Question 1

Conversion costs are generally added evenly throughout the process.

Accepted Answer

Conversion costs, which include direct labor and overhead, are typically allocated evenly throughout the production process to determine the total cost of a product or service. This means that the cost per unit will include an equal portion of conversion costs for each stage of the process.

Question 2

If 16,000 units of materials enter production during the first year of operations, 12,000 of the units are finished, and 4,000 are 75% completed, the number of equivalent units of production would be 15,000.

Accepted Answer

The calculation for equivalent units of production is: 12,000 units finished + (4,000 units * 75% completion) = 12,000 + 3,000 = 15,000 equivalent units.

Question 3

In a process costing system, the cost per equivalent unit is computed before computing equivalent units.

Accepted Answer

The cost per equivalent unit is calculated by dividing the total cost of a process by the total equivalent units produced. Therefore, the calculation of equivalent units must be completed before the cost per equivalent unit can be computed.

Question 4

If the costs of direct materials, direct labor, and factory overhead were $277,300, $52,600, and $61,000, respectively, for 14,000 equivalent units of production, the total conversion cost was $390,900.

Accepted Answer

The total conversion cost would be the sum of direct labor and factory overhead, which is $52,600+$61,000 = $113,600. Therefore, the given total conversion cost of $390,900 is incorrect.

Question 5

The cost of production report reports the cost of the goods sold.

Accepted Answer

The cost of production report reports the cost of goods manufactured, not the cost of goods sold.

Question 6

In applying the first-in, first-out method of costing inventories, if 8,000 units that are 30% completed are in process on June 1, 28,000 units are completed during June, and 4,000 units are 75% completed on June 30, the number of equivalent units of production for June is 33,400.

Accepted Answer

The equivalent units of production for June would be calculated by adding the completed units to the equivalent units for the work in process at the end of the month. The 8,000 units in process at the beginning of June are not considered in the calculation under the FIFO method, as their costs have been accounted for in the previous period. Therefore, the calculation is 28,000 units completed + (4,000 units * 75% completion) = 28,000 + 3,000 = 31,000 equivalent units of production for June.

Question 7

The cost of production report reports the costs charged to production and the costs allocated to finished goods and work in process.

Accepted Answer

The cost of production report provides information on the total cost of production, including both direct and indirect costs. It includes the costs charged to production, such as direct materials, direct labor, and factory overhead, as well as the costs allocated to finished goods and work in process. Therefore, option A is true.

Question 8

Equivalent units should be computed separately for direct materials and conversion costs.

Accepted Answer

Equivalent units are calculated separately for direct materials and conversion costs because they represent different stages in the production process. Direct materials are added at the beginning of the production process and conversion costs are added later during the conversion stage. Therefore, different measuring techniques are used for each type of cost.

Question 9

In applying the first-in, first-out method of costing inventories, if 8,000 units that are 30% completed are in process on June 1, 28,000 units are completed during June, and 4,000 units are 80% completed on June 30, the number of equivalent units of production for June is 28,600.

Accepted Answer

The number of equivalent units of production for June is calculated as follows: 
- Completed units: 28,000 
- Units in ending inventory (4,000 units at 80% completion): 3,200 
- Total equivalent units of production: 28,000 + 3,200 = 31,200.

Question 10

In a process costing system, costs flow into finished goods inventory only from the work in process inventory of the last manufacturing process.

Accepted Answer

In a process costing system, costs flow continuously from one process to another until they reach the finished goods inventory. Each process's finished goods inventory becomes the work in process for the next process. Therefore, costs do not flow directly from work in process inventory of the last manufacturing process into the finished goods inventory.

Question 11

If the costs of direct materials, direct labor, and factory overhead were $60,000, $35,000, and $25,000, respectively, for 20,000 equivalent units of production, the conversion cost per equivalent unit was $6.

Accepted Answer

Conversion cost is calculated by adding direct labor and factory overhead costs. In this case, direct labor is $35,000 and factory overhead is $25,000, making the total conversion cost $60,000. To find the conversion cost per equivalent unit, divide $60,000 by 20,000 equivalent units, which equals $3 per equivalent unit, not $6.

Question 12

Costs of ending work in process inventory are included in the cost per equivalent unit computation.

Accepted Answer

Costs of ending work in process inventory (such as materials, labor, and overhead) are included in the cost per equivalent unit computation because the cost per equivalent unit is calculated based on both the units completed during a period and the equivalent units in ending work in process inventory.

Question 13

If 30,000 units of materials enter production during the first year of operations, 25,000 of the units are finished, and 5,000 are 50% completed, the number of equivalent units of production would be 28,500.

Accepted Answer

The answer of If 30,000 units of materials enter production...

Question 14

One of the differences in accounting for a process costing system compared to a job order system is that the amounts used to transfer goods from one department to the next come from the cost of production report instead of job cost cards.

Accepted Answer

In a process costing system, costs are traced and allocated to departments or processes rather than to specific jobs. The cost of production report is used to accumulate the costs of each department and transfer the costs to the next department or process. In contrast, in a job order costing system, costs are traced and allocated to specific jobs through job cost cards.

Question 15

If 10,000 units that were 40% completed were in process on November 1, 80,000 units were completed during November, and 12,000 units were 20% completed on November 30, the number of equivalent units of production for November was 75,600. 
(Assume no loss of units in production and that inventories are costed by the first-in, first-out method.)​

Accepted Answer

The calculation for equivalent units of production should consider the completion percentage of units in process at the beginning and end of the period, as well as the units completed. For the units in process at the beginning of the month (10,000 units at 40% completed), these should not be included in the calculation under the FIFO method, as their work was considered in a previous period's calculation. Therefore, only the units completed during the month (80,000 units) and the work done on the units in process at the end of the month (12,000 units at 20% completed, which equals 2,400 equivalent units) should be considered. The correct calculation for equivalent units of production for November is 80,000 units completed + 2,400 equivalent units for the work in process at the end of the month = 82,400 equivalent units.

Question 16

The cost of production report summarizes 
(1) the units for which the department is accountable and the units to be assigned costs and 
(2) the costs charged to the department and the allocation of those costs.

Accepted Answer

The cost of production report does summarize both the units for which the department is accountable and the costs charged to the department and their allocation.

Question 17

If the costs of direct materials, direct labor, and factory overhead were $522,200, $82,700, and $45,300, respectively, for 16,000 equivalent units of production, the conversion cost per equivalent unit was $8.

Accepted Answer

Conversion cost per equivalent unit = (Direct labor cost + Factory overhead cost) / Equivalent units of production
Conversion cost per equivalent unit = ($82,700 + $45,300) / 16,000
Conversion cost per equivalent unit = $128,000 / 16,000
Conversion cost per equivalent unit = $8

Question 18

Costs are transferred, along with the units, from one work in process inventory account to the next in a process costing system.

Accepted Answer

In a process costing system, costs are transferred from one work in process inventory account to the next as the units move through the production process. This is done to accurately assign costs to each stage of production and ultimately to the finished goods.

Question 19

One of the primary uses of a cost of production report is to assist management in controlling production costs.

Accepted Answer

The cost of production report provides detailed information on the various costs involved in producing a product, including direct materials, direct labor, and manufacturing overhead. This information can help management identify areas where costs can be reduced and make more informed decisions regarding production processes and pricing strategies.

Question 20

If 10,000 units that were 50% completed were in process on November 1, 90,000 units were completed during November, and 20,000 units were 20% completed on November 30, the number of equivalent units of production for November was 90,000. 
(Assume no loss of units in production and that inventories are costed by the first-in, first-out method.)

Accepted Answer

The number of equivalent units of production for November is calculated by adding the equivalent units for units completed during November and the equivalent units for units in process at the end of November. The equivalent units for units in process at the end of November can be calculated as follows:

20,000 units × 20% = 4,000 equivalent units

The equivalent units for units completed during November can be calculated using the weighted average method or the FIFO method. Assuming the FIFO method:

Equivalent units for 10,000 units that were 50% completed on November 1 = 5,000
Equivalent units for 90,000 units completed during November = 90,000

Total equivalent units = 5,000 + 90,000 + 4,000 = 99,000

Therefore, the statement that the number of equivalent units of production for November was 90,000 is false.

Quiz 20: Process Cost Systems