Process Costsing - Slides

Question 1

What is process costing?

Answer 1

A product costing system used when identical units are mass-produced through continuous processes

Question 2

What are the five steps in process costing?

Answer 2

1) Summarize units
2) Summarize costs
3) Compute equivalent units
4) Cost per equivalent unit
5) Assign costs

Question 3

What are equivalent units?

Answer 3

A measure of completed work expressed in fully completed units

Question 4

Why are equivalent units necessary?

Answer 4

Because some units are partially complete at period-end.

Question 5

Equivalent unit example for conversion costs

Answer 5

80 units × 60% complete = 48 equivalent units.

Question 6

What are the two process costing methods?

Answer 6

Weighted-average and FIFO

Question 7

How does weighted-average treat beginning WIP costs?

Answer 7

Pools beginning WIP costs with current period costs.

Question 8

How does FIFO treat beginning WIP costs?

Answer 8

Separates beginning WIP costs from current period costs.

Question 9

Key difference between WA and FIFO

Answer 9

WA blends prior/current costs; FIFO isolates current-period performance.

Question 10

When is FIFO more useful for managers?

Answer 10

When pricing decisions are frequent—more timely cost information.

Question 11

Which method smooths cost fluctuations?

Answer 11

Weighted-average method.

Question 12

Where are direct materials typically added in the chocolate example?

Answer 12

At the beginning of the process

Question 13

How are conversion costs added in the chocolate example?

Answer 13

Evenly throughout the production process

Question 14

What costs are included in conversion costs?

Answer 14

Direct labor and manufacturing overhead.

Question 15

What happens to prior-period costs under FIFO when input prices rise?

Answer 15

Higher-cost prior units are completed and transferred out first.

Question 16

Under rising input prices, ending WIP is higher under which method?

Answer 16

FIFO.

Question 17

Under rising input prices, COGS is lower under which method?

Answer 17

FIFO

Question 18

Under rising input prices, which method reports higher net income?

Answer 18

FIFO (because COGS is lower).

Question 19

Under decreasing input prices, which method reports higher COGS?

Answer 19

FIFO.

Question 20

Common mistake in equivalent units calculation

Answer 20

Forgetting to multiply physical units by % completion.

Question 21

What is beginning work-in-process (BWIP)?

Answer 21

Partially completed units carried over from prior period.

Question 22

What is ending work-in-process (EWIP)?

Answer 22

Units partially complete at end of current period.

Question 23

What does “units transferred out” represent?

Answer 23

Completed units moved to the next department or finished goods.

Question 24

Why does FIFO allow better period comparisons?

Answer 24

It isolates current-period costs from prior-period costs.

Question 25

What is assigned in Step 5 of process costing?

Answer 25

Total costs to completed units and ending WIP