CHAP 8 AA025-Process Costing (3)

What is process costing?

• Process costing is a method used in service industries, not manufacturing.

• Process costing is a method used to determine the cost of producing a product by assigning costs to the final product only.

• Process costing is a method used to determine the cost of producing a product by assigning costs to each stage of the production process.

• Process costing involves allocating costs based on the number of units produced, not the production stages.

What are the two main types of costs in process costing?

• Prime costs and conversion costs

• Variable costs and fixed costs

• Direct costs and indirect costs

• Product costs and period costs

How is equivalent units calculated in process costing?

• Equivalent units are calculated by subtracting the units in beginning work in process inventory from the units completed during the period.

• Equivalent units are calculated by dividing total costs by the number of units produced.

• Equivalent units are calculated by multiplying the number of units in ending work in process inventory by the number of units completed during the period.

• Equivalent units are calculated by adding the units in ending work in process inventory to the units completed and transferred out during the period.

What is the purpose of calculating equivalent units?

• To decide on employee promotions

• To determine the total work done in a production process by converting partially completed units into equivalent fully completed units.

• To determine the weather forecast

• To calculate the price of raw materials

Explain the difference between weighted average method and FIFO method in process costing.

• The weighted average method calculates the average cost of equivalent units produced during the period, while the FIFO method assumes that units completed and transferred out are costed at the beginning inventory cost before moving to current period costs.

• The weighted average method assumes that units are costed based on the order in which they were produced.

• The FIFO method calculates the average cost of equivalent units produced during the period.

• The weighted average method assumes that units completed and transferred out are costed at the beginning inventory cost before moving to current period costs.

What are the steps involved in the process costing system?

• Skip the equivalent units calculation

• Calculate total costs first

• Calculate equivalent units, Calculate cost per equivalent unit, Allocate costs to completed units, Allocate costs to ending work in process

• Only allocate costs to completed units

How are costs allocated in process costing?

• Total costs * Total equivalent units produced

• Total costs + Total equivalent units produced

• Total costs / Total equivalent units produced

• Total costs - Total equivalent units produced

What is a cost driver in process costing?

• A cost driver in process costing is a factor that causes a particular cost to be incurred.

• A cost driver in process costing is a type of car

• A cost driver in process costing is a new software program

• A cost driver in process costing is a popular movie

What are the advantages of using process costing?

• Process costing helps in determining the cost of each process or department, provides a uniform method for cost allocation, simplifies inventory valuation, and allows for better cost control.

• Process costing hinders cost control

• Process costing complicates inventory valuation

• Process costing leads to inaccurate cost allocation

What are the limitations of process costing?

• Variability in product costs, simplicity in cost allocation, standardization of products

• Homogeneity of products, individual product differences, customization, complexity in cost allocation