Chapter M3 - Process Costing

A company making identical items through a series of uniform processes uses what costing system?

• Weighted average

• Job order

• Process

• First-in, first-out

Answer explanation

When the company makes uniform products, it makes sense to track costs by the processes (departments) where costs are added, rather than trying to keep track of batches or jobs of items.

Who is most likely to use process costing?

• Accounting firm

• Soda company

• Law firm

• Construction company

Answer explanation

Accounting and law firms, as well as construction companies, likely have unique client jobs (cases) and would use job order costing.

Soda manufacturing is a constant process with a uniform product (or varieties of uniform products).

Which is true of process costing?

• Overhead is assigned only to the last process

• Costs are accumulated in each production department

• it tracks and assigns both period and product costs

• It uses only one Work-in-Process Inventory account

Answer explanation

Process costing has a WIP account for each process. Product costs--direct materials, direct labor, and overhead--are added in every process according to how they are incurred. Period costs, however, are still recorded separately (Selling, General, & Administrative Expenses).

Under process costing, the costs incurred in each department are reported in:

• Cost of Goods Sold account

• Finished Goods Inventory account

• Job cost sheet

• Production cost report

What's an equivalent unit?

• A partially completed unit to be sold as is

• Substitute of units that are partially completed

• Different types of units with the same selling price

• Partly-completed units expressed in terms of fully-completed units

Answer explanation

The percentage of completion may be different for direct materials and conversion costs.

The percentage of completion for costs transferred in must always be 100%.

There are 1,000 units in process at the end of the period. They are 40% complete with respect to conversation. Direct materials are added at the end of the process. How many EUP for conversion costs?

• 0

• 400

• 600

• 1,000

There are 1,000 units in process at the end of the period. They are 40% complete with respect to conversation. Direct materials are added at the end of the process. How many EUP for direct materials?

• 0

• 400

• 600

• 1,000

What are conversion costs?

• Direct labor + manufacturing overhead

• Cost to convert finished goods to sales

• Cost for direct and indirect materials

• Direct material + direct labor + manufacturing overhead

Answer explanation

Conversion costs are the costs needed to convert direct materials into finished products.

200 units were completed this period; 50 units are still in process that are 30% complete. How many total equivalent units were produced?

• 110

• 200

• 215

• 250

What report shows equivalent units of production, costs, and assignment of costs for a department?

• Equivalent units report

• Job costing report

• Production cost report

• TPS report

Answer explanation

Each department must do its own production cost report, and the second department needs the first department to finish its report so it knows the value of the costs transferred in during the period.