department Y at May 31 has been determined to be $113,500.
In the space provided, prepare a general journal entry to summarize for the month of May
each of the following categories of transactions (you may omit explanations):
(a) The transfer of production from Department X to Department Y.
(b) The recording of manufacturing costs incurred in Department Y during May. (Use a single
journal entry.)
(c) The transfer of completed units from Department Y to the finished goods warehouse.

    

18-27
Chapter 18 Process Costing

   

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

18-28
Chapter 18 Process Costing

70. Process cost system-journal entries

Joyce Industries uses a process cost system. All of the company's manufacturing activities
take place in a single processing department. There was no beginning inventory in May.
$60,000 of materials were added and $40,000 of labor and $75,000 of overhead costs were
charged during May. The entire work-in-process inventory of 20,000 units was completed and
transferred to finished goods. Of these 20,000 units, 15,000 were sold on account at $14 per
unit.
In the space provided, prepare a general journal entry to summarize for the month of May
each of the following categories of transactions (you may omit explanations):
(a) The recording of manufacturing costs applied to production (use a single journal entry).
(b) The transfer completed units from work in process to the finished goods warehouse.
(c) The sale of 15,000 units manufactured during the month and the related cost of goods sold.

    

   

18-29
Chapter 18 Process Costing

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
 

71. Equivalent units
In the first month of operation, the manufacturing costs for Blue Sun Company were as
follows:

   
During the month 10,000 units were completed, and 5,000 units were in process at the end of
the month. The 5,000 units in process were 100% completed as to materials and 80%
completed as to direct labor and overhead. Compute the following:
(a) Direct materials cost per equivalent unit: $_______________
(b) Equivalent full units of production for direct labor and manufacturing overhead:
________________
(c) Direct labor cost per equivalent unit: $________________
(d) Manufacturing overhead cost per equivalent unit: $________________
(e) Total cost of 10,000 units completed: $________________
(f) Total cost of 5,000 units in process at the end of the month: $________________
Computations 

   

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5
 

18-30
Chapter 18 Process Costing

72. Process costing with equivalent units and beginning inventory

The records of Westminster Manufacturing Company for the month of May show the
following costs in Department A:

   
The beginning inventory for May consisted of 10,000 units which were 80% complete as to
direct materials and 60% complete as to labor and overhead. A total of 100,000 units were
completed and transferred out during May, and 20,000 units remained in the work in process
inventory. The ending inventory was 80% complete as to direct materials and 40% complete
as to labor and overhead. Compute the following:
(a) Direct materials cost per equivalent unit: $_______________
(b) Equivalent full units of production for direct labor and overhead: ________________
(c) Total cost of 100,000 units completed: $________________
(d) Total cost of 20,000 units in process at the end of the month: $________________
Computations 

18-31
Chapter 18 Process Costing

(a) Direct material cost per equivalent unit: $3.75

(b) Equivalent full units of production for direct labor and overhead: 102,000
(c) Total cost of 100,000 completed units: $1,699,500
(d) Total cost of ending work in process: $165,000
Computations

   

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5
 

18-32
Chapter 18 Process Costing

73. Job order and process cost systems

There are two distinct types of cost accounting systems: job order cost systems and process
cost systems. How does management decide whether to use a job order cost system or a
process cost system in any given manufacturing situation? Explain briefly. 

Whether a manufacturing company should use a job order cost system or a process cost
system depends upon the nature of the company's manufacturing operations.
A job order cost system is used when each unit of product (or batch of products) has unique
characteristics that may affect its manufacturing cost. The unique product or batch is called a
job, and the costs of completing each job are accumulated separately.
Companies that produce a steady stream of nearly identical units, with each unit passing
through the same manufacturing process, use process cost systems. In a process cost system,
the cost of performing the manufacturing process is determined for a period of time. The cost
per unit of product is then determined by dividing the cost of performing the manufacturing
process by the number of units processed during the period. Assigning the same "average
cost" to each unit produced is appropriate, as the units are essentially identical.

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Learning Objective: 1
 

74. Equivalent units
What is meant by the term equivalent full units? How is this concept used in computing
average unit costs? 

Equivalent full units is a measure of the total productive output of a department or process,
expressed in terms of its equivalent in units of completed product. Because average unit costs
are computed by dividing a total cost figure by units of production, it is necessary that units of
production be expressed in homogeneous terms. Finished units cannot be added to partially
finished units to produce a meaningful denominator. If the partially finished units are
converted to their equivalent in finished units, output is expressed in like terms, and an
average unit cost can be computed by dividing total cost by the equivalent number of full
units produced during the period.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 3
 

18-33
Chapter 18 Process Costing

75. Elmer has the following information for the month of October, its first month of
operations

   
Costs added in October

   
(1.) Determine the equivalent units of production for October.
(2.) Determine the cost of the ending work-in-process.
(3.) Determine the cost of goods completed.
(4.) If the company sold ¾ of its completed goods for $264,000, what is the gross profit? 

(1.) Materials 120,000 + 32,000 = 152,000 equivalent units

Direct labor & Overhead 120,000 + (32,000  .8) = 145,600
(2.) Direct Materials $145,900/152,000 = $0.96 units cost
Ending work-in-process

   
(3.) Total material, labor and overhead minus ending work-in-process ($349,900 - $66,560 =
$283,340)
(4.) Profit = $264,000 - ($283,340  75%) = $51,495

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5
 

18-34
Chapter 18 Process Costing

76. Monfort Company had the following information

   
(1.) What are equivalent units of production for materials?
(2.) What was the cost per equivalent unit of production for materials during the period?
(3.) What were the equivalent units of production for conversion cost?
(4.) What was the cost per equivalent unit of production for conversion costs? 

(1.) 200,000 + 40,000 = 240,000

(2.) $748,000/240,000 = $3.12
(3.) (125,000  .25) = 31,250 + 200,000 + (40,000  .6) = 255,250
(4.) $833,400/255,250 = $3.27

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Learning Objective: 2
Learning Objective: 3
Learning Objective: 4
Learning Objective: 5
 

18-35
Chapter 18 Process Costing
CHAPTER 18 NAME #

10-MINUTE QUIZ A SECTION

Indicate the best answer for each question in the space provided.

1 The beginning inventory of Department No. 3 was zero. During May, 2,500 units were
processed in the department at a cost of $5 per unit. All 2,500 of these units were
transferred to Department No. 4 in May at a total cost of $17,500. The unit cost of
goods transferred to Department No. 4 in May was:
a $5.00. b $6.00. c $7.00. d $1.00.
2 In a given department, the beginning inventory of 8,000 units was 60% complete as to
material, labor, and overhead. A total of 9,000 units were started and completed during
the period, and the ending inventory of 10,000 units was 40% complete as to material,
labor and overhead. The equivalent production for the period in units is:
a 12,200. b 16,200. c 17,800. d 18,200.

3 Department A started 3,000 units in February. They completed and transferred to

Department B 3,100 units in February and on February 28 had 300 units remaining in
Work-in-Process. The number of units in Work-in-Process on February 1 w as
a 6,300. b 400. c 100. d 0.

4 The assembly department has 750 units in work-in-process at the beginning of

November. By the end of November they had completed and transferred 2,800 units to
the paint department. On November 30 there were 400 units remaining in work-in-
process. How many units were started in production in the assembly department during
November?
a 3,650. b 3,050. c 2,450. d 1,750.

18-36
Chapter 18 Process Costing
CHAPTER 18 NAME #

10-MINUTE QUIZ B SECTION

WoW Chemical Company uses a process cost system with two departments: (a) a Mixing
Department, and (b) a Packing Department. During May, its first month of operations, the
company generated $180,000 in revenue by manufacturing and selling 800 cases of
chemicals. Related manufactured costs are as follows:

Mixing Packing
Department Department
Direct materials....................................................... $26,000 $ 1,000
Direct labor............................................................. $8,000 $14,000
Manufacturing overhead......................................... $12,000 $8,000

1 Refer to the above data. The unit cost of a case processed in the Mixing Department in
May was:
a $230.
b $57.50.
c $73.50.
d Some other amount.

2 Refer to the above data. The unit cost of a case incurred by the Packing Department in
May was:
a $73.50.
b $57.50.
c $28.75
d Some other amount.

3 Refer to the above data. The total cost of all cases transferred to finished goods in May
was:
a $74,200.
b $69,000.
c $63,600.
d Some other amount.

4 Refer to the above data. The gross profit (sales minus cost of goods sold) on chemicals
sold in May was:
a $64,000.
b $70,000.
c $111,000.
d Some other amount.

5 Refer to the above data. The unit cost of a case charged to cost of goods sold in May
was:
a $80.
b $65.50.
c $86.25.
d Some other amount.

18-37
Chapter 18 Process Costing
CHAPTER 18 NAME #

10-MINUTE QUIZ C SECTION

Prize Mustard uses a process cost system with two departments: (a) a Mixing Department,
and (b) a Bottling Department. During May, Prize generated $120,000 in revenue by
producing 40,000 gallons (10,000 cases) of mustard. The company reduces its work in
process inventories to zero each month. Manufacturing costs for May are as follows:

Mixing Bottling
Department Department
Direct materials....................................................... $16,000 $6,000
Direct labor............................................................. $5,600 $3,900
Manufacturing overhead......................................... $11,400 $8,100

1 Refer to the above data. The unit cost per gallon of mustard processed by the Mixing
Department in May was $__________.

2 Refer to the above data. The unit cost per case of mustard incurred by the Bottling
Department in May was $__________.

3 Refer to the above data. The total cost of the 10,000 cases transferred to finished
goods in May was $__________.

4 Refer to the above data. Assume that 9,500 cases of mustard were sold in May. , the
amount charged to cost of goods sold in May $__________.

5 Refer to the above data. Assume that $9,000 of finished goods were on hand at May 1.
Under the LIFO method of inventory valuation, finished goods inventory at May 31
was $__________ if 9,500 cases of mustard were sold in May.

18-38
Chapter 18 Process Costing
CHAPTER 17 SELF-TEST QUESTIONS FROM TEXTBOOK

Choose the best answer for each of the following questions and insert the identifying letter in
the space provided.

1 If Power Products uses process costing which of the following is likely to be true:
a The production process are high volume.
b The products use different amounts of direct labor.
c The products are created with repetitive processes.
d The products are created to customer specifications.

2 Which of the following businesses would most likely use process costing?
a Law firm.
b Maker of frozen orange juice.
c A brewery.
d An oil refinery.

3 Nut House manufactures and sells jars of peanut butter. All of the company’s output
passes through five production processes, which are performed in sequential order.
Identify all correct answers assuming that process costing is in use.
a The processing departments may define “units of output” differently.
b Costs transferred from one processing department are charged to the next
processing department (or to finished goods).
c The cost accounting system separately measures the per-unit cost of each
manufacturing process.
d Some portion of total manufacturing overhead should be charged to each
processing department.

4 Indicate which of the following phrases correctly complete this sentence: “Equivalent
units of production. . .” (Indicate all correct answers.)
a Are a measure of the work done during a given accounting period.
b Represent only those units completed during the period and transferred out of the
Production Department.
c Are used as the basis for determining per-unit manufacturing costs in a process
cost accounting system.
d Equivalent units are computed separately for each significant input consumed in
the production process.

5 A production cost report contains which of the following parts:

a Equivalent units for each significant category of resources consumed in making
the product.
b The total cost to account for.
c The physical flow of production.
d The overhead costs applied to each completed job.
e The total costs accounted for.

18-39
Chapter 18 Process Costing
SOLUTIONS TO CHAPTER 17 10-MINUTE QUIZZES

QUIZ A QUIZ B
1 C 1 B
2 B 2 C
3 B 3 B
4 C 4 C
5 C

QUIZ C
1
($16,000 + $5,600 + $11,400)/40,000 gallons = $0.825

2
($6,000 + $3,900 + $8,100)/10,000 cases = $1.80

3
($0.825 x 4 gallons/case) + $1.80 = $5.10 x 10,000 = $51,000

4
9,500 cases x $5.10 = $48,450

5
$9,000 + (500 cases x $5.10) = $11,550

SOLUTIONS TO CHAPTER 18 SELF-TEST QUESTIONS FROM TEXTBOOK

1 a, c 2 b 3 a, b, c 4 a, b, c, d 5 a, b, c, e

18-40