Question 1

The number of equivalent units for conversion costs is always equal to or less than the number of equivalent units for materials.

Accepted Answer

The number of equivalent units for conversion costs can be equal to or greater than the number of equivalent units for materials because conversion costs (labor and overhead) can continue to be added to products even after all materials have been added, especially in processes where finishing work or assembly occurs after the addition of materials.

Question 2

The cost transferred out is the cost of the inventory that was started and completed during the period.

Accepted Answer

The cost transferred out includes the cost of the inventory that was both started and completed during the period, as well as the cost associated with the completion of inventory that was in progress at the beginning of the period.

Question 3

Materials are always added at the beginning of every process.

Accepted Answer

Materials can be added at various stages of a manufacturing process depending on the production requirements and the nature of the product being manufactured.

Question 4

In process costing, a transferred-in cost is handled in the same manner as a material cost added at the beginning of the process.

Accepted Answer

Transferred-in costs are costs that are incurred in a previous process but are necessary for the completion of the current process. These costs are added at the beginning of the current process, just like material costs. Therefore, they are handled in the same manner in process costing.

Question 5

Transferred-in costs are the costs of the direct materials that are transferred into the company when materials are purchased from a supplier.

Accepted Answer

Transferred-in costs refer to the costs associated with goods that have been transferred from one production department to another within the same company, not the costs of purchasing materials from a supplier.

Question 6

A significant disadvantage of a process costing system is that it requires the use of actual overhead costs rather than predetermined overhead rates.

Accepted Answer

A process costing system often uses predetermined overhead rates, which simplify and expedite the cost allocation process. The use of actual overhead costs, on the other hand, can be more time-consuming and costly to gather, making it a disadvantage of the system.

Question 7

In the manufacturing operations of a company using process costing, a product must typically pass through two or more departments.

Accepted Answer

In process costing, the production process is divided into several departments, and each department is responsible for a specific task in the production process. Therefore, a product needs to pass through two or more departments before it is completed.

Question 8

Material is generally added evenly throughout the production process.

Accepted Answer

Material is often added at specific stages of the production process, rather than evenly throughout.

Question 9

Materials and labor are often grouped together and called conversion costs.

Accepted Answer

The answer of Materials and labor are often grouped together...

Question 10

The cost per equivalent unit is determined by dividing the cost incurred in the current period by the total equivalent units produced.

Accepted Answer

The cost per equivalent unit is determined by dividing the total costs (including both beginning inventory and costs incurred in the current period) by the total equivalent units produced.

Question 11

An essential calculation in a process costing system is to calculate the average unit cost, also known as the cost per equivalent unit.

Accepted Answer

Process costing systems typically require calculating the cost per equivalent unit in order to allocate costs to each unit of output. This calculation takes into account both the direct costs (such as materials and labor) and the indirect costs (such as overhead) associated with each unit. By dividing the total cost by the number of equivalent units produced, managers can determine the average unit cost and make informed decisions about pricing, production volumes, and process improvements.

Question 12

Process costing systems are commonly used by companies that produce homogeneous items using a continuous production process.

Accepted Answer

Process costing systems are designed for companies that produce large volumes of identical products through a continuous production process or series of processes. Examples include chemical, oil refining, food processing, and pharmaceutical companies.

Question 13

A company such as Proctor & Gamble that produces large quantities of identical items, such as shampoo and toothpaste, is likely to use a process costing system.

Accepted Answer

Process costing systems are used in industries where large quantities of identical products are produced, such as in manufacturing of consumer goods like shampoo and toothpaste. Proctor & Gamble being a manufacturer of consumer goods, it is likely to use a process costing system.

Question 14

In a process costing system, costs are transferred from the Work in Process inventory account directly to the Cost of Goods Sold account.

Accepted Answer

Costs are not transferred directly from Work in Process to Cost of Goods Sold in a process costing system. Instead, they go through intermediate accounts such as Finished Goods inventory and Cost of Goods Manufactured before reaching Cost of Goods Sold.

Question 15

The number of equivalent units for materials is the same as the equivalent units for conversion costs in each department, but will often differ from equivalent units of other departments.

Accepted Answer

The number of equivalent units for materials and conversion costs may not be the same in each department because different processes may have different amounts of material input or require different levels of direct labor and overhead. Therefore, the equivalent units for one department may not be equivalent to those of another department.

Question 16

The denominator in the formula for determining the cost per equivalent unit is determined by adding the number of units completed to the equivalent units in the ending Work in Process inventory.

Accepted Answer

The denominator in the formula for determining the cost per equivalent unit indeed consists of the sum of the number of units completed and the equivalent units in the ending Work in Process inventory, reflecting the total work done during the period.

Question 17

Recording transferred-in costs requires a debit to the Finished Goods inventory account and a credit to a Work in Process account.

Accepted Answer

Recording transferred-in costs typically involves a debit to the Work in Process account for the receiving department and a credit to the Work in Process account of the sending department, not a debit to Finished Goods inventory.

Question 18

The number of fully complete units of product that could have been produced with the materials used and processing costs in a particular accounting period is referred to as equivalent units.

Accepted Answer

Equivalent units refer to the number of fully complete units that could have been produced using the resources used in an accounting period.

Question 19

In order to calculate the cost per equivalent unit, one must know the number of equivalent units in beginning inventory, ending inventory, units completed during the period, along with the total product costs incurred during the period.

Accepted Answer

To calculate the cost per equivalent unit, you need to know the number of equivalent units of production for the period and the total costs incurred during the period. Beginning inventory is considered in the calculation of equivalent units if using the weighted-average method, but the focus is on costs and equivalent units for work done in the current period, not on units in inventory statuses.

Question 20

In a process costing system, each department has a separate Work in Process account.

Accepted Answer

In a process costing system, each department has its own Work in Process account to track the costs incurred in that department. This allows for better control and analysis of costs and helps in determining the overall cost of producing a product.

Quiz 3: Process Costing