accounting students perception of public (1)
Chapter 020 Process Cost Accounting
Summary of Questions by Difficulty Level (DL) and Learning Objective (LO)
True/False
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Easy
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Easy
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Easy
Easy
Med
Med
Med
Med
Med
C1
C1
C2
C2
C2
C2
C2
C2
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C4
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Med
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Easy
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Hard
Easy
Easy
Easy
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Med
C1,A1
A1
A1
A1
A1
A1
A2
P1
P1
P1
P1
P1
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P4
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20-1
Chapter 020 Process Cost Accounting
Multiple Choice
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69.
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C1
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C5
A1
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A2
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LO
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LO
Med
C2,C4,
A1,A2,
P1
Item
DL
LO
Med
Med
Med
A1
A2
P1
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DL
LO
Easy
Easy
Easy
Med
Med
Easy
Med
Med
Hard
Med
P1
P1
P1
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Matching
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Short Essay
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Med
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A1
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20-2
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Chapter 020 Process Cost Accounting
Problems
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P1
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Med
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P5
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P5,P6
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LO
Med
Med
Easy
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Hard
C3
A1
A2
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Item
136.
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LO
Med
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Med
P5
P5
P6
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LO
Med
Med
Easy
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Med
P2
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P5
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P6
Completion Problems
Item
139.
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LO
Easy
Med
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Med
C1
C2
C2
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C3
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146.
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20-3
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150.
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155.
Chapter 020 Process Cost Accounting
True / False Questions
1. The managers of process manufacturing systems focus on the series of processes needed to
complete the production of products.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C1
2. Process manufacturing usually reflects a manufacturer that produces large quantities of
identical products.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C1
3. To determine unit cost under a process cost accounting system, equivalent units produced
must be calculated if the company has goods in process inventories.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C2
20-4
Chapter 020 Process Cost Accounting
4. Equivalent units of production refer to the number of units that would be completed if all
effort during a period had been applied only to those units that were started and completed in
a period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C2
5. In a process cost accounting system, a department's production should be measured in
terms of equivalent units when its beginning or ending inventory includes goods in process.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
6. Equivalent units of production are always the same as the total number of physical units
finished during the period.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
7. Equivalent units of production need to be determined only if a processing department adds
materials and labor to its products at different rates.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
20-5
Chapter 020 Process Cost Accounting
8. "Equivalent units of production" is an engineering term used to describe the process by
which one company attempts to manufacture units of a product that are equivalent to the
product manufactured by a competitor.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
9. The last step in the four-step accounting procedure for process costing is the calculation of
equivalent units of production.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
10. The process cost summary is an important managerial accounting report produced by a
process cost accounting system.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: C4
11. A process cost summary is an accounting report that describes the costs charged to a
department, the equivalent units of production by the department, and how the costs were
assigned to the output.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: C4
20-6
Chapter 020 Process Cost Accounting
12. A process cost summary includes the amounts of equivalent finished units of production
for the period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: C4
13. A process cost summary shows the cost of a particular job manufactured in the reporting
period.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: C4
14. The FIFO method separates work done on beginning inventory in the previous period
from work done on it in the current period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C5
15. If a department that applies process costing starts the reporting period with 100,000
physical units that were 20% complete with respect to direct labor, it must add 80% direct
labor in the current period to complete the units.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C5
20-7
Chapter 020 Process Cost Accounting
16. The FIFO method does not use the costs of beginning inventory in computing cost per
equivalent unit for the current period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C5
17. Process and job order manufacturing operations both combine materials, labor, and
overhead items in the process of producing products.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
18. Process cost accounting systems are commonly used by companies that produce a large
volume of standardized units on a continuous basis.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
19. Accountants use the term "process cost accounting system" because these systems use a
number of trained individuals and computers to process the collected cost information.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
20-8
Chapter 020 Process Cost Accounting
20. A production department is an organizational unit of a factory that has the responsibility
for at least partially manufacturing or producing a product or service.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
21. In a process cost accounting system, the cost of the finished goods from one department
are transferred to the next department.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
22. When defining direct costs and indirect costs in process costing, it is the process that is the
cost object.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
23. Process costing is applied to operations with repetitive production and heterogeneous
products.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
20-9
Chapter 020 Process Cost Accounting
24. In process cost accounting, all labor that is applied exclusively in a single production
department is considered to be direct labor.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
25. Process cost accounting systems consider overhead costs to include those costs that cannot
be readily identified with any specific process.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
26. Companies that use a series of repetitive manufacturing processes to produce standardized
products should use a process cost accounting system.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
27. Process cost accounting systems are used only by companies that manufacture physical
products; meaning that companies and other organizations that provide services to their
customers do not use process cost accounting.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
20-10
Chapter 020 Process Cost Accounting
28. Process cost accounting systems are commonly used by companies that manufacture
standardized products by passing them through a series of manufacturing steps.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
Learning Objective: C1
29. The use of process costing is of little benefit to a service type of operation.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
30. In process cost accounting, the classification of materials as direct or indirect depends on
whether they are clearly linked with a specific process.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
31. Direct costs in process cost accounting include only those costs that can be readily
identified with particular product units.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
20-11
Chapter 020 Process Cost Accounting
32. Process cost accounting systems consider direct costs to include those costs that can be
readily identified with a particular process.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
33. In process cost accounting, materials are always classified as indirect if they are not
physically incorporated into the final product.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: A1
34. Hybrid systems contain aspects of both process and job order operations.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A2
35. Hybrid costing systems can only be applied to auto manufacturing.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A2
20-12
Chapter 020 Process Cost Accounting
36. When a process cost accounting system records the purchase of raw materials, the Raw
Materials Inventory account is credited.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P1
37. When a process cost accounting system records the purchase of raw materials, the Raw
Materials Inventory account is debited.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P1
38. When a process cost accounting system assigns the cost of materials to a production
department, the journal entry debits the Raw Materials Inventory account and credits the
Goods in Process Inventory account for that department.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P1
39. A materials consumption report is a source document that summarizes the materials used
during a reporting period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P1
20-13
Chapter 020 Process Cost Accounting
40. If Department A uses $10,000 of direct materials and Department B uses $15,000 of direct
materials, the following journal entry would be recorded by the process cost accounting
system:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P1
41. A unique feature of process costing systems is the use of a single Goods in Process
Inventory control account.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P1
42. If Department Q uses $60,000 of direct materials and Department T uses $15,000 of direct
materials, the following journal entry would be recorded by the process cost accounting
system:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P1
20-14
Chapter 020 Process Cost Accounting
43. After all process cost accounting journal entries are recorded and posted for a reporting
period, the Factory Payroll account should have a zero balance.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
44. If the factory labor cost for a month was $123,000 (paid in cash), the following journal
entry would be recorded by the process cost accounting system:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
45. In process cost accounting, direct labor includes only the labor that is applied directly to
the products.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
20-15
Chapter 020 Process Cost Accounting
46. In some circumstances, a process cost accounting system can classify wages paid to
maintenance workers as direct labor costs instead of factory overhead.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
47. In a process costing system, factory labor costs incurred in a reporting period are
presented on the income statement as Factory Labor Expense.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
48. The following journal entry would be made to record the use of direct labor in the
reporting period covered by the information:
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
20-16
Chapter 020 Process Cost Accounting
49. If Department G uses $53,000 of direct labor and Department H uses $21,000 of direct
labor, the following journal entry would be recorded by the process cost accounting system:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P2
50. Factory overhead costs can be allocated by a process cost accounting system to the output
of production departments by using a predetermined overhead allocation rate.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P3
51. If the indirect materials cost for a reporting period was $37,500, the following journal
entry would be recorded by the process cost accounting system:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P3
20-17
Chapter 020 Process Cost Accounting
52. In process costing there is never a balance remaining in Factory Overhead that needs to be
closed at period end.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P3
53. In process costing, indirect materials are charged directly to Goods in Process Inventory.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P3
54. A process cost accounting system records all factory overhead costs directly in the Goods
in Process Inventory accounts.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
20-18
Chapter 020 Process Cost Accounting
55. If the predetermined overhead allocation rate is 350% of direct labor cost and the Painting
Department's direct labor cost for the reporting period is $20,000, the following entry would
record the allocation of overhead to the products processed in this department:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
56. If the predetermined overhead allocation rate is 85% of direct labor cost, and the Polishing
Department's direct labor cost for the reporting period is $20,000, the following entry would
be made to record the allocation of overhead to the products processed in this department:
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
57. If the predetermined overhead allocation rate is 225% of direct labor cost, and the Mixing
Department's direct labor cost for the reporting period is $10,000, the following entry would
be made to record the allocation of overhead to the products processed in this department:
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
20-19
Chapter 020 Process Cost Accounting
58. The number of equivalent units of production assigned to ending goods in process
inventory should usually be equal to or less than the number of physical units in ending goods
in process inventory.
TRUE
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P4
59. In the same time period, it is possible that a production department can produce 1,000
equivalent finished units with respect to direct materials and 1,200 equivalent finished units
with respect to direct labor.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P4
60. If a production department has 100 equivalent units of production with respect to direct
materials in a given reporting period, the equivalent units of production with respect to direct
labor also must be 100.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P4
20-20
Chapter 020 Process Cost Accounting
61. Once equivalent units are calculated for materials, this number will also used for direct
labor and factory overhead.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P4
62. If a department that applies process costing starts the reporting period with 50,000
physical units that were 25% complete with respect to direct materials and 40% complete with
respect to direct labor, it must add 12,500 equivalent units of direct materials and 20,000
equivalent units of direct labor to complete them.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P4
63. One section of the process cost summary describes the equivalent units of production for
the department during the reporting period and presents the calculations of the costs per
equivalent unit.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: P5
20-21
Chapter 020 Process Cost Accounting
64. A process cost summary for a production department accounts for all costs assigned to
that department during the period plus costs that were in the department's Goods in Process
Inventory account at the beginning of the period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: P5
65. The process cost summary presents calculations of the cost of units completed during the
reporting period, but does not present any information about the ending goods in process
inventory.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: P5
66. Since the process cost summary describes the activities of a production department for a
specified reporting period, it does not present information about any costs incurred in prior
periods.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: P5
20-22
Chapter 020 Process Cost Accounting
67. All costs of the processes in a process costing system ultimately pass through the Cost of
Goods Sold account.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P6
68. The Packing Department transferred out completed units with a cost of $74,000. This
transfer should be recorded with the following entry:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P6
Multiple Choice Questions
69. Which of the following five types of products is least likely to be produced in a process
manufacturing system?
A. Compact disks.
B. Slacks for casual wear.
C. Baseball hats.
D. Calculators.
E. Oil paintings.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
Learning Objective: C1
20-23
Chapter 020 Process Cost Accounting
70. Which of the following characteristics does not usually apply to process manufacturing
systems?
A. Each unit of product is separately identifiable.
B. Partially completed products are transferred between processes.
C. Different managers are responsible for different processes.
D. The output of all processes except the final process is an input to the next process.
E. All of these are characteristics of process manufacturing systems.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C1
71. Hou Company applies factory overhead to its production departments on the basis of 90%
of direct labor costs. In the Assembly Department, Hou had $125,000 of direct labor cost, and
in the Finishing Department, Hou had $35,000 of direct labor cost. The entry to apply
overhead to these production departments is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C1
20-24
Chapter 020 Process Cost Accounting
72. Which of the following characteristics applies to process cost accounting but not to job
order cost accounting?
A. Use of a predetermined overhead rate.
B. Identifiable lots of production.
C. Equivalent units of production.
D. Labor time ticket for each employee.
E. Use of a single Goods in Process account.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C1
73. A measure of the productivity of a process with respect to its use of direct materials, direct
labor, or overhead, and an expression of the activity of a process as the number of units that
would have been processed during a period if all effort had been applied to units that were
started and finished during the period, is called:
A. Manufacturing overhead.
B. Units in process.
C. A job cost sheet.
D. Equivalent units of production.
E. Process cost summary.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C2
20-25
Chapter 020 Process Cost Accounting
74. Equivalent units of production are equal to:
A. The number of units that could have been completed if all effort had been applied to units
that were started and completed that period.
B. The number of finished units actually produced that period.
C. The number of units introduced into the process that period.
D. The number of units still in process that period.
E. Physical units that were completed this period from all effort being applied to them.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
75. Which of the following is the best explanation for why it is necessary to calculate
equivalent units of production in a process costing environment?
A. In most manufacturing environments, it is not possible to conduct a physical count of units.
B. Companies often use a combination of a process costing and job order costing systems.
C. In most process costing systems, direct materials are added at the beginning of the process
while conversion costs are added evenly throughout the manufacturing process.
D. All of the work to make a unit 100% complete and ready to move to the next stage of
production or to finished goods inventory may not have been completed in a single time
period.
E. In most cases, there is no difference between physical units and equivalent units of
production.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
20-26
Chapter 020 Process Cost Accounting
76. Which of the following is not one of the four steps in accounting for production activity in
a period?
A. Determine over or underapplied overhead.
B. Analyze the physical flow of units.
C. Analyze equivalent units.
D. Determine cost per equivalent unit.
E. Prepare a cost reconciliation.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
77. Which of the following statements is most accurate?
A. In process costing, estimating the degree of completion of units is usually more accurate
for conversion costs than for direct materials.
B. The weighted average method uses the stage of completion of the current period's
beginning goods in process inventory account in calculating equivalent units.
C. The weighted average method focuses on the total costs and total equivalent units
completed to date; this is the major difference between the weighted average method and the
FIFO method of calculating equivalent units of production.
D. The FIFO method of calculating equivalent units of production merges the work and the
costs of the beginning inventory with the work and the costs done during the current period.
E. It is not possible for there to be a significant difference between the cost of completed units
between the weighted average and the FIFO methods.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C3
Learning Objective: C5
20-27
Chapter 020 Process Cost Accounting
78. A production department's output for the most recent month consisted of 10,000 units
completed and transferred to the next stage of production and 10,000 units in ending goods in
process inventory. The units in ending goods in process inventory were 50% complete with
respect to both direct materials and conversion costs. There were 1,000 units in beginning
goods in process inventory, and they were 70% complete with respect to both direct materials
and conversion costs. Calculate the equivalent units of production for the month, assuming the
company uses the weighted average method.
A. 10,000 units.
B. 10,300 units.
C. 15,000 units.
D. 15,300 units.
E. 10,700 units.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
79. The Machining Department started the current month with a beginning goods in process
inventory of $10,000. During the month, it was assigned the following costs: direct materials,
$76,000; direct labor, $24,000; and factory overhead, 50% of direct labor cost. Also,
inventory with a cost of $109,000 was transferred out of the department to the next phase in
the process. The ending balance of the Goods in Process Inventory account for the Machining
Department is:
A. $ 13,000.
B. $ 56,000.
C. $ 59,000.
D. $110,000.
E. $165,000.
$10,000 + $76,000 + $24,000 + $12,000 - $109,000 = $13,000
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-28
Chapter 020 Process Cost Accounting
80. A company uses a process cost accounting system. Its Assembly Department's beginning
inventory consisted of 50,000 units, 3/4 complete with respect to direct labor and overhead.
The department started and finished 127,500 units this period. The ending inventory consists
of 40,000 units that are 1/4 complete with respect to direct labor and overhead. All direct
materials are added at the beginning of the process. The department incurred direct labor costs
of $24,000 and overhead costs of $32,000 for the period. Assuming the weighted average
method, the direct labor cost per equivalent unit (rounded to the nearest cent) is:
A. $0.14.
B. $0.16.
C. $0.17.
D. $0.30.
E. $0.37.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C3
20-29
Chapter 020 Process Cost Accounting
81. A company's beginning work in process inventory consisted of 20,000 units that were 1/5
complete with respect to direct labor. These beginning units were completed and another
90,000 units were started during the current period. Of those started, 60,000 were finished and
the remaining 30,000 were 1/3 complete at the end of the period. Using the weighted-average
method, the equivalent units of production with regard to direct labor were:
A. 60,000.
B. 74,000.
C. 76,000.
D. 90,000.
E. 96,000.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
82. At the beginning of the recent period, there were 900 units of product in a department,
one-third completed. These units were finished and an additional 5,000 units were started and
completed during the period. 800 units were still in process at the end of the period, onefourth completed. Using the weighted average method, the equivalent units produced by the
department were:
A. 5,000 units.
B. 5,900 units.
C. 6,100 units.
D. 5,500 units.
E. 6,700 units.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-30
Chapter 020 Process Cost Accounting
83. A company uses the weighted average method for inventory costing. During a period,
Department A finished and transferred 50,000 units to Department B. Also, during the period,
10,000 units were started but brought only to a stage of being 3/5 completed. The number of
equivalent units produced by Department A during the period was:
A. 44,000 units.
B. 50,000 units.
C. 54,000 units.
D. 56,000 units.
E. 60,000 units.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-31
Chapter 020 Process Cost Accounting
Medina Corp. uses the weighted average method for inventory costs and had the following
information available for the year:
84. The number of units transferred to finished goods during the year is:
A. 3,200 units.
B. 3,000 units.
C. 3,400 units.
D. 3,160 units.
E. 3,500 units.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-32
Chapter 020 Process Cost Accounting
85. Equivalent units of production for the year are:
A. 3,200 units.
B. 3,320 units.
C. 3,240 units.
D. 3,520 units.
E. 3,800 units.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-33
Chapter 020 Process Cost Accounting
86. A company uses a process cost accounting system. Its Sewing Department completed and
transferred out 120,000 units during the current period. The ending inventory in the Sewing
Department consists of 40,000 units (20% complete with respect to direct materials and 60%
complete with respect to direct labor). Overhead is applied on the basis of direct labor.
Determine the equivalent units of production for the Sewing Department for direct materials,
direct labor and overhead assuming the weighted average method.
A. 120,000; 120,000; 120,000
B. 120,000; 160,000; 120,000
C. 128,000; 120,000; 120,000
D. 128000; 144,000; 144,000
E. 128,000; 184,000; 160,000
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C3
87. A process cost summary is a managerial accounting report that describes:
A. The costs charged to a department.
B. The equivalent units of production by the department.
C. How the costs were assigned to the output.
D. Physical transfers for a department.
E. All of these.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: C4
20-34
Chapter 020 Process Cost Accounting
Aniston Enterprises manufactures stylish hats for sophisticated women. All materials are
introduced at the beginning of the manufacturing process in the Cutting Department.
Conversion costs are incurred uniformly throughout the manufacturing process. As the cutting
of material is completed, the pieces are immediately transferred to the Sewing Department.
Information for the Cutting Department for the month of May 2010 follows:
20-35
Chapter 020 Process Cost Accounting
88. If Aniston Enterprises uses the FIFO method of process costing, the costs per equivalent
unit for May 2010 were:
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C5
20-36
Chapter 020 Process Cost Accounting
89. If Aniston Enterprises uses the FIFO method of process costing, the equivalent units of
work completed in May 2010 were:
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
All 50,000 units in beginning Goods in Process were already 100% complete with respect to
direct materials. The information indicates 225,000 units were begun during May. Since direct
materials are added at the beginning of the process, those units were 100% complete with
respect to direct materials by the end of May. Therefore, the equivalent units of production for
direct materials for May was 225,000.
The 50,000 units in beginning Goods in Process were only 40% complete with respect to
conversion costs. Therefore, the remaining 60% or 30,000 units were completed in May as far
as conversion costs are concerned. The information also indicates that 200,000 units were
completed during May. That means that another 150,000 units were started and completed
during May and were 100% complete with respect to conversion costs (200,000 - 50,000).
Finally, there were 75,000 units in ending Goods in Process inventory and those units were
20% complete with respect to conversion costs. 75,000 units x 20% = 15,000 units Therefore,
the total equivalent units of production for conversion costs during May were 30,000 +
150,000 + 15,000 = 195,000.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C5
20-37
Chapter 020 Process Cost Accounting
90. The following data are available for a company's manufacturing activities:
If materials are added when the production process begins and direct labor is applied
uniformly throughout the process, what are the equivalent units for direct materials and for
direct labor, respectively using the FIFO method of process costing?
A. 16,250; 19,250.
B. 16,250; 21,750.
C. 21,000; 19,250.
D. 19,250; 18,750.
E. 21,000; 22,250.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C5
91. A system of accounting in which the costs of each process are accumulated separately and
then assigned to the units of product that passed through the process is a:
A. General cost accounting system.
B. Process cost accounting system.
C. Job order cost accounting system.
D. Manufacturing cost accounting system.
E. Goods in process accounting system.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
20-38
Chapter 020 Process Cost Accounting
92. A company that applies process costing is most frequently characterized by:
A. Low standardization and high production volume.
B. Custom orders and homogeneous products.
C. Repetitive production and heterogeneous products.
D. Repetitive production and low production volume.
E. Homogeneous product and high production volume.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
93. An organizational unit of a factory that has the responsibility for partially manufacturing
or producing a product is called a:
A. Production department.
B. Service department.
C. Primary department.
D. Responsibility department.
E. Control department.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
94. A hybrid costing system would be most appropriate when:
A. A manufacturer is able to standardize processes while at the same time attempting to cater
to individual customer needs.
B. Large quantities of identical products are being produced.
C. The volume of production is low and costs are high.
D. There is no standardization of units of production.
E. All of these would necessitate a hybrid costing system.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A2
20-39
Chapter 020 Process Cost Accounting
95. Direct material costs are recorded:
A. Indirectly to Goods in Process account.
B. Indirectly to a Finished Goods account.
C. Directly to a Goods in Process account.
D. Directly to a Finished Goods account.
E. Directly to a Cost of Goods Sold account.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P1
96. The purchase of raw materials on account in a process costing system is recorded with a:
A. Debit to Purchases and credit to Cash.
B. Debit to Purchases and a credit to Accounts Payable.
C. Debit to Raw Materials Inventory and a credit to Accounts Payable.
D. Debit to Accounts Payable and a credit to Raw Materials Inventory.
E. Debit to Goods in Process Inventory and a credit to Accounts Payable
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P1
97. When raw materials are purchased on account for use in a process costing system, the
corresponding journal entry that should be recorded will include:
A. A debit to Goods in Process Inventory.
B. A debit to Accounts Payable.
C. A credit to Cash.
D. A debit to Raw Materials Inventory.
E. A credit to Raw Materials Inventory.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P1
20-40
Chapter 020 Process Cost Accounting
98. Direct labor and indirect labor are recorded, respectively, to:
A. Factory Overhead and Goods in Process.
B. Goods in Process and Finished Goods.
C. Finished Goods and Goods in Process.
D. Goods in Process and Factory Overhead.
E. Cost of Goods Sold and Finished Goods.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
99. In a process operation, the direct labor of a production department includes:
A. All labor used exclusively by that department, even if the labor is not applied to the
product itself.
B. All labor used exclusively by that department, but only if the labor is applied to the product
itself.
C. All labor for that department, including labor for services that help more than one
production department, such as clerical, repair, and computer technicians.
D. Only labor that helps more than one production department, such as clerical, repair, and
computer technicians.
E. Only that labor that is recorded in the Factory Payroll account.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
20-41
Chapter 020 Process Cost Accounting
100. After posting all actual factory overhead and applying factory overhead to production
departments in a process costing system,
A. There will never be underapplied overhead.
B. There will never be overapplied overhead.
C. There will always be underapplied overhead.
D. There will always be overapplied overhead.
E. There may be over or underapplied overhead.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P3
101. In a process costing system, when manufacturing overhead costs are applied to the cost
of production, they are debited to:
A. the Finished Goods Inventory account.
B. the Cost of Goods Sold account.
C. the Goods in Process Inventory account.
D. the Manufacturing Overhead account.
E. the Raw Materials Inventory account.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
102. To compute an equivalent unit of production, one must be able to reasonably estimate:
A. The percentage of completion.
B. Units completed.
C. Units started and completed.
D. Direct labor cost.
E. Materials cost.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P4
20-42
Chapter 020 Process Cost Accounting
103. The following is an account for a production department, showing its costs for one
month:
Assume that materials are added at the beginning of the production process and that direct
labor and overhead are applied uniformly. If the units in ending goods in process inventory
cost $4,590, and the started and completed units cost $41,850, what was the cost of
completing the units in the beginning goods in process inventory?
A. $12,150.
B. $ 2,160.
C. $ 7,560.
D. $54,000.
E. $37,260.
Total costs = $5,400 + $21,600 + 16,200 + $10,800 = $54,000
Total transferred out = $54,000 - $4,590 = $49,410
BGIP transferred out = $49,410 - $41,850 = $7,560
Cost to complete BGIP = $7,560 - $5,400 = $2,160
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P5
20-43
Chapter 020 Process Cost Accounting
104. Que Corporation uses a process cost accounting system. The company manufactured
certain goods at a cost of $800 and sold them on credit to Are Corporation for $1,075. The
complete journal entry to be made by Que at the time of this sale is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P6
20-44
Chapter 020 Process Cost Accounting
Matching Questions
105. Match the following terms with the definitions.
1. Materials
consumption
report
2. Hybrid
manufacturing
system
3. Process
manufacturing
system
4. Job order cost
accounting system
5. Process cost
summary
6. Process cost
accounting system
7. Equivalent units
of production.
Number of units that would be completed if all effort
during a period had been applied to units that were started
and finished. 7
Costing system to determine the cost of producing each
job or job lot. 4
A manufacturing system that contains features of both
process and job order systems. 2
Process of products in a continuous flow of steps.
System of assigning direct materials, direct labor, and
overhead to specific processes; total costs associated with
each process are then divided by the number of units.
passing through that process to determine cost per
equivalent unit.
Document that summarizes the materials a department
uses during a reporting period; replaces materials
requisition.
Report of costs charged to a department, its equivalent
units of production achieved, even the costs assigned to its
output.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
Learning Objective: A2
Learning Objective: C2
Learning Objective: C4
Learning Objective: P1
20-45
3
6
1
5
Chapter 020 Process Cost Accounting
Short Answer Questions
106. What is meant by equivalent units of production, and why are they important when a
process cost accounting system is used?
Equivalent units of production measure production with respect to direct materials, direct
labor and overhead, expressed as the number of units that could have been manufactured
during a period if all effort during a period had been applied only to those units started and
completed during the period. Determining equivalent units of production is important for the
calculation of the cost per unit and, thus, for calculating the costs of inventories and the cost
of goods sold.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
107. What are the four steps in accounting for production activity in a period?
Accounting for a department's activity for a period includes the four steps of analyzing (1)
physical flow, (2) equivalent units, (3) cost per equivalent unit, (4)cost reconciliation.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-46
Chapter 020 Process Cost Accounting
108. (a) Why is the Process Cost Summary important to Management?
(b) How does the Process Cost Summary accomplish its purposes?
(a) The Process Cost Summary depicts a four-step process detailing physical flows and cost
flows. It allows management to verify inputs and outputs as part of a cost control and
monitoring system. It also lets management logically perform unit costing—a necessary
activity to allow for appropriate product pricing.
(b) By detailing physical flow, a process cost summary measures accountability and
responsibility. By detailing cost flow, it allows management to determine and derive
appropriate cost allocations in a logical format.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C4
109. Briefly explain the conditions under which job order cost accounting systems and
process cost accounting systems are commonly applied.
Job order cost accounting systems are commonly used when each product or job has a unique
design so that the manufacturing process focuses on the production of that specific job.
Process cost accounting systems are commonly used when manufacturing operations produce
a large volume of standardized units that generally pass from one manufacturing process to
another.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
20-47
Chapter 020 Process Cost Accounting
110. Job order manufacturing and process manufacturing are two major costing systems used
in manufacturing. Briefly contrast the characteristics of these two systems.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
111. What is a hybrid costing system? When is a hybrid costing system appropriate for a
manufacturer?
A hybrid manufacturing system contains the features of both process and job order operations.
In a hybrid costing system, some parts of the manufacturing process are accounted for using a
process costing system, and other parts are accounted for using a job order costing system.
Hybrid costing systems are appropriate when a manufacturer can standardize processes and
yet cater to individual customer needs.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A2
20-48
Chapter 020 Process Cost Accounting
112. Describe the flow of materials in a process cost accounting system, including accounts
used.
When raw materials are purchased they are debited to a Raw Materials Inventory account.
When direct materials are needed in a production department, a materials requisition or
materials consumption report is used to move the materials from the storeroom to the
production department. Direct materials used are recorded with a debit to the Goods in
Process Inventory for that department and a credit to Raw Materials Inventory. Indirect
materials used in a department are recorded with a debit to Factory Overhead and a credit to
Raw Materials Inventory. The Factory Overhead is subsequently allocated to the Goods in
Process account for each production department.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P1
113. Describe the flow of labor in a process cost accounting system, including accounts used.
Each pay period, as workers earn their wages, Factory Payroll is debited and Cash is credited
to record the amount paid to workers. As direct labor is used in each production department,
Goods in Process of that department are debited and Factory Payroll is credited to assign the
labor to the department. Indirect labor is recorded to the factory overhead with a debit to
Factory Overhead and a credit to Factory Payroll. The Factory Overhead is subsequently
allocated to the Goods in Process account for each production department.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
20-49
Chapter 020 Process Cost Accounting
114. Describe the flow of overhead costs in a process cost accounting system, including
accounts used.
As actual overhead costs are incurred for indirect labor, indirect materials, insurance, utilities,
and so on, the Factory Overhead account is debited, and the appropriate accounts are credited
(for instance, Factory Payroll, Raw Materials Inventory, various payables, and cash). When
overhead is applied to production based on the overhead allocation rate, Goods in Process is
debited and Factory Overhead is credited. Any under or overapplied overhead is closed to
either the Cost of Goods Sold account, or allocated among the Cost of Goods Sold, Goods in
Process Inventory, and Finished Goods.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
20-50
Chapter 020 Process Cost Accounting
Problems
115. A company's January 1 goods in process inventory contained 30,000 units that were 1/4
complete with respect to direct labor. The beginning inventory was completed this year and
another 120,000 units were started. Of those started, 80,000 were
Summary of Questions by Difficulty Level (DL) and Learning Objective (LO)
True/False
Item
DL
LO
Item
DL
LO
Item
DL
LO
1.
2.
3.
4.
5.
6.
7.
8.
9.
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13.
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15.
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18.
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27.
Easy
Easy
Easy
Easy
Med
Med
Med
Med
Med
Easy
Med
Med
Med
Med
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Hard
Easy
Easy
Easy
Easy
Easy
Easy
Med
Med
Med
Med
Med
C1
C1
C2
C2
C2
C2
C2
C2
C3
C4
C4
C4
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C5
C5
C5
A1
A1
A1
A1
A1
A1
A1
A1
A1
A1
A1
28.
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50.
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54.
Med
Med
Med
Med
Med
Hard
Easy
Med
Med
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Med
Med
Hard
Hard
Hard
Med
Med
Med
Med
Med
Med
Hard
Easy
Easy
Easy
Easy
Med
C1,A1
A1
A1
A1
A1
A1
A2
P1
P1
P1
P1
P1
P1
P1
P1
P2
P2
P2
P2
P2
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P3
P3
P3
P3
55.
56.
57.
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59.
60.
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62.
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64.
65.
66.
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68.
Med
Med
Med
Med
Med
Med
Med
Hard
Easy
Med
Med
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Med
Med
P3
P3
P3
P4
P4
P4
P4
P4
P5
P5
P5
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P6
P6
20-1
Chapter 020 Process Cost Accounting
Multiple Choice
Item
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
DL
LO
Item
DL
LO
Med
Med
Med
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Easy
Med
Med
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Hard
Med
Med
Hard
Med
C1,A1
C1
C1
C1
C2
C2
C2
C3
C3,C5
C3
C3
C3
C3
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
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93.
94.
Med
Med
Med
Med
Hard
Med
Med
Hard
Hard
Easy
Med
Med
Easy
C3
C3
C3
C3
C3
C4
C5
C5
C5
A1
A1
A1
A2
DL
LO
Item
DL
LO
Med
C2,C4,
A1,A2,
P1
Item
DL
LO
Med
Med
Med
A1
A2
P1
Item
DL
LO
Easy
Easy
Easy
Med
Med
Easy
Med
Med
Hard
Med
P1
P1
P1
P2
P2
P3
P3
P4
P5
P6
Item
DL
LO
Item
DL
LO
Med
Med
P2
P3
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
Matching
Item
105.
Short Essay
Item
106.
107.
108.
109.
DL
LO
Med
Med
Med
Med
C2
C3
C4
A1
110.
111.
112.
20-2
113.
114.
Chapter 020 Process Cost Accounting
Problems
Item
115.
116.
117.
118.
119.
120.
121.
122.
123.
124.
125.
DL
LO
Med
Med
Med
Hard
Hard
Hard
Hard
Hard
Hard
Med
Med
C3
C3
C3
C5
C5
C5
C5
C5
C3
C5
P1
Item
126.
127.
128.
129.
130.
131.
132.
133.
134.
135.
DL
LO
Med
Med
Med
Med
Med
Med
Med
Med
Hard
Med
P2
P3
P5
P5
P5
P5
P5
P5
P5
P5,P6
DL
LO
Med
Med
Easy
Med
Hard
C3
A1
A2
P1
P1
Item
136.
137.
138.
DL
LO
Med
Med
Med
P5
P5
P6
DL
LO
Med
Med
Easy
Hard
Med
Med
P2
P3
P5
P5
P6
P6
Completion Problems
Item
139.
140.
141.
142.
143.
144.
DL
LO
Easy
Med
Med
Med
Med
Med
C1
C2
C2
C3
C3
C3
Item
145.
146.
147.
148.
149.
20-3
Item
150.
151.
152.
153.
154.
155.
Chapter 020 Process Cost Accounting
True / False Questions
1. The managers of process manufacturing systems focus on the series of processes needed to
complete the production of products.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C1
2. Process manufacturing usually reflects a manufacturer that produces large quantities of
identical products.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C1
3. To determine unit cost under a process cost accounting system, equivalent units produced
must be calculated if the company has goods in process inventories.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C2
20-4
Chapter 020 Process Cost Accounting
4. Equivalent units of production refer to the number of units that would be completed if all
effort during a period had been applied only to those units that were started and completed in
a period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C2
5. In a process cost accounting system, a department's production should be measured in
terms of equivalent units when its beginning or ending inventory includes goods in process.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
6. Equivalent units of production are always the same as the total number of physical units
finished during the period.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
7. Equivalent units of production need to be determined only if a processing department adds
materials and labor to its products at different rates.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
20-5
Chapter 020 Process Cost Accounting
8. "Equivalent units of production" is an engineering term used to describe the process by
which one company attempts to manufacture units of a product that are equivalent to the
product manufactured by a competitor.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
9. The last step in the four-step accounting procedure for process costing is the calculation of
equivalent units of production.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
10. The process cost summary is an important managerial accounting report produced by a
process cost accounting system.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: C4
11. A process cost summary is an accounting report that describes the costs charged to a
department, the equivalent units of production by the department, and how the costs were
assigned to the output.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: C4
20-6
Chapter 020 Process Cost Accounting
12. A process cost summary includes the amounts of equivalent finished units of production
for the period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: C4
13. A process cost summary shows the cost of a particular job manufactured in the reporting
period.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: C4
14. The FIFO method separates work done on beginning inventory in the previous period
from work done on it in the current period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C5
15. If a department that applies process costing starts the reporting period with 100,000
physical units that were 20% complete with respect to direct labor, it must add 80% direct
labor in the current period to complete the units.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C5
20-7
Chapter 020 Process Cost Accounting
16. The FIFO method does not use the costs of beginning inventory in computing cost per
equivalent unit for the current period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C5
17. Process and job order manufacturing operations both combine materials, labor, and
overhead items in the process of producing products.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
18. Process cost accounting systems are commonly used by companies that produce a large
volume of standardized units on a continuous basis.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
19. Accountants use the term "process cost accounting system" because these systems use a
number of trained individuals and computers to process the collected cost information.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
20-8
Chapter 020 Process Cost Accounting
20. A production department is an organizational unit of a factory that has the responsibility
for at least partially manufacturing or producing a product or service.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
21. In a process cost accounting system, the cost of the finished goods from one department
are transferred to the next department.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
22. When defining direct costs and indirect costs in process costing, it is the process that is the
cost object.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
23. Process costing is applied to operations with repetitive production and heterogeneous
products.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
20-9
Chapter 020 Process Cost Accounting
24. In process cost accounting, all labor that is applied exclusively in a single production
department is considered to be direct labor.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
25. Process cost accounting systems consider overhead costs to include those costs that cannot
be readily identified with any specific process.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
26. Companies that use a series of repetitive manufacturing processes to produce standardized
products should use a process cost accounting system.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
27. Process cost accounting systems are used only by companies that manufacture physical
products; meaning that companies and other organizations that provide services to their
customers do not use process cost accounting.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
20-10
Chapter 020 Process Cost Accounting
28. Process cost accounting systems are commonly used by companies that manufacture
standardized products by passing them through a series of manufacturing steps.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
Learning Objective: C1
29. The use of process costing is of little benefit to a service type of operation.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
30. In process cost accounting, the classification of materials as direct or indirect depends on
whether they are clearly linked with a specific process.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
31. Direct costs in process cost accounting include only those costs that can be readily
identified with particular product units.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
20-11
Chapter 020 Process Cost Accounting
32. Process cost accounting systems consider direct costs to include those costs that can be
readily identified with a particular process.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
33. In process cost accounting, materials are always classified as indirect if they are not
physically incorporated into the final product.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: A1
34. Hybrid systems contain aspects of both process and job order operations.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A2
35. Hybrid costing systems can only be applied to auto manufacturing.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A2
20-12
Chapter 020 Process Cost Accounting
36. When a process cost accounting system records the purchase of raw materials, the Raw
Materials Inventory account is credited.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P1
37. When a process cost accounting system records the purchase of raw materials, the Raw
Materials Inventory account is debited.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P1
38. When a process cost accounting system assigns the cost of materials to a production
department, the journal entry debits the Raw Materials Inventory account and credits the
Goods in Process Inventory account for that department.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P1
39. A materials consumption report is a source document that summarizes the materials used
during a reporting period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P1
20-13
Chapter 020 Process Cost Accounting
40. If Department A uses $10,000 of direct materials and Department B uses $15,000 of direct
materials, the following journal entry would be recorded by the process cost accounting
system:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P1
41. A unique feature of process costing systems is the use of a single Goods in Process
Inventory control account.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P1
42. If Department Q uses $60,000 of direct materials and Department T uses $15,000 of direct
materials, the following journal entry would be recorded by the process cost accounting
system:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P1
20-14
Chapter 020 Process Cost Accounting
43. After all process cost accounting journal entries are recorded and posted for a reporting
period, the Factory Payroll account should have a zero balance.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
44. If the factory labor cost for a month was $123,000 (paid in cash), the following journal
entry would be recorded by the process cost accounting system:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
45. In process cost accounting, direct labor includes only the labor that is applied directly to
the products.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
20-15
Chapter 020 Process Cost Accounting
46. In some circumstances, a process cost accounting system can classify wages paid to
maintenance workers as direct labor costs instead of factory overhead.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
47. In a process costing system, factory labor costs incurred in a reporting period are
presented on the income statement as Factory Labor Expense.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
48. The following journal entry would be made to record the use of direct labor in the
reporting period covered by the information:
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
20-16
Chapter 020 Process Cost Accounting
49. If Department G uses $53,000 of direct labor and Department H uses $21,000 of direct
labor, the following journal entry would be recorded by the process cost accounting system:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P2
50. Factory overhead costs can be allocated by a process cost accounting system to the output
of production departments by using a predetermined overhead allocation rate.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P3
51. If the indirect materials cost for a reporting period was $37,500, the following journal
entry would be recorded by the process cost accounting system:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P3
20-17
Chapter 020 Process Cost Accounting
52. In process costing there is never a balance remaining in Factory Overhead that needs to be
closed at period end.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P3
53. In process costing, indirect materials are charged directly to Goods in Process Inventory.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P3
54. A process cost accounting system records all factory overhead costs directly in the Goods
in Process Inventory accounts.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
20-18
Chapter 020 Process Cost Accounting
55. If the predetermined overhead allocation rate is 350% of direct labor cost and the Painting
Department's direct labor cost for the reporting period is $20,000, the following entry would
record the allocation of overhead to the products processed in this department:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
56. If the predetermined overhead allocation rate is 85% of direct labor cost, and the Polishing
Department's direct labor cost for the reporting period is $20,000, the following entry would
be made to record the allocation of overhead to the products processed in this department:
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
57. If the predetermined overhead allocation rate is 225% of direct labor cost, and the Mixing
Department's direct labor cost for the reporting period is $10,000, the following entry would
be made to record the allocation of overhead to the products processed in this department:
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
20-19
Chapter 020 Process Cost Accounting
58. The number of equivalent units of production assigned to ending goods in process
inventory should usually be equal to or less than the number of physical units in ending goods
in process inventory.
TRUE
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P4
59. In the same time period, it is possible that a production department can produce 1,000
equivalent finished units with respect to direct materials and 1,200 equivalent finished units
with respect to direct labor.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P4
60. If a production department has 100 equivalent units of production with respect to direct
materials in a given reporting period, the equivalent units of production with respect to direct
labor also must be 100.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P4
20-20
Chapter 020 Process Cost Accounting
61. Once equivalent units are calculated for materials, this number will also used for direct
labor and factory overhead.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P4
62. If a department that applies process costing starts the reporting period with 50,000
physical units that were 25% complete with respect to direct materials and 40% complete with
respect to direct labor, it must add 12,500 equivalent units of direct materials and 20,000
equivalent units of direct labor to complete them.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P4
63. One section of the process cost summary describes the equivalent units of production for
the department during the reporting period and presents the calculations of the costs per
equivalent unit.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
Learning Objective: P5
20-21
Chapter 020 Process Cost Accounting
64. A process cost summary for a production department accounts for all costs assigned to
that department during the period plus costs that were in the department's Goods in Process
Inventory account at the beginning of the period.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: P5
65. The process cost summary presents calculations of the cost of units completed during the
reporting period, but does not present any information about the ending goods in process
inventory.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: P5
66. Since the process cost summary describes the activities of a production department for a
specified reporting period, it does not present information about any costs incurred in prior
periods.
FALSE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: P5
20-22
Chapter 020 Process Cost Accounting
67. All costs of the processes in a process costing system ultimately pass through the Cost of
Goods Sold account.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P6
68. The Packing Department transferred out completed units with a cost of $74,000. This
transfer should be recorded with the following entry:
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P6
Multiple Choice Questions
69. Which of the following five types of products is least likely to be produced in a process
manufacturing system?
A. Compact disks.
B. Slacks for casual wear.
C. Baseball hats.
D. Calculators.
E. Oil paintings.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
Learning Objective: C1
20-23
Chapter 020 Process Cost Accounting
70. Which of the following characteristics does not usually apply to process manufacturing
systems?
A. Each unit of product is separately identifiable.
B. Partially completed products are transferred between processes.
C. Different managers are responsible for different processes.
D. The output of all processes except the final process is an input to the next process.
E. All of these are characteristics of process manufacturing systems.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C1
71. Hou Company applies factory overhead to its production departments on the basis of 90%
of direct labor costs. In the Assembly Department, Hou had $125,000 of direct labor cost, and
in the Finishing Department, Hou had $35,000 of direct labor cost. The entry to apply
overhead to these production departments is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C1
20-24
Chapter 020 Process Cost Accounting
72. Which of the following characteristics applies to process cost accounting but not to job
order cost accounting?
A. Use of a predetermined overhead rate.
B. Identifiable lots of production.
C. Equivalent units of production.
D. Labor time ticket for each employee.
E. Use of a single Goods in Process account.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C1
73. A measure of the productivity of a process with respect to its use of direct materials, direct
labor, or overhead, and an expression of the activity of a process as the number of units that
would have been processed during a period if all effort had been applied to units that were
started and finished during the period, is called:
A. Manufacturing overhead.
B. Units in process.
C. A job cost sheet.
D. Equivalent units of production.
E. Process cost summary.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: C2
20-25
Chapter 020 Process Cost Accounting
74. Equivalent units of production are equal to:
A. The number of units that could have been completed if all effort had been applied to units
that were started and completed that period.
B. The number of finished units actually produced that period.
C. The number of units introduced into the process that period.
D. The number of units still in process that period.
E. Physical units that were completed this period from all effort being applied to them.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
75. Which of the following is the best explanation for why it is necessary to calculate
equivalent units of production in a process costing environment?
A. In most manufacturing environments, it is not possible to conduct a physical count of units.
B. Companies often use a combination of a process costing and job order costing systems.
C. In most process costing systems, direct materials are added at the beginning of the process
while conversion costs are added evenly throughout the manufacturing process.
D. All of the work to make a unit 100% complete and ready to move to the next stage of
production or to finished goods inventory may not have been completed in a single time
period.
E. In most cases, there is no difference between physical units and equivalent units of
production.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
20-26
Chapter 020 Process Cost Accounting
76. Which of the following is not one of the four steps in accounting for production activity in
a period?
A. Determine over or underapplied overhead.
B. Analyze the physical flow of units.
C. Analyze equivalent units.
D. Determine cost per equivalent unit.
E. Prepare a cost reconciliation.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
77. Which of the following statements is most accurate?
A. In process costing, estimating the degree of completion of units is usually more accurate
for conversion costs than for direct materials.
B. The weighted average method uses the stage of completion of the current period's
beginning goods in process inventory account in calculating equivalent units.
C. The weighted average method focuses on the total costs and total equivalent units
completed to date; this is the major difference between the weighted average method and the
FIFO method of calculating equivalent units of production.
D. The FIFO method of calculating equivalent units of production merges the work and the
costs of the beginning inventory with the work and the costs done during the current period.
E. It is not possible for there to be a significant difference between the cost of completed units
between the weighted average and the FIFO methods.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C3
Learning Objective: C5
20-27
Chapter 020 Process Cost Accounting
78. A production department's output for the most recent month consisted of 10,000 units
completed and transferred to the next stage of production and 10,000 units in ending goods in
process inventory. The units in ending goods in process inventory were 50% complete with
respect to both direct materials and conversion costs. There were 1,000 units in beginning
goods in process inventory, and they were 70% complete with respect to both direct materials
and conversion costs. Calculate the equivalent units of production for the month, assuming the
company uses the weighted average method.
A. 10,000 units.
B. 10,300 units.
C. 15,000 units.
D. 15,300 units.
E. 10,700 units.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
79. The Machining Department started the current month with a beginning goods in process
inventory of $10,000. During the month, it was assigned the following costs: direct materials,
$76,000; direct labor, $24,000; and factory overhead, 50% of direct labor cost. Also,
inventory with a cost of $109,000 was transferred out of the department to the next phase in
the process. The ending balance of the Goods in Process Inventory account for the Machining
Department is:
A. $ 13,000.
B. $ 56,000.
C. $ 59,000.
D. $110,000.
E. $165,000.
$10,000 + $76,000 + $24,000 + $12,000 - $109,000 = $13,000
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-28
Chapter 020 Process Cost Accounting
80. A company uses a process cost accounting system. Its Assembly Department's beginning
inventory consisted of 50,000 units, 3/4 complete with respect to direct labor and overhead.
The department started and finished 127,500 units this period. The ending inventory consists
of 40,000 units that are 1/4 complete with respect to direct labor and overhead. All direct
materials are added at the beginning of the process. The department incurred direct labor costs
of $24,000 and overhead costs of $32,000 for the period. Assuming the weighted average
method, the direct labor cost per equivalent unit (rounded to the nearest cent) is:
A. $0.14.
B. $0.16.
C. $0.17.
D. $0.30.
E. $0.37.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C3
20-29
Chapter 020 Process Cost Accounting
81. A company's beginning work in process inventory consisted of 20,000 units that were 1/5
complete with respect to direct labor. These beginning units were completed and another
90,000 units were started during the current period. Of those started, 60,000 were finished and
the remaining 30,000 were 1/3 complete at the end of the period. Using the weighted-average
method, the equivalent units of production with regard to direct labor were:
A. 60,000.
B. 74,000.
C. 76,000.
D. 90,000.
E. 96,000.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
82. At the beginning of the recent period, there were 900 units of product in a department,
one-third completed. These units were finished and an additional 5,000 units were started and
completed during the period. 800 units were still in process at the end of the period, onefourth completed. Using the weighted average method, the equivalent units produced by the
department were:
A. 5,000 units.
B. 5,900 units.
C. 6,100 units.
D. 5,500 units.
E. 6,700 units.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-30
Chapter 020 Process Cost Accounting
83. A company uses the weighted average method for inventory costing. During a period,
Department A finished and transferred 50,000 units to Department B. Also, during the period,
10,000 units were started but brought only to a stage of being 3/5 completed. The number of
equivalent units produced by Department A during the period was:
A. 44,000 units.
B. 50,000 units.
C. 54,000 units.
D. 56,000 units.
E. 60,000 units.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-31
Chapter 020 Process Cost Accounting
Medina Corp. uses the weighted average method for inventory costs and had the following
information available for the year:
84. The number of units transferred to finished goods during the year is:
A. 3,200 units.
B. 3,000 units.
C. 3,400 units.
D. 3,160 units.
E. 3,500 units.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-32
Chapter 020 Process Cost Accounting
85. Equivalent units of production for the year are:
A. 3,200 units.
B. 3,320 units.
C. 3,240 units.
D. 3,520 units.
E. 3,800 units.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-33
Chapter 020 Process Cost Accounting
86. A company uses a process cost accounting system. Its Sewing Department completed and
transferred out 120,000 units during the current period. The ending inventory in the Sewing
Department consists of 40,000 units (20% complete with respect to direct materials and 60%
complete with respect to direct labor). Overhead is applied on the basis of direct labor.
Determine the equivalent units of production for the Sewing Department for direct materials,
direct labor and overhead assuming the weighted average method.
A. 120,000; 120,000; 120,000
B. 120,000; 160,000; 120,000
C. 128,000; 120,000; 120,000
D. 128000; 144,000; 144,000
E. 128,000; 184,000; 160,000
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C3
87. A process cost summary is a managerial accounting report that describes:
A. The costs charged to a department.
B. The equivalent units of production by the department.
C. How the costs were assigned to the output.
D. Physical transfers for a department.
E. All of these.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
Learning Objective: C4
20-34
Chapter 020 Process Cost Accounting
Aniston Enterprises manufactures stylish hats for sophisticated women. All materials are
introduced at the beginning of the manufacturing process in the Cutting Department.
Conversion costs are incurred uniformly throughout the manufacturing process. As the cutting
of material is completed, the pieces are immediately transferred to the Sewing Department.
Information for the Cutting Department for the month of May 2010 follows:
20-35
Chapter 020 Process Cost Accounting
88. If Aniston Enterprises uses the FIFO method of process costing, the costs per equivalent
unit for May 2010 were:
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C5
20-36
Chapter 020 Process Cost Accounting
89. If Aniston Enterprises uses the FIFO method of process costing, the equivalent units of
work completed in May 2010 were:
A. Choice A
B. Choice B
C. Choice C
D. Choice D
E. Choice E
All 50,000 units in beginning Goods in Process were already 100% complete with respect to
direct materials. The information indicates 225,000 units were begun during May. Since direct
materials are added at the beginning of the process, those units were 100% complete with
respect to direct materials by the end of May. Therefore, the equivalent units of production for
direct materials for May was 225,000.
The 50,000 units in beginning Goods in Process were only 40% complete with respect to
conversion costs. Therefore, the remaining 60% or 30,000 units were completed in May as far
as conversion costs are concerned. The information also indicates that 200,000 units were
completed during May. That means that another 150,000 units were started and completed
during May and were 100% complete with respect to conversion costs (200,000 - 50,000).
Finally, there were 75,000 units in ending Goods in Process inventory and those units were
20% complete with respect to conversion costs. 75,000 units x 20% = 15,000 units Therefore,
the total equivalent units of production for conversion costs during May were 30,000 +
150,000 + 15,000 = 195,000.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C5
20-37
Chapter 020 Process Cost Accounting
90. The following data are available for a company's manufacturing activities:
If materials are added when the production process begins and direct labor is applied
uniformly throughout the process, what are the equivalent units for direct materials and for
direct labor, respectively using the FIFO method of process costing?
A. 16,250; 19,250.
B. 16,250; 21,750.
C. 21,000; 19,250.
D. 19,250; 18,750.
E. 21,000; 22,250.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: C5
91. A system of accounting in which the costs of each process are accumulated separately and
then assigned to the units of product that passed through the process is a:
A. General cost accounting system.
B. Process cost accounting system.
C. Job order cost accounting system.
D. Manufacturing cost accounting system.
E. Goods in process accounting system.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A1
20-38
Chapter 020 Process Cost Accounting
92. A company that applies process costing is most frequently characterized by:
A. Low standardization and high production volume.
B. Custom orders and homogeneous products.
C. Repetitive production and heterogeneous products.
D. Repetitive production and low production volume.
E. Homogeneous product and high production volume.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
93. An organizational unit of a factory that has the responsibility for partially manufacturing
or producing a product is called a:
A. Production department.
B. Service department.
C. Primary department.
D. Responsibility department.
E. Control department.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
94. A hybrid costing system would be most appropriate when:
A. A manufacturer is able to standardize processes while at the same time attempting to cater
to individual customer needs.
B. Large quantities of identical products are being produced.
C. The volume of production is low and costs are high.
D. There is no standardization of units of production.
E. All of these would necessitate a hybrid costing system.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: A2
20-39
Chapter 020 Process Cost Accounting
95. Direct material costs are recorded:
A. Indirectly to Goods in Process account.
B. Indirectly to a Finished Goods account.
C. Directly to a Goods in Process account.
D. Directly to a Finished Goods account.
E. Directly to a Cost of Goods Sold account.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P1
96. The purchase of raw materials on account in a process costing system is recorded with a:
A. Debit to Purchases and credit to Cash.
B. Debit to Purchases and a credit to Accounts Payable.
C. Debit to Raw Materials Inventory and a credit to Accounts Payable.
D. Debit to Accounts Payable and a credit to Raw Materials Inventory.
E. Debit to Goods in Process Inventory and a credit to Accounts Payable
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P1
97. When raw materials are purchased on account for use in a process costing system, the
corresponding journal entry that should be recorded will include:
A. A debit to Goods in Process Inventory.
B. A debit to Accounts Payable.
C. A credit to Cash.
D. A debit to Raw Materials Inventory.
E. A credit to Raw Materials Inventory.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P1
20-40
Chapter 020 Process Cost Accounting
98. Direct labor and indirect labor are recorded, respectively, to:
A. Factory Overhead and Goods in Process.
B. Goods in Process and Finished Goods.
C. Finished Goods and Goods in Process.
D. Goods in Process and Factory Overhead.
E. Cost of Goods Sold and Finished Goods.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
99. In a process operation, the direct labor of a production department includes:
A. All labor used exclusively by that department, even if the labor is not applied to the
product itself.
B. All labor used exclusively by that department, but only if the labor is applied to the product
itself.
C. All labor for that department, including labor for services that help more than one
production department, such as clerical, repair, and computer technicians.
D. Only labor that helps more than one production department, such as clerical, repair, and
computer technicians.
E. Only that labor that is recorded in the Factory Payroll account.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
20-41
Chapter 020 Process Cost Accounting
100. After posting all actual factory overhead and applying factory overhead to production
departments in a process costing system,
A. There will never be underapplied overhead.
B. There will never be overapplied overhead.
C. There will always be underapplied overhead.
D. There will always be overapplied overhead.
E. There may be over or underapplied overhead.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Easy
Learning Objective: P3
101. In a process costing system, when manufacturing overhead costs are applied to the cost
of production, they are debited to:
A. the Finished Goods Inventory account.
B. the Cost of Goods Sold account.
C. the Goods in Process Inventory account.
D. the Manufacturing Overhead account.
E. the Raw Materials Inventory account.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
102. To compute an equivalent unit of production, one must be able to reasonably estimate:
A. The percentage of completion.
B. Units completed.
C. Units started and completed.
D. Direct labor cost.
E. Materials cost.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P4
20-42
Chapter 020 Process Cost Accounting
103. The following is an account for a production department, showing its costs for one
month:
Assume that materials are added at the beginning of the production process and that direct
labor and overhead are applied uniformly. If the units in ending goods in process inventory
cost $4,590, and the started and completed units cost $41,850, what was the cost of
completing the units in the beginning goods in process inventory?
A. $12,150.
B. $ 2,160.
C. $ 7,560.
D. $54,000.
E. $37,260.
Total costs = $5,400 + $21,600 + 16,200 + $10,800 = $54,000
Total transferred out = $54,000 - $4,590 = $49,410
BGIP transferred out = $49,410 - $41,850 = $7,560
Cost to complete BGIP = $7,560 - $5,400 = $2,160
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: Hard
Learning Objective: P5
20-43
Chapter 020 Process Cost Accounting
104. Que Corporation uses a process cost accounting system. The company manufactured
certain goods at a cost of $800 and sold them on credit to Are Corporation for $1,075. The
complete journal entry to be made by Que at the time of this sale is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P6
20-44
Chapter 020 Process Cost Accounting
Matching Questions
105. Match the following terms with the definitions.
1. Materials
consumption
report
2. Hybrid
manufacturing
system
3. Process
manufacturing
system
4. Job order cost
accounting system
5. Process cost
summary
6. Process cost
accounting system
7. Equivalent units
of production.
Number of units that would be completed if all effort
during a period had been applied to units that were started
and finished. 7
Costing system to determine the cost of producing each
job or job lot. 4
A manufacturing system that contains features of both
process and job order systems. 2
Process of products in a continuous flow of steps.
System of assigning direct materials, direct labor, and
overhead to specific processes; total costs associated with
each process are then divided by the number of units.
passing through that process to determine cost per
equivalent unit.
Document that summarizes the materials a department
uses during a reporting period; replaces materials
requisition.
Report of costs charged to a department, its equivalent
units of production achieved, even the costs assigned to its
output.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
Learning Objective: A2
Learning Objective: C2
Learning Objective: C4
Learning Objective: P1
20-45
3
6
1
5
Chapter 020 Process Cost Accounting
Short Answer Questions
106. What is meant by equivalent units of production, and why are they important when a
process cost accounting system is used?
Equivalent units of production measure production with respect to direct materials, direct
labor and overhead, expressed as the number of units that could have been manufactured
during a period if all effort during a period had been applied only to those units started and
completed during the period. Determining equivalent units of production is important for the
calculation of the cost per unit and, thus, for calculating the costs of inventories and the cost
of goods sold.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C2
107. What are the four steps in accounting for production activity in a period?
Accounting for a department's activity for a period includes the four steps of analyzing (1)
physical flow, (2) equivalent units, (3) cost per equivalent unit, (4)cost reconciliation.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C3
20-46
Chapter 020 Process Cost Accounting
108. (a) Why is the Process Cost Summary important to Management?
(b) How does the Process Cost Summary accomplish its purposes?
(a) The Process Cost Summary depicts a four-step process detailing physical flows and cost
flows. It allows management to verify inputs and outputs as part of a cost control and
monitoring system. It also lets management logically perform unit costing—a necessary
activity to allow for appropriate product pricing.
(b) By detailing physical flow, a process cost summary measures accountability and
responsibility. By detailing cost flow, it allows management to determine and derive
appropriate cost allocations in a logical format.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: C4
109. Briefly explain the conditions under which job order cost accounting systems and
process cost accounting systems are commonly applied.
Job order cost accounting systems are commonly used when each product or job has a unique
design so that the manufacturing process focuses on the production of that specific job.
Process cost accounting systems are commonly used when manufacturing operations produce
a large volume of standardized units that generally pass from one manufacturing process to
another.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
20-47
Chapter 020 Process Cost Accounting
110. Job order manufacturing and process manufacturing are two major costing systems used
in manufacturing. Briefly contrast the characteristics of these two systems.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A1
111. What is a hybrid costing system? When is a hybrid costing system appropriate for a
manufacturer?
A hybrid manufacturing system contains the features of both process and job order operations.
In a hybrid costing system, some parts of the manufacturing process are accounted for using a
process costing system, and other parts are accounted for using a job order costing system.
Hybrid costing systems are appropriate when a manufacturer can standardize processes and
yet cater to individual customer needs.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: A2
20-48
Chapter 020 Process Cost Accounting
112. Describe the flow of materials in a process cost accounting system, including accounts
used.
When raw materials are purchased they are debited to a Raw Materials Inventory account.
When direct materials are needed in a production department, a materials requisition or
materials consumption report is used to move the materials from the storeroom to the
production department. Direct materials used are recorded with a debit to the Goods in
Process Inventory for that department and a credit to Raw Materials Inventory. Indirect
materials used in a department are recorded with a debit to Factory Overhead and a credit to
Raw Materials Inventory. The Factory Overhead is subsequently allocated to the Goods in
Process account for each production department.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P1
113. Describe the flow of labor in a process cost accounting system, including accounts used.
Each pay period, as workers earn their wages, Factory Payroll is debited and Cash is credited
to record the amount paid to workers. As direct labor is used in each production department,
Goods in Process of that department are debited and Factory Payroll is credited to assign the
labor to the department. Indirect labor is recorded to the factory overhead with a debit to
Factory Overhead and a credit to Factory Payroll. The Factory Overhead is subsequently
allocated to the Goods in Process account for each production department.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P2
20-49
Chapter 020 Process Cost Accounting
114. Describe the flow of overhead costs in a process cost accounting system, including
accounts used.
As actual overhead costs are incurred for indirect labor, indirect materials, insurance, utilities,
and so on, the Factory Overhead account is debited, and the appropriate accounts are credited
(for instance, Factory Payroll, Raw Materials Inventory, various payables, and cash). When
overhead is applied to production based on the overhead allocation rate, Goods in Process is
debited and Factory Overhead is credited. Any under or overapplied overhead is closed to
either the Cost of Goods Sold account, or allocated among the Cost of Goods Sold, Goods in
Process Inventory, and Finished Goods.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
Learning Objective: P3
20-50
Chapter 020 Process Cost Accounting
Problems
115. A company's January 1 goods in process inventory contained 30,000 units that were 1/4
complete with respect to direct labor. The beginning inventory was completed this year and
another 120,000 units were started. Of those started, 80,000 were