Week10 Process Costing

Question 1

1. Which cost accumulation procedure is most applicable in continuous mass-production manufacturing environments?
   A. Standard
   B. Actual
   C. Process
   D. Job order
2. A company uses a process costing system.
   A. Produces heterogeneous products
   B. Produces items by special request of customers
   C. Produces homogeneous products
   D. Accumulates costs by job
3. Equivalent units of production are equal to the
   A. Units completed by a production department in the period
   B. Number of units worked on during the period by the production department
   C. Number of whole units that could have been completed if all work of the period had been used to produce whole units
   D. Identifiable units existing at the end of the period in a production department
4. Some accountants think the weighted average method is inferior to the FIFO method because it
   A. Is more difficult to apply
   B. Only considers the last units worked on
   C. Ignores work performed in subsequent periods
   D. Commingles costs of two periods
5. The method of neglect handles spoilage that is
   A. Discrete and abnormal
   B. Discrete and normal
   C. Continuous and abnormal
   D. Continuous and normal.
6. The cost of normal discrete losses is
   A. Absorbed by all units past the inspection point on an EUP basis
   B. Absorbed by all units in the ending inventory
   C. Considered a period cost
   D. Written off as a loss on an EUP basis
7. The cost of abnormal continuous losses is
   A. Considered a product cost
   B. Absorbed by all units in the ending inventory and transferred out on an EUP basis
   C. Written off as a loss on an EUP basis
   D. Absorbed by all units past the inspection point

Answer 1

1. C
2. C
3. C
4. D
5. D
6. A
7. C

Question 2

AAA Company is employing process costing regarding its production cycle. Conversion costs are added uniformly during the production process, while direct materials are added 60% at the start of the production process, and the remainder 40% is added when the production process is 85%. Normal spoilage is 15% of the units started during the year.

The entity is conducting an inspection when the production process is at the 85% stage of conversion. The entity provided the following production data during the year:

Beginning Work in Process Inventory 40,000 units (60% complete as to conversion costs)
Units started during the year 160,000 units
Ending Work in Process Inventory 20,000 units (20% incomplete as to conversion costs)
Units completed during the period 152,000 units

1. What is the equivalent unit of production for direct material under average process costing?
   A. 200,000
   B. 180,800
   C. 188,800
   D. 192,000
2. What is the equivalent unit of production for conversion cost under average process costing?
   A. 179,800
   B. 196,000
   C. 191,800
   D. 190,400
3. What is the equivalent unit of production for direct material under FIFO costing?
   A. 140,800
   B. 164,800
   C. 160,000
   D. 156,800
4. What is the equivalent unit of production for conversion cost under FIFO costing?
   A. 175,800
   B. 155,500
   C. 167,800
   D. 166,400

Answer 2

1. B
2. C
3. D
4. C

Question 3

The following information is available for BBB Company for the month of August:

Production
Transferred out from Department 1 160,000 units
Beginning Inventory (60% undone) 15,000 units
Ending Inventory (70% complete) 26,000 units
Transferred to Finished Goods 145,000 units

Cost
Beginning Inventory:
Transferred-in 15,000
Material -
Conversion 48,400

Costs added during the month:
Transferred out from Department 1 300,000
Material 240,000
Conversion 700,000

All of the materials are added at the end of the production.

1. Case A: Assuming that management’s policy tolerates losses up to a maximum of 2% of units received from the preceding department during the period. Those losses are assumed to have occurred continuously throughout the production process. Assuming the FIFO method, compute the transferred-out cost. (Use two decimal places. Ex: 5.28)
   A. 1,162,820
   B. 1,166,720
   C. 1,153,430
   D. 1,150,070
2. Case B: Assuming that management’s policy tolerates losses of only 3% of units received from the preceding department during the period. Those losses occurred via inspection at the 90% stage of the production. Assuming the FIFO method, compute the transferred-out cost. (Use two decimal places. Ex: 5.28)
   A. 1,151,430
   B. 1,173,358
   C. 1,153,150
   D. 1,176,330
3. Case C: Assuming that management’s policy tolerates losses of only 1% of units received from the preceding department during the period. Those losses occurred via inspection once the units reach 50% completion. Assuming the Weighted Average method, which of the following is true? (Use two decimal places. Ex: 5.28)
   A. Spoilage amounting to 9,732 was written off as a loss during the period.
   B. The cost of units transferred out during the period is 1,158,550.
   C. Spoilage amounting to 5,662 was allocated to the completed units.
   D. The cost of units at the end of the period is 129,246.

Answer 3

1. B
2. D
3. C