Test bank Managerial Accounting by Garrison (13e) Chapter 04 PDF

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Chapter 4 Systems Design: Process Costing True/False Questions 1. In a process costing system, the costs of one processing department become part of the costs of the next processing department. Ans:  True AACSB:  Reflective Thinking AICPA BB:  Critical Th...

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Chapter 4 Systems Design: Process Costing True/False Questions 1. In a process costing system, the costs of one processing department become part of the costs of the next processing department. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 2. The equivalent units of production will be the same under the weighted-average and the FIFO method if there is no beginning work in process inventory. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: 2,5 Level: Medium 3. Under the weighted-average method, the equivalent units used to compute the unit costs of ending inventories relate only to work done during the current period. Ans: False AACSB: Analytic AICPA FN: Reporting LO: 2

AICPA BB: Critical Thinking Level: Hard

4. In order to equitably allocate costs in a process costing system, dissimilar products are restated in terms of equivalent units by weighting the number of units produced by their market values. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 5. In a process costing system, units transferred to the next processing department are presumed to be 100% complete with respect to the work performed by the transferring department. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 6. Under a weighted-average process costing system when all materials are added at the beginning of the production process, the equivalent units for materials is equal to the units completed and transferred out. Ans: False AACSB: Analytic AICPA FN: Reporting LO: 2

AICPA BB: Critical Thinking Level: Hard

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 4 Systems Design: Process Costing 7. In calculating cost per equivalent unit under the weighted-average method, prior period costs are combined with current period costs. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy 8. The equivalent units of production for a department using the FIFO process costing method is equal to the number of units completed plus the equivalent units in the ending inventory. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: 5 Level: Hard 9. The step-down method of cost allocation is more accurate than the direct method since the step-down method considers services that service departments provide to each other. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4B LO: 8,9 Level: Easy 10. The step-down method and the direct method of cost allocation will result in the same amount of service department cost being allocated to a given operating department, although the step-down method is easier to apply than the direct method. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4B LO: 8,9 Level: Medium 11. The order in which the costs of service departments are allocated will affect the amounts allocated to an operating department when the direct method is used. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4B LO: 8 Level: Medium 12. The units in beginning work in process inventory plus the units started into production must equal the units transferred out of the department plus the units in ending work in process inventory. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Easy

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 4 Systems Design: Process Costing 13. In a process costing system, direct labor cost combined with manufacturing overhead cost is known as conversion cost. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Easy 14. Process costing is employed in industries that produce basically homogeneous products such as bricks, flour, or cement but would not be appropriate for assemblytype operations such as those that manufacture computers. Ans: False AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Medium 15. Process costing is used where many different products are produced each period to customer specifications. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Easy

Multiple Choice Questions 16. Which of the following statements related to job-order costing and process costing are true? A) Under both costing methods, manufacturing overhead costs are included in the computation of unit product costs. B) Under both costing methods, the journal entry to record the completion of production will involve crediting a work in process account. C) Under both costing methods, the journal entry to record the cost of goods sold will involve crediting the finished goods account. D) All of the above are true. Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 4 Systems Design: Process Costing 17. The completion of goods is recorded as a decrease in the work in process inventory account when using: Job-order costing Process costing A) Yes No B) Yes Yes C) No Yes D) No No Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CPA, adapted 18. In process costing, a separate work in process account is kept for each: A) individual order. B) equivalent unit. C) processing department. D) cost category (i.e., materials, conversion cost). Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 19. The weighted-average method of process costing differs from the FIFO method of process costing in that the weighted-average method: A) does not consider the degree of completion of beginning work in process inventory when computing equivalent units of production. B) considers ending work in process inventory to be fully complete. C) will always yield a higher cost per equivalent unit. D) All of the above. Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: 2,3,5,6 Level: Hard

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 4 Systems Design: Process Costing 20. Which of the following are needed to compute equivalent units for conversion costs under the weighted-average method of process costing?

A) B) C) D)

Percentage completion of beginning work in process Yes No Yes No

Percentage completion of ending work in process Yes Yes No No

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 21. Malcolm Company uses a weighted-average process costing system. All materials at Malcolm are added at the beginning of the production process. The equivalent units for materials at Malcolm would be the sum of: A) units in ending work in process and the units started. B) units in beginning work in process and the units started. C) units in ending work in process and the units started and completed. D) units in beginning work in process and the units started and completed. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Hard 22. In the computation of costs per equivalent unit, the weighted-average method of process costing considers: A) costs incurred during the current period only. B) costs incurred during the current period plus cost of ending work in process inventory. C) costs incurred during the current period plus cost of beginning work in process inventory. D) costs incurred during the current period less cost of beginning work in process inventory. Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy Source: CPA, adapted

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 4 Systems Design: Process Costing 23. Which of the following are needed to compute the cost per equivalent unit for materials under the weighted-average method of process costing?

A) B) C) D)

Material cost assigned to beginning work in process last period Yes No Yes No

Material cost added to production during the current period Yes Yes No No

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Medium 24. Under which of the following conditions will the FIFO method of process costing result in the same amount of cost being transferred to the next department as the weighted-average method? A) When the beginning and ending inventories are each fifty percent complete. B) When there is no beginning inventory. C) When there is no ending inventory. D) When units in the beginning inventory are all completed and transferred at the same time. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: 4,7 Level: Hard Source: CMA, adapted 25. In order to compute equivalent units of production using the FIF0 method of process costing, work for the period must be broken down into parts: A) completed during the period and units in ending inventory. B) completed from beginning inventory, started and completed during the month, and units in ending inventory. C) started during the period and units transferred out during the period. D) processed during the period and units completed during the period. Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4A LO: 5 Level: Medium Source: CPA, adapted

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 4 Systems Design: Process Costing 26. Which of the following methods of allocating service departments take into account all of the effects of interdepartmental services? Direct Step-Down A) Yes Yes B) Yes No C) No Yes D) No No Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 4B LO: 8,9 Level: Medium 27. All of the following statements are correct when referring to process costing except: A) Process costing would be appropriate for a jeweler who makes custom jewelry to order. B) A process costing system has the same basic purposes as a job-order costing system. C) Units produced are indistinguishable from each other. D) Costs are accumulated by department. Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Medium 28. For which of the following would it be best to use an operation costing system? A) home remodeling B) automobile production C) cement used for roadways D) trash bags used for yard waste Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 10 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 4 Systems Design: Process Costing 29. Health Beverage Company uses a process costing system to collect costs related to the production of its celery flavored cola. The cola is first processed in a Mixing Department at Health and is then transferred out and finished up in the Bottling Department. The finished cases of cola are then transferred to Finished Goods Inventory. The following information relates to Health's two departments for the month of January: Mixing Bottling Cases of cola in work in process, January 1..................... 10,000 3,000 Cases of cola completed/transferred out during January.. 77,000 ? Cases of cola in work in process, January 31................... 4,000 8,000 How many cases of cola were completed and transferred to Finished Goods Inventory during January? A) 66,000 B) 71,000 C) 72,000 D) 74,000 Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium Solution: To solve for units transferred: + Work in process, beginning................................................. + Units started into production during the month.................. − Work in process, ending...................................................... = Units completed and transferred out during the month.......

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3,000 77,000 8,000 72,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 4 Systems Design: Process Costing 30. The Assembly Department started the month with 83,000 units in its beginning work in process inventory. An additional 334,000 units were transferred in from the prior department during the month to begin processing in the Assembly Department. There were 34,000 units in the ending work in process inventory of the Assembly Department. How many units were transferred to the next processing department during the month? A) 417,000 B) 285,000 C) 451,000 D) 383,000 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Solution: To solve for units transferred: + Work in process, beginning............................................. 83,000 + Units started into production during the month.............. 334,000 − Work in process, ending.................................................. 34,000 =Units completed and transferred out during the month.... 383,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 4 Systems Design: Process Costing 31. Colby Company has a process costing system in which the weighted-average method is used. The company adds all materials at the beginning of the process in the Molding Department, which is the first of two stages of its production process. Information concerning the materials used in the Molding Department during March is as follows:

Units Work in process at March 1............................................. 22,000 Units started during March.............................................. 90,000 Units completed and transferred to next department during March................................................................ 97,000

Materials Costs $11,000 $46,120

What was the materials cost of the work in process inventory at March 31? A) $11,220 B) $7,500 C) $5,100 D) $7,650 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Source: CPA, adapted

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 4 Systems Design: Process Costing Solution: To solve for ending work in process: + Work in process, beginning................................................... + Units started into production during the month.................... − Units completed and transferred out during the month........ = Work in process, ending........................................................

22,000 90,000 97,000 15,000

Equivalent units of production Transferred to next department........................................... Ending work in process (materials: 15,000 units × 100% complete)......................................................................... Equivalent units of production...........................................

Materials 97,000 15,000 112,000

Cost per Equivalent Unit Cost of beginning work in process..................................... Cost added during the period.............................................. Total cost (a).......................................................................

Materials $11,000 46,120 $57,120

Equivalent units of production (b)...................................... Cost per equivalent unit, (a) ÷ (b).......................................

112,000 $0.51 Materials

Ending work in process inventory: Equivalent units of production (materials: 15,000 units × 100% complete; conversion: 15,000 units × % complete)......................................................................... Cost per equivalent unit...................................................... Cost of ending work in process inventory..........................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

15,000 $0.51 $7,650

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Chapter 4 Systems Design: Process Costing 32. Barnett Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in Department M. Conversion costs were 75% complete with respect to the 4,000 units in work in process at May 1 and 50% complete with respect to the 6,000 units in work in process at May 31. During May, 12,000 units were completed and transferred to the next department. An analysis of the costs relating to work in process at May 1 and to production activity for May follows: Work in process 5/1........................ Costs added during May................

Materials Conversion $13,800 $3,740 $42,000 $26,260

The total cost per equivalent unit for May was: A) $5.02 B) $5.10 C) $5.12 D) $5.25 Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Solution: Equivalent units of production Transferred to next department.......................... Ending work in process (materials: 6,000 units × 100% complete; conversion: 6,000 units × 50% complete)............................................... Equivalent units of production...........................

Materials Conversion 12,000 12,000

6,000 18,000

3,000 15,000

Cost per Equivalent Unit Materials Conversion Total Cost of beginning work in process.................... $13,800 $ 3,740 Cost added during the period............................. 42,000 26,260 Total cost (a)...................................................... $55,800 $30,000 Equivalent units of production (b)..................... Cost per equivalent unit, (a) ÷ (b)......................

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18,000 $3.10

15,000 $2.00

$5.10

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 4 Systems Design: Process Costing 33. Maurice Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in the Forming Department, which is the first of two stages of its production process. Information concerning the materials used in the Forming Department in April follows:

Units Work in process at April 1............................................... 12,000 Units started during April................................................ 100,000 Units completed and transferred to next department during April.................................................................. 88,000

Materials Costs $6,000 $51,120

What was the materials cost of the work in process at April 30? A) $6,120 B) $11,040 C) $12,000 D) $12,240 Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,3 Level: Medium Source: CPA, adapted

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 4 Systems Design: Process Costing Solution: To solve for ending work in process: + Work in process, beginning............................................. 12,000 + Units started into production during the month.............. 100,000 − Units completed and transferred out during the month... 88,000 = Work in process, ending.................................................. 24,000 Equivalent units of production Transferred to next department........................................... Ending work in process (materials: 24,000 units × 100% complete)......................................................................... Equivalent units of production...........................................

Materials 88,000 24,000 112,000

Cost per Equivalent Unit Cost of beginning work in process........................................