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Chapter 5: Process Costing

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Chapter 5: Process Costing

19 problems · 0 figures

Multiple Choice 5.1 §5.1 source ↗

Which of the following production characteristics is better suited for process costing and not job order costing?
  1. a.
    Each product batch is distinguishable from the prior batch.
  2. b.
    The costs are easily traced to a specific product.
  3. c.
    Costs are accumulated by department.
  4. d.
    The value of work in process is the direct material used, the direct labor incurred, and the overhead applied to the job in process.

Answer

C. Costs are accumulated by department.

Multiple Choice 5.3 §5.1 source ↗

Which of the following is a prime cost?
  1. a.
    direct labor
  2. b.
    work in process inventory
  3. c.
    administrative labor
  4. d.
    factory maintenance expenses

Answer

A. direct labor

Multiple Choice 5.5 §5.1 source ↗

During production, how are the costs in process costing accumulated?
  1. a.
    to cost of goods sold
  2. b.
    to each individual product
  3. c.
    to manufacturing overhead
  4. d.
    to each individual department

Answer

D. to each individual department

Multiple Choice 5.7 §5.2 source ↗

What is the cost of direct labor if the conversion costs are $330,000 and manufacturing overhead is $275,000?
  1. a.
    $55,000
  2. b.
    $275,000
  3. c.
    $330,000
  4. d.
    $605,000

Answer

A. $55,000

Multiple Choice 5.9 §5.2 source ↗

Which of the following lists contains only conversion costs for an inflatable raft manufacturing corporation?
  1. a.
    vinyl for raft, machine operator, electricity, insurance
  2. b.
    machine operator, electricity, depreciation, plastic for air valves
  3. c.
    machine operator, electricity, depreciation, insurance
  4. d.
    vinyl for raft, electricity, insurance, plastic for air valves

Answer

C. machine operator, electricity, depreciation, insurance

Multiple Choice 5.11 §5.3 source ↗

Beginning inventory and direct material cost added during the month total $55,000. What is the value of the ending work in process inventory if beginning inventory was 2,000 units; 9,000 units were started; and 1,000 units were in ending inventory?
  1. a.
    $1,000
  2. b.
    $5,000
  3. c.
    $50,000
  4. d.
    $55,000

Answer

B. $5,000

Multiple Choice 5.13 §5.3 source ↗

There were 1,000 units in ending inventory after transferring 16,000 units to finished goods inventory. If the beginning inventory was 2,000 units, how many units were started in process?
  1. a.
    1,000
  2. b.
    2,000
  3. c.
    15,000
  4. d.
    17,000

Answer

C. 15,000

Multiple Choice 5.15 §5.4 source ↗

Which of the following is the step in which materials, labor, and overhead are detailed?
  1. a.
    determining the units to which costs are assigned
  2. b.
    determining the equivalent units of production
  3. c.
    determining the cost per equivalent units
  4. d.
    allocating the costs to the units transferred out and the units partially completed

Answer

C. determining the cost per equivalent units

Multiple Choice 5.17 §5.5 source ↗

Assigning indirect costs to departments is completed by ________.
  1. a.
    applying the predetermined overhead rate
  2. b.
    debiting the manufacturing costs incurred
  3. c.
    applying the costs to manufacturing overhead
  4. d.
    applying the costs to work in process inventory

Answer

C. applying the costs to manufacturing overhead

Multiple Choice 5.19 §5.5 source ↗

In a process cost system, factory depreciation expense incurred is debited to ________.
  1. a.
    finished goods inventory
  2. b.
    work in process inventory
  3. c.
    manufacturing overhead
  4. d.
    cost of goods sold

Answer

C. manufacturing overhead

Question 5.1 §5.1 source ↗

Explain how process costing differs from job order costing.

Answer

Answers will vary but should include the following:

Area Process Job Order
Types of jobs Identical Custom order
Quantity within each job Large volume Small volume
Cost accumulation In each department In each job

Question 5.3 §5.1 source ↗

Which costs are assigned using the weighted-average method?

Answer

The weighted-average method assigns the beginning inventory and the costs added during the period. The weighted-average method does not differentiate between the beginning inventory and the units started in production. This is different from the FIFO method that accounts for the beginning inventory differently and separately from current period costs.

Question 5.5 §5.2 source ↗

What is the difference between prime costs and conversion costs?

Answer

Prime costs and conversion costs both include labor. Prime costs are the direct costs, other than equipment, used in manufacturing and therefore are direct material and direct labor. Conversion costs are the costs involved in converting the direct material into the product and therefore are direct labor and manufacturing overhead.

Question 5.7 §5.2 source ↗

Why are there conversion costs in both job order costing and process costing?

Answer

Job order costing and process costing are the accounting systems used to record the costs expended to produce a product. Conversion costs are the direct labor and manufacturing overhead involved in the production process and exist regardless of the accounting system used.

Question 5.9 §5.2 source ↗

How can there be a different number of equivalent units for materials as compared to conversion costs?

Answer

While conversion typically occurs evenly throughout the process, materials are not typically added evenly, so the ending work in process can be different. For example, when materials are added at the beginning of the process, materials can be 100% complete and conversion can be 50% complete. Different completion percentages result in different equivalent units.

Question 5.11 §5.3 source ↗

What are the four steps involved in determining the cost of inventory transferred from one department to the next and the cost of work in process inventory?

Answer

Step 1: Determine the units to which costs are assigned. Step 2: Compute the equivalent units of production. Step 3: Determine the cost per equivalent unit. Step 4: Allocate the costs to the units transferred out and the units partially completed.

Question 5.13 §5.4 source ↗

How does process costing treat the costs transferred in from another department?

Answer

The costs transferred in are treated in the same way as direct material that is added to production at the beginning of the process.

Question 5.15 §5.5 source ↗

Match each term with its description.

A. conversion costs i. total of direct material costs and direct labor costs
B. cost of goods sold ii. manufacturing costs of the items sold
C. cost of production report iii. number of units produced if each unit was produced sequentially
D. cost per equivalent unit iv. total of direct labor costs, indirect labor costs, indirect material costs, and manufacturing overhead
E. equivalent units of production v. where costs in a process cost system are reported before being applied to the product
F. manufacturing department vi. detailed listing of the total costs of the product including the value of work in process
G. prime costs vii. cost of materials or conversion for a specific department during production
H. transferred out costs viii. product of the total cost per unit and the number of units completed and transferred during the time period

Answer

A. iv; B. ii; C. vi; D. vii; E. iii; F. v; G. i; H. viii.

Question 5.17 §5.5 source ↗

How are predetermined overhead rates used in process costing?

Answer

Prior to the new year, a company computes the estimates of the annual overhead per department divided by the estimated driver for that department. A driver is the measure that increases the cost of overhead and is commonly direct labor hours, direct labor cost, or machine hours. The result is the predetermined overhead rate. Costs are accumulated in an account called manufacturing overhead. At the end of each period, the overhead is removed from the overhead account and applied to the department.

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Problems and answers are adapted from Principles of Accounting, Volume 2: Managerial Accounting by Mitchell Franklin, Patty Graybeal and Dixon Cooper, OpenStax, and are used under the CC BY-NC-SA 4.0 licence. Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters. Illustrations: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license. This adaptation is released under the same licence, is non-commercial, and is neither affiliated with nor endorsed by OpenStax or Rice University.