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chapter 20
Process Costing and
Activity-Based Costing
goals discussion
goals
achievement
fill
in the blanks multiple
choice
problems
check list and key terms
Select the appropriate response:
1. Which cost accumulation procedure is best suited to a continuous mass production process of similar units?
a.
Job order
b. Process
c. Standard
d. Actual
2. Which of the following statements about process cost accounting systems is false?
a.
Beginning units of work in process plus the units put into production should
equal ending work in process units plus units completed.
b. The cost flows in journal entries for process cost
accounting systems and job order cost accounting systems are similar.
c. Process cost accounting is well suited for those
production processes where similar units are produced in a continuous flow.
d. The equivalent units of production for materials and
conversion costs are the same.
3. An equivalent unit of material is equal to:
a. The
amount of material necessary to complete one unit of production.
b. The amount of material necessary to start a unit of
production into work in process.
c. Half of the material necessary to complete one unit
of finished goods.
d. An equivalent unit of conversion cost.
4. Beginning work in process was 1,200 units, 2,800 additional units were put into production, and ending work in process was 500 units. How many units were completed?
a.
500
b. 3,000
c. 3,300
d. 3,500
5. Wright Company had, at the beginning of 20X1, a work in process of 10,000 units. During 20X1, 57,500 additional units were started into production. Ending work in process on December 31, 20X1, was 7,500 units. The beginning work in process was 100% complete as to direct materials and 75% complete as to conversion costs. The ending work in process was 100% complete as to direct materials and 50% complete as to conversion costs. Total direct material put into process cost $57,500. Total conversion cost put into process cost $84,375. Beginning work in process cost $21,250; $13,250 for materials and $8,000 for conversion. All materials are added at the start of the production process, and conversion costs are incurred uniformly throughout manufacturing. Wright Company uses a weighted-average process cost system. The cost per equivalent unit (rounded to the nearest cent) for conversion cost for 20X1 was:
a.
$1.00
b. $1.23
c. $1.33
d. $1.45
6. Wright Company had, at the beginning of 20X1, a work in process of 10,000 units. During 20X1, 57,500 additional units were started into production. Ending work in process on December 31, 20X1, was 7,500 units. The beginning work in process was 100% complete as to direct materials and 75% complete as to conversion costs. The ending work in process was 100% complete as to direct materials and 50% complete as to conversion costs. Total direct material put into process cost $57,500. Total conversion cost put into process cost $84,375. Beginning work in process cost $21,250; $13,250 for materials and $8,000 for conversion. All materials are added at the start of the production process, and conversion costs are incurred uniformly throughout manufacturing. Wright Company uses a weighted-average process cost system. The dollar value assigned to Wright's ending work in process inventory at the end of 20X1 is:
a.
$13,294
b. $18,750
c. $31,875
d. $56,875
7. The appropriate journal entry to transfer the cost of completed units from the Work in Process account would involve a credit to Work in Process and a debit to which of the following accounts?
a.
Income Summary
b. Raw Materials Inventory
c. Finished Goods
d. Manufacturing Summary
8. Mills Manufacturing computed the physical flow of completed units for the month of January 1, 20X1, as follows:
| Units completed: | |
| From work in process on January 1, 20X1 | 15,000 |
| From January production | 45,000 |
| 60,000 |
In addition to the above, units in ending work in process at January 31, 20X1, were 12,000. Materials are added at the beginning of the process. The work in process at January 1, 20X1, was 80% complete as to conversion costs and the work in process at January 31, 20X1, was 60% complete as to conversion costs. What are the equivalent units of materials and conversion for the month of January 20X1, assuming a FIFO application of the process costing method?
a.
57,000 55,200
b. 57,000 57,000
c. 72,000 67,200
d. 72,000 72,000
9. Wright Company had, at the beginning of 20X1, a work in process of 10,000 units. During 20X1, 57,500 additional units were started into production. Ending work in process on December 31, 20X1, was 7,500 units. The beginning work in process was 100% complete as to direct materials and 75% complete as to conversion costs. The ending work in process was 100% complete as to direct materials and 50% complete as to conversion costs. Total direct material put into process cost $57,500. Total conversion cost put into process cost $84,375. Beginning work in process cost $21,250. All materials are added at the start of the production process, and conversion costs are incurred uniformly throughout manufacturing. Wright Company uses a first-in, first-out process cost system. How much is the cost per equivalent unit for conversion costs during 20X1?
a. $1.38
b. $1.47
c. $1.50
d. $2.12
10. Which of the following comments regarding activity-based costing is not a correct observation?
a.
The per unit cost of an end product under ABC will necessarily be less than the
per unit cost under traditional costing methods.
b. ABC may produce results that are not suitable for
external reporting under GAAP.
c. Activities are said to be resource drivers because
they consume resources necessary for the activities to happen.
d. Batch-level activities produce costs that may not be
in proportion to the number of units produced.
1. b. Process cost accumulation systems are best suited to continuous mass production processes. Job order costing is suited to production of specific or unique items. Actual costs and standard costs are important measures, but are not, in and of themselves, cost accumulation systems.
2. d. The equivalent units of material and the equivalent units of conversion are not necessarily the same; they are independently calculated. The other statements are all true.
3. a. An equivalent unit is the amount of material necessary to complete one unit of production. The amount of material necessary to start a unit into production varies depending on the product being produced. Equivalent units of conversion cost and materials are not necessarily the same.
4. d. 3,500. 1,200 beginning units, plus 2,800 additional units, results in 4,000 units to account for, of which 500 remain in ending inventory. Therefore, 3,500 units were completed (4,000 - 500).
| Quantity Schedule | |
| Beginning work in process | 10,000 |
| Units started | 57,500 |
| Units into production | 67,500 |
| Equivalent Units |
Materials |
Conversion |
|
| Completed | 60,000 | 60,000 | 60,000 |
| Ending work in process | 7,500 | 7,500 | 3,750 |
| Total units | 67,500 | 67,500 | 63,750 |
| Costs | Total |
Materials |
Conversion |
| Beginning work in process | $ 21,250 | $ 13,250 | $ 8,000 |
| Current period | 141,875 | 57,500 | 84,375 |
| Total cost to account for | $163,125 | $70,750 | $92,375 |
| Equivalent units | ÷ 67,500 | ÷ 63,750 | |
| Cost per equivalent unit | $1.048 | $1.449 |
| Quantity Schedule | |
| Beginning work in process | 10,000 |
| Units started | 57,500 |
| Units into production | 67,500 |
| Equivalent Units |
Materials |
Conversion |
|
| Completed | 60,000 | 60,000 | 60,000 |
| Ending work in process | 7,500 | 7,500 | 3,750 |
| Total units | 67,500 | 67,500 | 63,750 |
| Costs | Total |
Materials |
Conversion |
| Beginning work in process | $ 21,250 | $ 13,250 | $ 8,000 |
| Current period | 141,875 | 57,500 | 84,375 |
| Total cost to account for | $163,125 | $70,750 | $92,375 |
| Equivalent units | ÷ 67,500 | ÷ 63,750 | |
| Cost per equivalent unit | $1.048 | $1.449 |
|
Materials |
Conversion |
Total |
|
| Cost per equivalent unit | $1.048 | $1.449 | |
| Ending work in process (equivalent units) | X 7,500 | X 3,750 | |
| Cost assigned to ending inventory | $ 7,860 | $ 5,434 | $13,294 |
7. c. The Finished Goods account is debited indicating that the completed units are now in inventory for sale to customers.
| Equivalent Units | Total |
Materials |
Conversion |
| From beginning work in process | 15,000 | 0 | 3,000 |
| Units started and completed | 45,000 | 45,000 | 45,000 |
| Ending work in process | 12,000 | 12,000 | 7,200 |
| Total units accounted for | 72,000 | 57,000 | 55,200 |
Beginning WIP conversion: 20% of 15,000 needed to complete = 3,000
Ending WIP conversion : 60% of 12,000 completed = 7,200
| Quantity Schedule | |
| Beginning work in process | 10,000 |
| Units started | 57,500 |
| Units into production | 67,500 |
| Equivalent Units |
Materials |
Conversion |
|
| Completed: | |||
| From beginning work in process | 10,000 | 0 | 2,500 |
| Units started and completed | 50,000 | 50,000 | 50,000 |
| Ending work in process | 7,500 | 7,500 | 3,750 |
| Total units accounted for | 67,500 | 57,500 | 56,250 |
| Costs | Total |
Materials |
Conversion |
| Beginning work in process | $ 21,250 | $ 0 | $ 0 |
| Current period | 141,875 | 57,500 | 84,375 |
| Total cost to account for | $163,125 | $57,500 | $84,375 |
| Equivalent units | ÷ 57,500 | ÷ 56,250 | |
| Cost per equivalent unit | $1.00 | $1.50 |
| Cost Assignment |
|
|
|
| Completed: | |||
| Beginning work in process -- | |||
| Cost in beginning inventory | $21,250 | ||
| Conversion cost (2,500 X $1.50) | 3,750 | $ 25,000 | |
| Units started and completed -- | |||
| Materials (50,000 X $1.00) | $50,000 | ||
| Conversion cost (50,000 X $1.50) | 75,000 | 125,000 | |
| Total cost of completed units | $150,000 | ||
| Ending work in process: | |||
| Materials (7,500 X $1.00) | $ 7,500 | ||
| Conversion cost (3,750 X $1.50) | 5,625 | ||
| Cost assigned to ending inventory | 13,125 | ||
| Total cost accounted for | $163,125 |
10. a. Per unit costs can be higher or lower with ABC, as compared to traditional methods. The other comments are all true.