Question 1

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 the units for which the department is accountable and the units to be assigned costs, as well as the costs charged to the department and the allocation of those costs.

Question 2

If a company uses average costing instead of FIFO they will still get the same unit costs.

Accepted Answer

Average costing and FIFO (First-In, First-Out) are different inventory valuation methods that can result in different unit costs due to the way they account for inventory purchases and sales.

Question 3

The FIFO method of process costing is simpler than the Average cost method.

Accepted Answer

The FIFO method is generally more complex than the Average cost method because it requires tracking the costs of beginning inventory separately from the costs of current period production.

Question 4

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 5

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

Accepted Answer

The cost of production report shows the cost of goods manufactured and the cost of goods still in process, not the cost of goods sold. The cost of goods sold is typically reported on the income statement.

Question 6

In a just-in-time system, processing functions are combined into work centers, sometimes called departments.

Accepted Answer

In a just-in-time system, processing functions are not combined into work centers or departments; instead, they are organized to minimize waste and improve efficiency by producing only what is needed, when it is needed.

Question 7

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

Accepted Answer

The equivalent units of production should be calculated by adding the equivalent units completed during the period (28,000) to the equivalent units in process at the end of the period (4,000 x 75% = 3,000), which gives a total of 31,000 equivalent units. The 8,000 units in process at the beginning of the period should not be included in the calculation of equivalent units because they are not completed during the period. Therefore, the statement in the question is false.

Question 8

If 10,000 units which were 40% completed are in process at November 1, 80,000 units were completed during November, and 12,000 were 20% completed at 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 equivalent units of production for November should be calculated considering the work done on beginning inventory, units started and completed, and ending inventory. The calculation does not result in 75,600 equivalent units.

Question 9

The closer a company moves towards Just in Time production, the differences in unit costs between average costing and FIFO will be reduced.

Accepted Answer

Just in Time (JIT) production involves producing goods only when they are needed, thereby reducing inventory costs. Since JIT involves producing goods in smaller batches, FIFO (First In First Out) method of costing becomes less relevant because there is less likelihood of inventory buildup. This means that the differences in unit costs between average costing and FIFO will be reduced as the company moves more towards JIT.

Question 10

Direct materials, direct labor, and factory overhead are assigned to each manufacturing process in a process costing system.

Accepted Answer

Direct materials, direct labor, and factory overhead are assigned to each manufacturing process in a process costing system. This is necessary to determine the total cost of each unit or batch produced in the process.

Question 11

Yield measures the ratio of the materials output quantity to the materials input quantity.

Accepted Answer

Yield is a measure of efficiency and it calculates the ratio of output to input, so it is true that yield measures the ratio of the materials output quantity to the materials input quantity.

Question 12

Custom-made goods would be accounted for using a process costing system.

Accepted Answer

Custom-made goods would be accounted for using a job costing system because each product is unique and requires different materials, labor, and overhead costs to produce. In contrast, process costing systems are used in industries that produce identical products in large quantities, such as oil refining or chemical manufacturing.

Question 13

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 comes from the cost of production report instead of job cost cards.

Accepted Answer

In a process costing system, the cost of production report is used to accumulate costs for each department, including the cost of goods transferred from one department to the next. In contrast, in a job order system, goods are transferred based on job cost cards which are specific to each individual job.

Question 14

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

Accepted Answer

The equivalent units of production for June should be calculated by considering the work done on the beginning inventory, the units started and completed during the month, and the work done on the ending inventory. The calculation provided does not accurately account for these factors.

Question 15

Companies that use the average costing method for process costing have unit costs that include costs from more that one accounting period.

Accepted Answer

The average costing method calculates the unit cost by dividing the total cost by the total number of units produced, which includes costs from multiple accounting periods.

Question 16

Companies recognizing the need to simultaneously produce products with high quality, low cost, and instant availability have adopted a just-in-time processing philosophy.

Accepted Answer

Just-in-time processing philosophy aims to reduce waste and increase efficiency by producing only what is needed and when it is needed, resulting in high quality, low cost, and instant availability of products. Many companies have adopted this philosophy to stay competitive in the market.

Question 17

In a process costing system, a separate work in process inventory account is maintained for each customer's job.

Accepted Answer

In a process costing system, a separate work in process inventory account is not maintained for each customer's job. Instead, there is usually only one work in process inventory account that represents the total amount of goods that are in various stages of completion within the production process.

Question 18

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

Accepted Answer

A cost of production report provides valuable information on the costs associated with each stage of production, which helps management in monitoring and controlling costs to ensure that they are within budgeted amounts.

Question 19

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

Accepted Answer

The cost of production report details the costs incurred during the production process and allocates these costs to the finished goods or work in progress.

Question 20

The amount journalized showing the cost added to finished goods is taken from the cost of production report.

Accepted Answer

The cost added to finished goods is taken from the cost of production report which provides detailed information about the total cost of goods manufactured during a particular accounting period. This report includes the cost of direct materials, direct labor, and manufacturing overhead applied to the products manufactured during the period. The cost added to finished goods is then transferred to the finished goods account through a journal entry.

Quiz 20: Process Cost Systems