managerial accounting exam 2

In a process costing system, manufacturing overhead is also called conversion cost.

• True

• False

Answer explanation

There was no change between process costing and job order costing in regards to direct labor and materials, Manu overhead, prime cost and conversion costs. The difference is that job order costing is computed by JOB and process costing is computed by DEPARTMENT

The units in beginning WIP inventory + units started into production must equal units transferred out of department + units in ending WIP inventory.

• True

• False

Answer explanation

If you have 5 dollars today and added 10 dollars you would have 15. So, if you spend 8 dollars you would have 7 left.

5 + 10 =8 + 7.

The following journal entry would be made in a processing costing system when units have been completed in the final processing department are transferred to the finished goods warehouse. Debit to finished goods and Credit to materials.

• True

• False

Answer explanation

You would Debit finished goods but Credit WIP of the last department.

So, if you are transferring to finished goods from WIP assembling. You would Debit finished goods and Credit WIP assembling.

The cost reconciliation report has two sections: “costs to be accounted for” followed by costs accounted for”, The “costs accounted for” portion of cost reconciliation report includes the cost of beginning WIP inventory and the costs added during the period.

• True

• False

Answer explanation

It is the opposite. “Costs to be accounted for” has cost of beginning WIP inventory and costs added during period whereas “costs accounted for” has cost of ending WIP and costs transferred out

A job order costing system would be best suited for production of a large quantity of a homogenous product.

• True

• False

Answer explanation

Remember job order costing is for MULTIPLE products and process costing is for ONE product (like cereal, paper towels, soda, etc.)

When computing the cost per equivalent unit, the weighted-average method of process costing considers

• Costs incurred during period only

• Costs incurred during period + cost in ending WIP inventory

• Costs incurred during the period + costs of beginning WIP inventory

• Costs incurred during period - costs of beginning WIP inventory

Answer explanation

Which of the following types of companies would typically use process costing rather than job order costing?

• A small appliance repair shop

• A manufacturer of commercial passenger aircraft

• A speciality equipment manufacturer

• A breakfast cereal manufacturer

Answer explanation

Looking for a job that makes a lot of things of the exact same thing. A and B have several different things. C is custom.

The assembly department started with 24,000 units in its beginning WIP inventory.

An additional 309,000 units were transferred in from prior department during the month to begin processing in Assembly department.

There were 29,000 units in ending WIP process inventory of assembly department.

How many units were transferred to next processing department during the month?

• 333,000

• 362,000

• 304,000

• 314,000

Answer explanation

BB: 24,000

Add units transferred in: 309,000

Subtract EB: 29,000

24000+309000-29000=304,000

NOTE: This equation is used for may different things. It is constantly repeated. Think of T chart!!

Bums corporation uses the weighted average method in its process costing system. The Assembly Department started the month with 2,000 units in beginning WIP inventory that were 70% complete with respect to conversion costs. An additionally 61,000 units were transferred in from prior department during the month to begin processing in Assembly Department. There were 18,000 units in ending WIP inventory of Assembly Department that were 60% complete with respect to conversion costs.

What were the equivalent units for conversion costs in the Assembly Department for the month?

• 45,000

• 77,000

• 54,400

• 55,800

Answer explanation

REMINDER: conversion costs= direct labor + manufacturing overhead

WE DONT CARE ABOUT PERCENTAGE COMPLETED FOR BEGINNING BALANCES

So, BB: 2000

Added in: 61000

EB: 18000 that were 60% completed

2000+61000-18000=45,000

18000*.6=10,800

45000+10,800=55,800

The molding department’s cost per equivalent unit for conversion costs of January was $3.19. How much conversion cost was assigned to the ending WIP inventory in the molding department in January?

• $22,106.70

• $25,201.00

• $20,160.80

• $5,040.20

Answer explanation

NOTE: never really pay attention to percentage complete with respect to conversion costs

1. Change ending WIP inventory to equivalent units >> 7900*.8=6320 equivalent units

2. 6320*3.19=20,160.8