Process Costing Exercises with Answers horngren 11e PDF

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Charles T. Horngren
Stanford University
Srikant M. Datar
Harvard University
Madhav V. Rajan
Stanford University...

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CHAPTER 17: PROCESS COSTING SYSTEMS TRUE/FALSE 1.

Examples of industries that would use process costing include the pharmaceutical and semiconductor industry. Answer:

2.

True

Difficulty:

1

Objective:

The principal difference between process costing and job costing is that in job costing an averaging process is used to compute the unit costs of products or services. Answer: False Difficulty: 2 Objective: The averaging process is used to calculate unit costs in process costing.

3.

1

Process-costing systems separate costs into cost categories according to the timing of when costs are introduced into the process. Answer:

4.

1

True

Difficulty:

2

Objective:

1

Estimating the degree of completion for the calculation of equivalent units is usually easier for conversion costs than it is for direct materials. Answer: False Difficulty: 2 Objective: 1 Estimating the degree of completion is easier for the calculation of direct materials since direct materials can be measured more easily than conversion costs.

5.

Process-costing journal entries and job-costing journal entries are similar with respect to direct materials and conversion costs. Answer:

6.

True

Difficulty:

2

Objective:

4

The accounting (for a bakery) entry to record the transfer of rolls from the mixing department to the baking department is: Work in Process-Mixing Department Work in Process-Baking Department Answer: False Difficulty: 2 Objective: The correct accounting entry is the opposite of the entry shown here.

7.

4

The weighted-average process costing method does not distinguish between units started in the previous period but completed during the current period and units started and completed during the current period. Answer:

True

Difficulty:

Chapter 17

2

Page 1

Objective:

5

8.

Equivalent units in beginning work in process + equivalent units of work done in the current period equals equivalent units completed and transferred out in the current period minus equivalent units in ending work in process. Answer: False Difficulty: 2 Objective: 5 The second part of the equation should be: equivalent units completed and transferred out in the current period PLUS equivalent units in ending work in process.

9.

In the weighted-average costing method, the costs of direct materials in beginning inventory are not included in the cost per unit calculation since direct materials are almost always added at the start of the production process. Answer: False Difficulty: 2 Objective: 5 The costs of the direct materials are included in the cost per unit calculation.

10.

The FIFO process costing method merges the work and the costs of the beginning inventory with the work and the costs done during the current period. Answer: False Difficulty: 2 FIFO only includes the work done during the current period.

11.

True

Difficulty:

2

Objective:

6

Process costing FIFO is usually applied to both the units entering a department and the units leaving a department. Answer: False Difficulty: 2 FIFO is only applied to the goods transferred out.

13.

6

The first-in, first-out process-costing method assumes that units in beginning inventory are completed during the current accounting period. Answer:

12.

Objective:

Objective:

6

Activity-based costing has more applicability in a process-costing system than in a jobcosting environment. Answer: False Difficulty: 2 Objective: 6 Activity-based costing is less applicable to process costing because the units all go through similar processes.

14.

A major advantage of the weighted-average process costing is that it provides managers with information about changes in the costs per unit from one period to the next. Answer: False Difficulty: 2 Objective: This is an advantage of FIFO, not the weighted-average method.

Chapter 17

Page 2

6

15

Standard costing is extremely useful when unique, high cost products are produced, as compared to the production of multiple products. Answer: False Difficulty: 2 Job costing is especially useful in this situation.

16.

Objective:

7

Under standard costing the cost per equivalent-unit calculation is more difficult than in either weighted average or FIFO. Answer: False Difficulty: 2 Objective: 7 The cost per equivalent-unit calculation is simpler because the cost is assumed constant during the accounting period.

17.

Transferred-out costs are incurred in previous departments that are carried forward as the product's cost as it moves to a subsequent process in the production cycle. Answer:

18.

2

Objective:

8

True

Difficulty:

2

Objective:

8

Hybrid costing systems are developed to cost products that are produced in a standardized environment, but are often customized to meet the needs of some of its customers. Answer:

20.

Difficulty:

Each department is regarded as a distinct accounting entity when interdepartmental transfers are present in an organization. Answer:

19.

True

True

Difficulty:

2

Objective:

8

An operation-costing system uses work orders that specify needed direct materials and step-by-step operations. Answer:

True

Difficulty:

Chapter 17

2

Page 3

Objective:

A

MULTIPLE CHOICE 21.

Costing systems that are used for the costing of like or similar units of products in mass production are called a. inventory-costing systems. b. job-costing systems. c. process-costing systems. d. weighted-average costing systems. Answer:

22.

Objective:

1

d

Difficulty:

2

Objective:

1

d

Difficulty:

2

Objective:

1

Which one of the following statements is true? a. In a job-costing system, individual jobs use different quantities of production resources. b. In a process-costing system each unit uses approximately the same amount of resources. c. An averaging process is used to calculate unit costs in a job-costing system. d. Both (a) and (b) are true. Answer:

25.

1

Process costing should be used to assign costs to products when a. the units produced are similar. b. the units produced are dissimilar. c. the calculation of unit costs requires the averaging of unit costs over all units produced. d. either (a) or (c) are present. Answer:

24.

Difficulty:

Which of the following manufactured products would not use process costing? a. 767 jet aircraft b. 19-inch television sets c. Custom built houses d. (a) and (c) would not use process costing. Answer:

23.

c

d

Difficulty:

2

Objective:

1

Conversion costs a. include all the factors of production. b. include direct materials. c. in process costing are usually considered to be added evenly throughout the production process. d. include both (b) and (c). Answer:

c

Difficulty:

Chapter 17

2

Page 4

Objective:

1

26.

An example of a business which would have no beginning or ending inventory but could use process costing to compute unit costs would be a. a clothing manufacturer. b. a corporation whose sole business activity is processing the customer deposits of several banks. c. a manufacturer of custom houses. d. a manufacturer of large TVs. Answer:

27.

Objective:

1

a

Difficulty:

2

Objective:

1

c

Difficulty:

2

Objective:

3

In a process-costing system, the calculation of equivalent units is used for a. calculating the dollar amount of ending inventory. b. calculating the dollar amount of the cost of goods sold for the accounting period. c. calculating the dollar cost of a particular job. d. both (a) and (b). Answer:

30.

2

The purpose of the equivalent-unit computation is a. to convert completed units into the amount of partially completed output units that could be made with that quantity of input. b. to assist the business in determining ending inventory. c. to convert partially completed units into the amount of completed output units that could be made with that quantity of input. d. both (b) and (c). Answer:

29.

Difficulty:

Which of the following statement (s) concerning conversion costs is correct? a. Estimating the degree of completion of direct materials in a partially completed unit is usually easier to calculate than estimating the degree of completion for conversion costs. b. The calculation of equivalent units is relatively easy for the textile industry. c. Estimates are usually not considered acceptable. d. Both (b) and (c) are correct. Answer:

28.

b

d

Difficulty:

1

Objective:

3

When a bakery transfers goods from the Baking Department to the Decorating Department, the accounting entry is a. Work in Process - Baking Department Work in Process - Decorating Department b. Work in Process - Decorating Department Accounts Payable c. Work in Process - Decorating Department Work in Process - Baking Department d. Work in Process - Baking Department Accounts Payable Answer:

c

Difficulty:

Chapter 17

2

Page 5

Objective:

4

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 31 AND 32. Injection Molding, Inc., manufactures plastic moldings for car seats. Its costing system utilizes two cost categories, direct materials and conversion costs. Each product must pass through Department A and Department B. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production. Data for Department A for February 20x3 are: Work in process, beginning inventory, 40% converted Units started during February Work in process, ending inventory Costs for Department A for February 20x3 are: Work in process, beginning inventory: Direct materials Conversion costs Direct materials costs added during February Conversion costs added during February 31

$100,000 $100,000 $1,000,000 $1,250,000

What is the unit cost per equivalent unit in Department A? a. $1,000 b. $1,750 c. $3,500 d. $3,750 Answer: b Difficulty: 2 Direct materials per unit ($100,000/200 units) Conversion costs per unit ($100,000/(200 x 0.40) units) Total costs per unit

32.

200 units 600 units 100 units

Objective: $ 500 1,250 $1,750

3

How many units were completed and transferred out of Department A during February? a. 100 units b. 600 units c. 700 units d. 800 units Answer: c Difficulty: 2 200 units + 600 units - 100 units = 700 units

Chapter 17

Page 6

Objective:

3

33.

Injection Molding, Inc., manufactures plastic moldings for car seats. Its costing system utilizes two cost categories, direct materials and conversion costs. Each product must pass through Department A and Department B. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production. Data for Department A for February 20x3 are: Work in process, beginning inventory, 40% converted Units started during February Work in process, ending inventory: 30% complete as to conversion costs 100% complete as to materials

200 units 600 units 100 units

Costs for the Department A for February 20x3 are: Work in process, beginning inventory: Direct materials Conversion costs Direct materials costs added during February Conversion costs added during February

$100,000 $100,000 $1,000,000 $1,250,000

What were the equivalent units of direct materials and conversion costs, respectively, at the end of February? Assume Injection Molding, Inc., uses the weighted-average process costing method. a. 800, 730 b. 800, 800 c. 800, 700 d. 600, 500 Answer:

a

Difficulty:

2

Objective:

3

Equivalent units of direct materials under weighted average = units completed + equivalent units in ending inventory = 700 + 100 Conversion costs = 700 + (100 x 30%) = 730 34.

The weighted-average process-costing method calculates the equivalent units by a. considering only the work done during the current period. b. the units started during the current period minus the units in ending inventory. c. the units started during the current period plus the units in ending inventory. d. the equivalent units completed during the current period plus the equivalent units in ending inventory. Answer:

d

Difficulty:

Chapter 17

2

Page 7

Objective:

5

35.

In the computation of the cost per equivalent unit, the weighted-average method of process costing considers a. all the costs entering work in process from the units in beginning inventory plus the costs for the work completed during the current accounting period. b. all the costs that have entered work in process from the units started or transferred in during the current accounting period. c. all the costs that have entered work in process during the current accounting period from the units started or transferred in minus the costs associated with ending inventory. d. all the costs that have entered work in process during the current accounting period from the units started or transferred in plus the costs associated with ending inventory. Answer:

36.

Difficulty:

3

Objective:

5

If there was no beginning work in process and no ending work in process under the weighted-average process costing method, the number of equivalent units for direct materials, if direct materials were added at the start of the process, would be a. equal to the units started or transferred in. b. equal to the units completed. c. less than the units completed. d. both (a) and (b). Answer:

37.

a

d

Difficulty:

3

Objective:

5

Under the weighted-average method, the stage of completion of beginning work in process a. is relevant in determining the equivalent units. b. must be combined with the work done during the current period in determining the equivalent units. c. is irrelevant in determining the equivalent-unit calculation. d. can almost always be determined with a high degree of precision. Answer:

c

Difficulty:

Chapter 17

2

Page 8

Objective:

5

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 38 THROUGH 43. The Swiss Clock Shop manufactures clocks on a highly automated assembly line. Its costing system utilizes two cost categories, direct materials and conversion costs. Each product must pass through the Assembly Department and the Testing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated evenly throughout production. Swiss Clock Shop uses weighted-average costing. Data for the Assembly Department for June 20x3 are: Work in process, beginning inventory Direct materials (100% complete) Conversion costs (50% complete) Units started during June Work in process, ending inventory: Direct materials (100% complete) Conversion costs (75% complete) Costs for June 20x3: Work in process, beginning inventory: Direct materials Conversion costs Direct materials costs added during June Conversion costs added during June 38.

800 units 150 units

$180,000 $270,000 $1,000,000 $1,000,000

What are the equivalent units for direct materials and conversion costs, respectively, for June? a. 1,200.5 units; 1,160.64 units b. 1,050 units; 1,012.5 units c. 1,050 units; 1,050 units d. 962 units; 990 units Answer:

b

Completed and transferred out Work in process, ending Total equivalent units 39.

250 units

Difficulty:

2

Direct materials 900 150 1,050

Objective:

5

Conversion costs 900.0 112.5 1,012.5

What is the total amount debited to the Work-in-Process account during the month of June? a. $450,000 b. $2,000,000 c. $2,270,000 d. $2,450,000 Answer: b Difficulty: $1,000,000 + $1,000,000 = $2,000,000

Chapter 17

1

Page 9

Objective:

5

40.

What is the direct materials cost per equivalent unit during June? a. $1,123.81 b. $1,730.20 c. $1,579,00 d. $1,890.35 Answer: a Difficulty: $180,000 + $1,000,000 = $1,180,000 $1,180,000/1,050 units = $1,123.81

41.

3

3

Objective:

5

What amount of direct materials costs is assigned to the ending Work-in-Process account for June? a. b. c. d.

$168,571.50 $283,552.50 $259,530 $236,850

Answer: a Difficulty: 3 $1,180,000/1,050= $1,124 cost per equivalent unit $1,124 x 150= $168,571.50 43.

5

What is the conversion cost per equivalent unit in June? a. $1,254.32 b. $1,579.14 c. $1,730.20 d. $1,890.35 Answer: a Difficulty: $270,000 + $1,000,000 = $1,270,000 $1,270,000/1,012.5 = $1,254.32

42.

Objective:

Objective:

5

What amount of conversion costs are assigned to ending Work-in-Process account for June? a. $101,956.64 b. $141,111.00 c. $126,450.50 d. $188,148.00 Answer: b Difficulty: (150 units x 75%) x $1,254.32 = $141,111

Chapter 17

3

Page 10

Objective:

5

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 44 THROUGH 47. The Rest-a-Lot Chair Company manufacturers a standard recliner. During February, the firm's Assembly Department started production of 75,000 chairs. During the month, the firm completed 85,000 chairs and transferred them to the Finishing Department. The firm ended the month with 10,000 chairs in ending inventory. All direct materials costs are added at the beginning of the production cycle. Weighted-average costing is used by Rest-a-Lot. 44.

How many chairs were in inventory at the beginning of the month? Conversion costs are incurred uniformly over the production cycle. a. 10,000 chairs b. 20,000 chairs c. 15,000 chairs d. 25,000 chairs Answer: b Difficulty: 2 Beginning inventory + 75,000 - 85,000 = 10,000 Beginning inventory = 20,000

45.

Difficulty:

3

Objective:

5

What were the equivalent units for conversion costs for Febru...