Management Accounting Information for Creating and Managing Value Kim Langfield Smith 8e – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

 

Chapter 05 Test Bank – Static KEY

 

 

1. Wages paid to a supervisor in a factory are a part of:

 

 

Prime cost               Conversion cost

 

 

 

A.                                        Yes                               No

 

 

1. Yes Yes

 

 

1. No No

 

 

1. No Yes

 

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

2. Which of the following are components of conversion costs?

 

1. Direct labour and direct materials
2. Indirect materials and manufacturing overhead
3. Direct labour and manufacturing overhead
4. Direct labour and indirect labour

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

3. Which of the following represents a correct sequence in preparing a departmental production report?

 

1. Analysis of physical flow of units, computation of unit costs, calculation of equivalent units and analysis of total costs
2. Analysis of physical flow of units, calculation of equivalent units, computation of unit costs and analysis of total costs
3. Analysis of total costs, calculation of equivalent units, computation of unit costs and analysis of physical flow of units
4. Analysis of total costs, analysis of physical flow of units, computation of unit costs and calculation of equivalent units

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

4. Under Australian accounting standards, which methods can be used to prepare the departmental production report?

 

1. Weighted average, first in first out and standard costing
2. Last in first out, first in first out and standard costing
3. Last in first out, standard costing, weighted average
4. First in first out, last in first out, weighted average and standard costing

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

5. Rex Company Ltd had 4,000 units in work in process at 1 April. During April, 11,000 units were completed. At 30 April, 5,000 units remained in work in process. How many units were started during April?

 

1. 11,000
2. 5,000
3. 12,000
4. 16,000

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

6. Assuming that there was no beginning work in process inventory and the ending work in process inventory is 50 per cent complete as to conversion costs, the number of equivalent units as to conversion costs would be

 

1. the same as the units completed.
2. the same as the units placed in process.
3. less than the units completed.
4. less than the units placed in process.

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

7. Which of the following represents the production units used to calculate equivalent units under the weighted average method?

 

1. Work to date on ending work in process + units started and completed.
2. All units completed + work to date on ending work in process.
3. Work to complete beginning work in process + work to date on ending work in process.
4. Work to complete beginning work in process + units completed – work done on ending work in process.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

8. Rebex Chemical Company manufactures Compound 2 in two sequential departments. On June 1, Department 2 had 3000 units, which were 50 per cent complete as to conversion cost. During June, 15 000 units were completed and transferred from Department 1. On June 30, Department 2 had 4000 units, which were 20 per cent complete as to conversion costs. How many units were completed and transferred from

Department 2 during the month of June?

 

1. 11 000
2. 12 500
3. 14 000
4. 15 700

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

9. Softcloth Textile Pty Ltd manufactures a variety of fabrics. The Weaving Department had 1000 units in work in process on April 1, which were 20 per cent complete as to conversion costs. During April, 8000 units were completed and transferred. On April 30, 4000 units remained in work in process 50 per cent complete as to conversion costs. Using the weighted average method process costing, calculate the equivalent units of

conversion for the month of April.

 

1. 12 000
2. 9000
3. 9800
4. 10 000

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10. Softcloth Textile Pty Ltd manufactures a variety of fabrics. The Weaving Department had 1000 units in work in process on April 1, which were 20 per cent complete as to conversion costs. During April, 8000 units were completed and transferred. On April 30, 4000 units remained in work in process 50 per cent complete as to conversion costs. Using the FIFO method of process costing, calculate the equivalent units of conversion for

the month of April.

 

1. 9000
2. 9800
3. 10 000
4. 12 000

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing

Topic: Equivalent Units of Production

 

11. What is the inventory formula that shows the physical flow of production units during a given month, under the weighted average method?

 

1. Physical units in beginning work in process + units started – units completed and transferred out = units in ending work in process.
2. Units in beginning work in process + units completed and transferred out + units started = units in ending work in process.
3. Units started + units completed and transferred out + units in ending work in process = units in beginning work in process.
4. Units in beginning work in process – units started + units completed and transferred out = units in ending work in process.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

12. The major difference between weighted average and FIFO is

 

1. how completed and transferred units are treated.
2. how ending inventory is treated.
3. how beginning inventory is treated.
4. how current period costs are treated.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing

Topic: Equivalent Units of Production

 

13. A company starts work on 1000 physical units and completes 75 per cent of conversion activity. The costs are $1500 for conversion and $5000 for direct material. What is the cost per equivalent unit for conversion?

 

1. $1.00 per unit
2. $1.50 per unit
3. $2.50 per unit
4. $2.00 per unit

 

AACSB: Analytical Thinking

Difficulty: Easy Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

14. A company starts work on 1000 physical units and completes 75 per cent of conversion activity. The costs are $1500 for conversion and $5000 for direct material. What is the cost per equivalent unit for direct material?

 

10. $10.00 per unit
11. $5.00 per unit
12. $6.00 per unit
13. $6.67 per unit

 

AACSB: Analytical Thinking

Difficulty: Easy Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

 

15. If the FIFO method is used, the cost of beginning work in process should be included in:

 

 

 

Unit cost                     Cost of units transferred out

 

 

 

A.	No	Yes
B.	No	No
C.	Yes	No
D.	Yes	Yes

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing

Topic: Equivalent Units of Production

 

 

16. Which of the following are needed to calculate ending work in process under process costing?

 

 

 

 

Unit cost                 Equivalent units              Cost in beginning work in process

 

 

 

A.	No	No	Yes
B.	Yes	Yes	No
C.	Yes	Yes	Yes
D.	Yes	No	No

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

 

17. Given the following information, use the weighted average method to calculate cost per equivalent unit for the following materials.

 

No. of units

Cost of materials

 

Beginning work in process                         30,000            $  11,000

Started in May                                          80,000            $  36,000

Units completed                                       85,000

Ending work in process                             25 000

 

 

 

 

1. $0.427 B. $0.4235 C. $0.55 D. $0.327

 

AACSB: Analytical Thinking

Difficulty: Easy Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

18. Equivalent unit calculations are necessary to allocate manufacturing costs between:

 

1. cost of goods manufactured and ending work in process.
2. beginning work in process and units completed.
3. cost of goods manufactured and beginning work in process.
4. cost of goods manufactured and cost of goods sold.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

19. The FIFO method is a more accurate method than weighted average because:

 

1. it does not require the calculation of equivalent units.
2. the costs of current period are not combined with the costs of the prior period.
3. it considers prior period costs during the current period.
4. it must be computerised in order to obtain accurate calculations.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing

Topic: Equivalent Units of Production

 

20. Costs are accumulated by a responsibility centre for control purposes when using:

 

 

 

Job order costing              Process costing

 

 

 

A.	Yes	Yes
B.	Yes	No
C.	No	Yes

D.                           Costs are irrelevant for control purposes

 

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms

Topic: Other Issues in Process Costing

 

21. In both job and process costing, the journal entry to record predetermined overhead is.

 

1. debit work in process and credit raw materials inventory, salaries payable and manufacturing overhead.
2. debit work in process and credit manufacturing overhead applied.
3. debit manufacturing overhead and credit work in process and raw materials inventory.
4. debit manufacturing overhead and credit work in process inventory.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

22. In both job and process costing, the journal entry to record completed goods is.

 

1. debit work in process and credit manufacturing overhead.
2. credit finished goods inventory and debit cost of goods sold.
3. debit finished goods inventory and credit work in process.
4. debit work in process inventory and credit finished goods inventory.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

23. In both job and process costing, the journal entry to record cost of goods sold is.

 

1. debit finished goods inventory and credit cost of goods sold.
2. debit finished goods inventory and credit work in process.
3. debit cost of goods sold and credit work in process.
4. debit cost of goods sold and credit finished goods inventory.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

 

24.

Which of the following statements about operation costing is true?

 

 

 

1. Conversion costs are accumulated by department.
2. Direct material costs are accumulated by batch.

iii. It is a hybrid product costing system.

 

 

1. i, ii and iii
2. ii and iii
3. i and iii
4. i and ii

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Operation/Hybrid Product Costing Systems

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25.

South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and

conversion activity occurs uniformly throughout the process. The following data pertains to the month of May.

 

 

 

 

 

Direct materials

Work in process, May 1-60%                                    15,000

Units started during May                                           60,000

Units completed and transferred out                          68,000

Work in process, May 31-20%                                     7 000

Conversion costs

 

 

Using the weighted average method of process costing, calculate the equivalent units of direct materials and conversion costs for the month of May.

 

 

1. DM 75 000; CC 69 400
2. DM 75 000; CC 60 400
3. DM 60 000; CC 60 400
4. DM 68 000; CC 69 400

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

26.

South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the

process and conversion activity occurs uniformly throughout the process. The following data pertain to the month of May.

 

 

Total units

Direct materials

 

Work in process, 1 May-60%                                15,000

Units started during May                                      60,000

Units completed and transferred out                      68,000

Work in process, 31 May-20%                                7,000

 

 

Using the FIFO method of process costing, calculate the equivalent units of direct materials and conversion activity for the month of May.

 

 

 

1. DM 75,000; CC 69,400
2. DM 75,000; CC 60,400
3. DM 60,000; CC 60,400
4. DM 68,000; CC 69,400

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing

Topic: Equivalent Units of Production

 

 

27.

South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the end of the process and

conversion activity occurs uniformly throughout the process. The following data pertain to the month of May.

 

 

 

 

 

Total units

Direct materials

 

Work in process, 1 May-60%                                15,000

Units started during May                                      60,000

Units completed and transferred out                      68,000

Work in process, 31 May-20%                                7,000

 

 

Using the weighted average method of process costing, calculate the equivalent units of direct materials and conversion costs for the month of May.

 

 

 

1. DM 75,000; CC 69,400
2. DM 75,000; CC 60,400
3. DM 60,000; CC 60,400
4. DM 68,000; CC 69,400

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

28.

South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the end of the process and

conversion activity occurs uniformly throughout the process. The following data pertain to the month of May.

 

 

 

Total units                                                          Direct

materials

Work in process, 1 May-60%                                15,000

Units started during May                                      60,000

Units completed and transferred out                      68,000

Work in process, 31 May-20%                                7,000

 

 

Using the FIFO method of process costing, calculate the equivalent units of direct materials and conversion activity for the month of May.

 

 

 

1. DM 75,000; CC 69,400
2. DM 60,000; CC 60,400
3. DM 68,000; CC 69,400
4. None of the given answers

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing

Topic: Equivalent Units of Production

 

 

29.

Healthy Flavour is a food processing company that makes a product called Health Nut soup in two processes—blending and condensing.

The output of the blending department is transferred to the condensing department. All materials are added at the beginning of the blending

process, and conversion activity occurs uniformly throughout both processes. The following data pertain to the month of April in

the blending department.

 

 

Direct

Conversion

 

 

Total units	materials      costs
Work in process, April 1 (30%)	10,000
Units started during April	50,000
Units completed and transferred out	55,000
Work in process, April 30 (90%)	5,000
Costs
Work in process, April 30	$  4,500    $    3,000   $  1,500
Costs incurred during April	42,250        17,500     24,750
Total	$46,750    $  20,500   $26,250

 

Using the FIFO method of process costing, calculate the equivalent units of direct materials for the month of April.

 

 

 

1. 60,000
2. 58,000
3. 55,000
4. 50,000

 

AACSB: Analytical Thinking

Difficulty: Easy Learning Objective: 5.07 After studying the appendix, calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments

Topic: Equivalent Units of Production

 

30.

Healthy Flavour is a food processing company that makes a product called Health Nut soup in two processes—blending and condensing. The

output of the blending department is transferred to the condensing department. All materials are added at the beginning of the blending process,

and conversion activity occurs uniformly throughout both processes. The following data pertain to the month of April in the blending department

.

 

Direct

Conversion

 

 

Total units	materials      costs
Work in process, April 1 (30%)	10,000
Units started during April	50,000
Units completed and transferred out	55,000
Work in process, April 30 (90%)	5,000
Costs
Work in process, April 30	$  4,500    $    3,000   $  1,500
Costs incurred during April	42,250        17,500     24,750
Total	$46,750    $  20,500   $26,250

Using the FIFO method of process costing, calculate the cost per equivalent unit of conversion activity for the month of April.

 

1. $0.5048 B. $0.4169 C. $0.4381
2. None of the given answers

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.07 After studying the appendix, calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments

Topic: Equivalent Units of Production

 

31. In which of the following ways is normal spoilage accounted for?

 

1. Expensed in the period in which it occurred
2. Included as part of the unit cost of output
3. Written off to cost of goods sold
4. Included in inventory valuation until year-end and then written off

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

32. In which of the following ways is abnormal spoilage accounted for?

 

1. Expensed in the period in which it occurred
2. Included as part of the unit cost of output
3. Written off to cost of goods sold
4. Included in inventory valuation until year-end and then written off

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33.

The following data apply to Zilch Ltd in its mixing department for the month of April. All material is introduced at the start of the

process and conversion occurs evenly through the process. Spoilage occurred at the midpoint in the process

.

 

 

		% of
	Units	Completion
Work in process 1 April	10,000	20
Units commenced	80,000
Units completed	65,000
Units spoilt	10,000
Work in process 30 April	15,000	33.3

Using the weighted average method, what are the equivalent units for conversion?

 

 

 

1. 85,000
2. 75,000
3. 77,000
4. 82,000

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Equivalent Units of Production

 

34. Abnormal spoilage costs assist management to

 

1. control costs.
2. control quality.
3. hold supervisors responsible.
4. All of the given answers

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

 

35.

Operational costing is appropriate where

 

 

1. there are different material inputs.
2. there are common material inputs.

iii. processes are identical.

1. different combinations of specific processes apply to different products.

 

 

1. i and ii
2. ii and iii
3. ii and iv
4. i and iv

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Equivalent Units of Production

 

 

36.

Operation costing is appropriate for products with the following characteristics.

 

 

 

1. Repetitive mass production
2. Individual products

iii. Large batches with repetitive processes

1. Some unique features, some common features

 

 

1. i and iii
2. i and iv
3. ii and iii
4. iii and iv

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Operation/Hybrid Product Costing Systems

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37.

Which of the following firms are more likely to use operational costing techniques?

 

 

 

1. Oil refineries
2. Food processors

iii. Large scale clothing manufacturers

1. Tourist operators

 

 

1. i and ii
2. ii and iii
3. i and iii
4. ii and iv

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Operation/Hybrid Product Costing Systems

 

38. Inventory valuation in operation costing requires

 

1. direct materials and conversion costs being traced to processes.
2. direct material and conversion costs being traced to batches.
3. direct materials traced to batches and conversion costs traced to processes.
4. direct materials traced to processes and conversion costs traced to batches.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Equivalent Units of Production

 

39. Which of the following statement/s is/are true?

 

1. Weighted average costs provide a better basis for cost control than FIFO costs.
2. Weighted average costs provide a better basis for performance evaluation than standard costs.
3. Cost per equivalent unit provides a measure of production efficiency.
4. Weighted average costs provide a better basis for cost control than FIFO costs AND cost per equivalent unit provides a measure of production efficiency.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

40. The technical term for costs moving between one department and the next in a multidepartment process is

 

1. transferred costs.
2. transferred out costs.
3. transferred in costs.
4. prior costs.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.07 After studying the appendix, calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments

Topic: Equivalent Units of Production

 

41. Which of the following inventory valuation method/s is/are less suited to cost control?

 

1. Weighted average costs
2. First in first out cost
3. Standard costs
4. Weighted average costs AND standard costs

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing

Topic: Equivalent Units of Production

 

 

42.

Process costing systems are suitable for firms that produce

 

 

1. homogeneous products.
2. heterogeneous products.

iii. individual products.

1. repetitive products.

 

 

1. i and iii
2. i and iv
3. ii and iv
4. i and ii

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

 

43.

The establishment of predetermined conversion costs for operation costing requires which of the following.

 

 

1. Budgeted level of the cost driver
2. Budgeted direct labour costs

iii. Budgeted manufacturing overhead costs

 

1. i
2. i and ii
3. i, ii and iii
4. i and iii

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

44. Assume material is added at the beginning of a process, and the beginning WIP inventory is 30 per cent complete as to conversion costs. Using the FIFO method of costing, the total equivalent units for material for this process during this period is equal to

 

1. units started this period in this process.
2. units started this period in this process plus 70 per cent of beginning inventory.
3. beginning inventory this period for the process.
4. units started this period in this process plus the beginning inventory.

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Equivalent Units of Production

 

45. Assume material is added at the beginning of a process, and the beginning WIP inventory is 30 per cent complete as to conversion costs. Using the weighted average method of costing, the total equivalent units for material for this process during this period is equal to

 

1. units started this period in this process.
2. units started this period in this process plus 70 per cent of beginning inventory.
3. beginning inventory this period for the process.
4. units started this period in this process plus the beginning inventory.

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing

Topic: Equivalent Units of Production

 

46. In a process costing system the cost of abnormal spoilage should be

 

1. prorated between units transferred out and ending inventory.
2. included in the cost of units transferred out.
3. treated as a loss in the period incurred.
4. ignored.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

47. For a firm, which produces its product through two processes, the costs in opening work in process for Process 2 are best described as

 

1. prior process costs.
2. transferred in costs.
3. prior period costs.
4. conversion costs.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.07 After studying the appendix, calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments

Topic: Equivalent Units of Production

 

48. For a firm, which produces its product through two processes, the costs transferred into Process 2 from Process 1 can be described as

 

1. prior process costs.
2. transferred in costs.
3. prior period costs.
4. prior process costs AND transferred in costs.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.07 After studying the appendix, calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments

Topic: Equivalent Units of Production

 

49. Raphael’s Refining uses a weighted average process costing system. For a particular period, its opening inventory consisted of 100 items (60 per cent complete as to conversion costs) whose costs were $1600 made up of material $300 and conversion cost $1300. During the month, 1000 items were started and 950 were completed. Ending inventory of WIP was one-third complete. There was no spoilage. Costs placed in process during the month were materials $1600 and conversion costs $13 700. Materials are added at the halfway point. What is the amount of

cost that would be allocated to goods completed in the period?

 

1. $14,615 B. $16,513 C. $16,900 D. $16,150

 

AACSB: Analytical Thinking

Difficulty: Hard Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

50. Raphael’s Refining uses a FIFO process costing system. For a particular period, its opening inventory consisted of 100 items (60 per cent complete as to conversion costs) whose costs were $1600 made up of material $300 and conversion cost $1300. During the month, 1000 items were started and 950 were completed. Ending inventory of WIP was one-third complete. There was no spoilage. Costs placed in process during the month were materials $1785 and conversion costs $13 865. Materials are added at the halfway point. What is the amount of cost that would

be allocated to goods completed in the period?

 

1. $16,513 B. $16,900 C. $16,150 D. $14,913

 

AACSB: Analytical Thinking

Difficulty: Hard Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing

Topic: Equivalent Units of Production

 

 

51. South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and conversion activity occurs uniformly throughout the process. The following selected data pertain to the month of May.

 

 

 

Costs                                Total

Direct materials

Conversion costs

 

Work in process, May 1                            $  41,250     $16,500     $  24,750

Costs incurred during May                       $234,630     $72,000     $162,630    

 

Total	$275,880	$88,500	$187,380
Equivalent units		12,000	11,000

What are the unit costs for the period (rounded to two decimal places) assuming weighted average costing?

 

 

 

 

7. DM $7.38; CC $17.03 B. DM $6; CC $14.78
8. DM $7.38; CC $14.78 D. DM $6; CC $17.03

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

 

52. South River Chemicals Pty Ltd manufactures a product called Zybek. Direct materials are added at the beginning of the process and conversion activity occurs uniformly throughout the process. The following data pertain to the month of May.

 

 

 

Costs                                Total

Direct materials

Conversion costs

 

Work in process, May 1                            $  41,250     $16,500     $  24,750

Costs incurred during May                       $234,630     $72,000     $162,630    

 

Total	$275,880	$88,500	$187,380
Equivalent units		12,000	11,000

What are the unit costs for the period (rounded to two decimal places) assuming FIFO costing?

 

 

 

7. DM $7.25; CC $15.62 B. DM $5.90; CC $13.55 C. DM $5.90; CC $15.62
8. None of the given answers

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Equivalent Units of Production

 

53. Collins Chemicals produces a compound through two processes. For its second process for a particular period, Collins had an opening WIP inventory of 100 units halfway through the process; 2300 units completed in the period; and a closing WIP inventory of 400 units three-quarters of the way through the process. Materials are added at the beginning of the process and conversion costs are incurred uniformly. Calculate the

equivalent units for transferred in costs for the period if the firm used weighted average costing.

 

1. 2,300
2. 2,500
3. 2,600
4. 2,700

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.07 After studying the appendix, calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments

Topic: Equivalent Units of Production

 

54. Collins Chemicals produces a compound through two processes. For its second process for a particular period, Collins had an opening WIP inventory of 100 units halfway through the process; 2300 units completed in the period; and a closing WIP inventory of 400 units three-quarters of the way through the process. Materials are added at the beginning of the process and conversion costs are incurred uniformly. Calculate the

equivalent units for transferred in costs for the period if the firm used FIFO costing.

 

1. 2,300
2. 2,400
3. 2,500
4. 2,600

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.07 After studying the appendix, calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments

Topic: Equivalent Units of Production

 

55. Heara Ltd manufactures metal sheets and uses the weighted average method process costing. On 1 May the Rolling Department had 2000 units work in progress, which were 20 per cent completed as to conversion costs. During May 10 000 units were completed and transferred out. The remaining work in progress on 30 May was 50 per cent complete in terms of conversion rate. If the equivalent unit is 12 000 units, what is

the 30 May work in progress?

 

1. 4,000 units
2. 2,000 units
3. 8,000 units
4. 5,000 units

 

AACSB: Analytical Thinking

Difficulty: Hard Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

56. Heara Ltd manufactures metal sheets, and uses the weighted average method process costing. On 1 May the Rolling Department had 3000 units work in progress, which were 50 per cent completed as to conversion costs. During May 8000 units were completed and transferred out. The remaining work in progress on 30 May was 2000 units, at 50 per cent complete in terms of conversion rate. What is the equivalent unit of

conversion?

 

1. 1,000 units
2. 2,000 units
3. 7,500 units
4. 9,000 units

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

57. Heara Ltd manufactures metal sheets, and uses the FIFO process costing. On 1 May the Rolling Department had 3000 units work in progress, which were 50 per cent completed as to conversion costs. During May 8000 units were completed and transferred out. The remaining work in

progress on 30 May was 2000 units at 50 per cent complete in terms of conversion rate. What is the equivalent unit of conversion?

 

1. 2,000 units
2. 7,500 units
3. 9,000 units
4. 10,500 units

 

AACSB: Analytical Thinking

Difficulty: Medium Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

58. The difference in cost per equivalent units between the weighted average method and the FIFO method

 

1. will be higher if there is no beginning work in process.
2. will be higher if there is no ending work in process.
3. will disappear if there is no beginning work in process.
4. will be lower if there is no ending work in process.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing

Topic: Equivalent Units of Production

 

59. Latta Coffee Ltd has two main processes: roasting and packaging. Roasted coffee beans are transferred to the packaging department before the final product is shipped to customers. The following information for the month of April for the Roasting department is available: total cost of goods completed and transferred from Roasting department to Packaging department is $25 000; ending work in progress in April is $1000;

number of equivalent units of conversion is 5000 units. Which of the following journal entries is appropriate at the end of April?

 

1. Debit Packaging Department $26 000, Credit Roasting Department $26 000
2. Debit Packaging Department $25 000, Credit Roasting Department $25 000
3. Debit Roasting Department $26 000, Credit Packaging Department $26 000
4. Debit Roasting Department $25 000, Credit Packaging Department $25 000

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

60. Eldervale Winery produces premium wine in the Hunter Valley. Jasmine Droll, the vineyard manager who is responsible for overseeing the grape harvest, ignores company guidelines and decides to hire some inexperienced harvest workers. As a result a lot of good grapes are wasted. For

the purpose of product costing, the losses associated with this grape wastage should be treated as

 

1. unethical spoilage.
2. abnormal spoilage.
3. normal spoilage.
4. overhead labour costs.

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

61. Eldervale Winery produces premium wine in the Hunter Valley. During the bottling process, small amount of spillage is often unavoidable. How should the costs associated with the spillage be treated?

 

1. It should be included in the work in progress.
2. It should be expensed in the period the cost is incurred.
3. It should be ignored in the work in progress account and reported only in the internal production reports.
4. It should be expensed immediately under the FIFO method, but included in the work in progress in the weighted average method.

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

62. Owl’s Hours produces herbal tea and prides itself in having one of the largest ranges of herbal teas in Australia. It sells more than 50 varieties of tea leaves with a wide range of prices (depending on where the tea leaves are grown). The production processes of its products is simple, but vary depending on whether the tea is sold as loose leaves (which requires packing tea leaves in various sized boxes) or tea bags (which requires additional process in packaging tea in specially designed tea bags). Owl’s Hours decides to use an operation costing system. This

decision is

 

1. correct, because the company uses a large variety of tea leaves as direct materials and yet has simple production processes.
2. correct, because the company uses a large variety of tea leaves as direct materials and the different products require different sequences of processes.
3. incorrect, because the different production lines require the tea leaves to be packaged in very distinctive methods.
4. incorrect, because the company has a very homogenous product – it produces and sells only tea.

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Operation/Hybrid Product Costing Systems

 

63. Banana Shirts produces t-shirts in large batches. Most of its t-shirts are made of regular cotton, although some are made from ethically produced cotton. The manufacturing process is relatively simple; most t-shirts go through similar processes; the main difference is whether the

t-shirt requires embroidery or printing. The most appropriate costing system for Banana Shirts is

 

1. process costing system.
2. job costing system.
3. operation costing systems.
4. both job costing system and operation costing system are appropriate.

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Operation/Hybrid Product Costing Systems

 

 

64. Which of the following is not required when calculating the equivalent units for conversion?

 

 

1. Percentage of conversion for ending work in progress
2. Percentage of conversion for physical units that have been completed and transferred out of the department

iii. Cost of direct materials

 

 

1. i only
2. i and ii
3. i, ii and iii
4. i and iii

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

65. Management uses predetermined overhead costs when costs and cost drivers are

 

1. reliable.
2. predictable.
3. unstable.
4. stable.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms

Topic: Other Issues in Process Costing

 

66. Process costing is only suitable for products that are

 

1. heterogeneous.
2. homogeneous.
3. harmonious.
4. None of the given answers

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms

Topic: Other Issues in Process Costing

 

67. Standard costs are based on estimates of cost of materials, labour and overheads. Standard costs are also known as

 

1. actual costs.
2. forecasted costs.
3. expected costs.
4. budgeted costs.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms

Topic: Other Issues in Process Costing

 

68. At Hilltop Dairy Producers Pty Ltd, an employee ignored the standard sterilising procedures before beginning the new batch of low fat milk causing the batch to curdle. This would be regarded as

 

1. spoilage.
2. normal spoilage.
3. expected spoilage.
4. abnormal spoilage.

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

69. When accounting for the costs of abnormal spoilage at the end of the period, the costs of abnormal spoilage are

 

1. included as part of the cost of unit completed.
2. expensed as loss on abnormal spoilage in the current period.
3. included in the cost of finished goods.
4. expensed as closing work in process in the current period.

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

70. Which of the following product features would best suit a hybrid costing system?

 

1. Identical and unique features
2. Identical and very similar features
3. Some unique and common features
4. Some unique and individual features

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Operation/Hybrid Product Costing Systems

 

71. In a process costing system, manufacturing costs are accumulated by

 

 

1. batch.
2. batch and time period.
3. department only.
4. department and time period only.
5. E. department or process, and time

 

This is not the correct way to accumulate manufacturing costs in process costing.

 

 

AACSB: Reflective Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: Easy

Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

72. Which of the following statements about operation costing is (are) true?
73. Conversion costs are accumulated by department.
74. Direct material costs are accumulated by batch.

III. Operation costing is a hybrid product costing system.

 

 

1. I only.
2. I and II only.
3. I and III only.
4. II and III only.
5. E. I, II, and

 

While this is true about operation cost, there is a better answer.

 

AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Research Blooms: Remember Difficulty: Easy

Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms

Topic: Operation/Hybrid Product Costing Systems

 

73. Operation costing

 

1. tends to parallel job-order costing with respect to the treatment of conversion cost.
2. tends to parallel process costing with respect to the treatment of conversion cost.
3. tends to parallel process costing with respect to the treatment of direct materials.
4. would likely be used by a manufacturing plant that produces one model of a single product.
5. is commonly known as a joint-costing system.

 

This statement is incorrect.

 

AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Research Blooms: Remember Difficulty: Easy

Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms

Topic: Operation/Hybrid Product Costing Systems

 

74. Which of the following best describes the procedures used in operation costing to assign direct material and conversion costs to production?

 

A.	Directmaterial costs Similar to those in job costing	Conversion costs Similar to those in job costing
B.	Directmaterial costs Similar to those in job costing	Conversion costs Similar to those in process costing
C.	Directmaterial costs Similar to those in process costing	Conversion costs Similar to those in job costing
D.	Directmaterial costs Similar to those in process costing	Conversion costs Similar to those in process costing

1. None of these answers is correct since operating costing is totally unlike both job costing and process costing.

 

This statement is incorrect.

 

AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Research Blooms: Understand Difficulty: Medium

Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Operation/Hybrid Product Costing Systems

 

75. Briefly explain the four steps in process costing with work in process inventories.

 

Step one Analyse the physical flow of units.

Step two Calculate the equivalent units (for direct material and conversion).

Step three Calculate the unit costs (that is, the cost per equivalent unit for direct material and conversion).

Step four Analyse the total costs (to determine the cost to be removed from work in process and transferred either to the next production department or to finished goods).

 

AACSB:  Communication

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

76. Describe the weighted average method used in process costing and explain how the unit costs are calculated.

 

The weighted average method is a process costing method that averages the cost of opening WIP inventory and current production costs to determine the cost of completed production and closing WIP.

 

The cost per equivalent unit for both direct material and conversion is calculated by dividing the total direct material cost by the total equivalent units

 

AACSB:  Communication Difficulty: Medium

Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

77. Explain the term ‘normal spoilage’ and why management is unable to eliminate this production cost.

 

In almost all businesses, mistakes are made, defective outputs are produced and resources are wasted. The cost of these defective products and wasted resources that cannot be recovered by rework or recycling is called spoilage.

 

Normal spoilage is the spoilage that is considered to be inherent in the production process and that occurs even under efficient operating conditions. This spoilage is a necessary part of the production process. It is unavoidable and therefore its cost is treated as part of the cost of the good units completed and transferred out.

 

AACSB:  Communication Difficulty: Medium

Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

78. For a manufacturer that produces large batches of automotive parts, which type of costing system would you recommend? Justify your answer.

 

Operation costing

 

Some businesses produce a range of related products where the conversion activities may be very similar or identical across the firm’s product lines, even though the direct materials may differ significantly. This type of production is described as batch manufacturing processes, as individual product lines are produced in large batches, each requiring a specific combination of direct materials and a specific sequence of production processes.

 

The repetitive processes used by these large-scale batch manufacturers are well suited to process costing, even where product lines require different sequences of processes. However, process costing is not appropriate, as each batch uses different materials, which have different costs. Businesses that use batch manufacturing processes could use a job costing system and carefully assign costs to each production batch, but, as the production processes are repetitive, this level of detail is not required. The conversion costs of each process—that is, the direct labour and manufacturing overhead costs of each process—will be the same for each unit processed, but the combination of processes required to produce each product may differ. The materials costs of each product may also differ.

 

A better solution is to use a hybrid costing system known as operation costing, which:

 

assigns direct material costs to individual batches—a job costing approach accumulates conversion costs by department (or operation or process), which are allocated to all units passing through the department—a process costing approach.

 

AACSB:  Communication AACSB: Analytical Thinking

Difficulty: Hard Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Operation/Hybrid Product Costing Systems

 

79. Discuss why management would elect to use predetermined overhead and conversion costs.

 

Predetermined rates smooth out the effects of fluctuations in actual costs and cost driver volumes from one month to the next. Process costing and operation costing environments involve stable, repetitive production processes. Labour and overhead costs and cost driver volumes may not fluctuate much over time and, under these circumstances, actual costs may be used instead of predetermined costs. However, where costs and cost driver volumes are unstable, predetermined overhead (and sometimes conversion) costs are preferred.

 

AACSB:  Communication Difficulty: Medium

Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms

Topic: Other Issues in Process Costing

 

 

80.

Operation costing is a hybrid type of accounting system that combines features of job-order and process-cost accounting.

 

 

Required:

 

 

1. Briefly discuss the similarities and differences of an operation costing system and a job-order costing system.

 

1. Briefly discuss the similarities and differences of an operation costing system and a process costing system.

 

 

A. Similarities: Materials are unique to the individual batches or products being produced in both systems. The cost, therefore, is assigned by batch as in job costing. Differences: Processing and the incurrence of conversion costs is the same for each batch in operation costing. In job costing the different batches of product incur different processing steps.

1. Similarities: Batches of products go through essentially the same manufacturing processes in both systems. Conversion costs can be assigned in a manner similar to that used in process costing systems. Differences: Each batch of product in an operation costing system uses different direct materials. In a process system, the direct materials are the same.

 

AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Research Blooms: Analyze

Difficulty: Hard Topic: Comparison of Job-Order and Process Costing

 

 

81.

Fedora, Inc, uses a weighted-average process costing system and has one production department. All materials are introduced at the start of manufacturing; in contrast, conversion cost is incurred uniformly throughout production. The company had respective work in process inventories on 1 May and 31 May of 62,000 units and 70,000 units, the latter of which was 40 per cent complete. The production supervisor noted that Fedora completed 100,000 units during the month.

Costs in the 1 May work in process inventory were subdivided as follows: materials, $40,000; conversion, $90,000. During May, Fedora charged production with $300,000 of material and $710,000 of conversion, resulting in a material cost per equivalent unit of $2.

 

Required:

 

 

1. Determine the number of units that Fedora started during May.
2. Compute the number of equivalent units with respect to conversion cost.
3. Determine the conversion cost per equivalent unit.
4. Compute the cost of the 31 May work in process inventory.
5. What account would have been credited to record Fedora’s completed production?

 

Solution:

 

A. Since Fedora had accounted for 170,000 units (100,000 + 70,000), the company must have started 108,000 units in May (170,000− 62,000).

1. Equivalent units for conversion cost total 128,000 [100,000 + (70,000× 40%)].
2. The conversion cost per equivalent unit is $6.25 [($90,000 + $710,000) ÷ 128,000 units].
3. Ending work in process totals $315,000: materials, $140,000 (70,000× $2.00) + conversion, $175,000 [(70,000× 40%) ×

$6.25].

1. Work in process inventory

 

AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement

Blooms: Apply Difficulty: Hard

Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Equivalent Units of Production

 

82. In process costing, equivalent units are the same under both the weighted average method and the FIFO method.

 

FA LSE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Equivalent Units of Production

 

83. Operation costing is just another name for process costing as both systems trace all production costs to processes or departments.

 

FA LSE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Operation/Hybrid Product Costing Systems

 

84. Abnormal spoilage is identified to assist managers in tracking the costs of wasted resources.

 

TRUE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

85. A standard cost is a budgeted cost per unit.

 

TRUE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms

Topic: Other Issues in Process Costing

 

86. To calculate equivalent units, multiply the partially completed physical units in the process by the percentage of completion.

 

TRUE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

87. Process costing can be used in service businesses if the service is routine and repetitive.

 

TRUE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

88. Where a process has two departments [A and B], the first new debit entry in the work in process inventory account for Department B in any period will be transferred-in costs.

 

TRUE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.07 After studying the appendix, calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments

Topic: Equivalent Units of Production

 

89. Conversion costs are generally added at specific points throughout a process.

 

FA LSE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

90. Normal spoilage can always be avoided by a more efficient approach to production.

 

FA LSE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing

Topic: Shrinkage and Lost Units

 

91. The departmental production report replaces the job cost sheet used by production departments.

 

TRUE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

92. The departmental production report summarises the flow of production quantities through the department plus the amount of production costs transferred in from the department’s work in process inventory account during the period.

 

FA LSE

 

AACSB: Reflective Thinking

Difficulty: Medium Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Equivalent Units of Production

 

93. Process costing and operation costing are consistent with the concepts of responsibility accounting.

 

TRUE

 

AACSB: Reflective Thinking

Difficulty: Easy Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms

Topic: Other Issues in Process Costing

 

94. Companies that use a process-cost accounting system would establish a separate work in process inventory account for each manufacturing department.

 

TRUE

 

Feedback True: Correct! Companies with process costing accounting systems establish a separate work in process inventory account for each manufacturing department.

 

AACSB: Reflective Thinking AICPA: BB Industry AICPA: FN Measurement Blooms: Remember Difficulty: Easy

Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved

Topic: Comparison of Job-Order and Process Costing

 

95. When the cutting process in a manufacturing firm has been finished and the goods are transferred into the assembly department, the journal entry to record the transfer will debit finished goods inventory and credit Work in Process – Assembly.

 

FA LSE

 

Feedback True: This is an incorrect journal entry in this case.

 

 

AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Remember Difficulty: Easy

Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’

Topic: Comparison of Job-Order and Process Costing

 

96. A departmental production report under weighted-average process costing would most likely present total costs for two different processes.

 

FA LSE

 

Feedback True: Departmental production focuses on material and conversion costs for one department or process over two or more periods.

 

 

AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Research Blooms: Remember Difficulty: Easy

Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing

Topic: Comparison of Job-Order and Process Costing

 

Chapter 05 Test Bank – Static Summary

 

	Category		# of Questions
AACSB: Communication
AACSB: Analytical Thinking			25
AACSB: Reflective Thinking			67
AICPA: BB Critical Thinking			7
AICPA: BB Industry			2
AICPA: FN Measurement			4
AICPA: FN Research			5
Blooms: Analyze			1
Blooms: Apply			1
Blooms: Remember			6
Blooms: Understand			1
Difficulty: Easy			50
Difficulty: Hard			6
Difficulty: Medium			40
Learning Objective: 5.07 After studying the appendix, calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments			8
Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved			17
Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing			24
Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing			11
Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing			15
Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’			13
Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms			9
Topic: Other Issues in Process Costing			1
Topic: Comparison of Job-Order and Process Costing			20
Topic: Equivalent Units of Production			47
Topic: Operation/Hybrid Product Costing Systems			11
Topic: Other Issues in Process Costing			6
Topic: Shrinkage and Lost Units			11
AACSB: Communication
AACSB: Analytical Thinking			25
AACSB: Reflective Thinking			67
AICPA: BB Critical Thinking			7
AICPA: BB Industry			2
AICPA: FN Measurement			4
AICPA: FN Research			5
Blooms: Analyze			1
Blooms: Apply			1
Blooms: Remember			6
Blooms: Understand			1
Difficulty: Easy			50
Difficulty: Hard			6
Difficulty: Medium			40
Learning Objective: 5.07 After studying the appendix, calculate product costs and prepare journal entries to record the flow of costs in a process costing system with sequential production departments			8
Learning Objective: 5.01 Describe the principles of process costing where work in process (WIP) inventories are involved			17
Learning Objective: 5.02 Assign total production costs for a department to completed units and WIP inventory using the weighted average method of process costing			24
Learning Objective: 5.03 Assign total production costs for a department to completed units and WIP inventory using the FIFO method of process costing			11
Learning Objective: 5.04 Account for the costs of normal and abnormal spoilage under the weighted average method of process costing			15
Learning Objective: 5.05 Assign total production costs for a department to completed units and WIP inventory under a common hybrid costing system called ‘operation costing’			13
Learning Objective: 5.06 Recognise and explain important issues that influence the design of process costing and operation costing, including: the use of predetermined overhead and conversion costs and standard costs; determining the degree of completion; and the relevance of process costing for responsibility accounting and for service firms			9
Topic: Other Issues in Process Costing			1
Topic: Comparison of Job-Order and Process Costing			20
Topic: Equivalent Units of Production			47
Topic: Operation/Hybrid Product Costing Systems			11