60612730-1st-exam

CHAPTER 21

PROCESS COST ACCOUNTING

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT

True-False Statements 1. 1 K 9. 4 K 17. 6 K 25. 7 K sg33. 3 C2. 1 K 10. 4 K 18. 6 C 26. 8 K sg34. 4 K 3. 1 C 11. 4 K 19. 6 K 27. 8 K sg35. 5 K 4. 2 C 12. 5 C 20. 6 K 28. 8 K sg36. 6 K 5. 2 K 13. 5 K 21. 6 C 29. 9 K sg37. 9 K 6. 2 K 14. 5 K 22. 6 K a30. 10 K 7. 2 K 15. 5 K 23. 7 K sg31. 1 K 8. 4 C 16. 5 AP 24. 7 K sg32. 2 K

Multiple Choice Questions 38. 1 C 59. 5 AP 80. 6 AP 101. 6 C 123. 9 C39. 1 C 60. 5 AP 81. 6 AP 102. 6 AP 124. 9 C 40. 1 K 61. 5 K 82. 6 AP 103. 6 AP 125. 9 C 41. 1 K 62. 5 AP 83. 6 AP 104. 6 AP 126. 9 K 42. 1 K 63. 5 AP 84. 6 AP 105. 6 AP 127. 9 K 43. 2 C 64. 5 AP 85. 6 AP 106. 6 AP a128. 10 K 44. 2 K 65. 5 C 86. 6 AP 107. 6 AP a129. 10 K 45. 2 C 66. 5 AP 87. 6 AP 108. 6 AP st130. 1 K 46. 2 K 67. 5 AP 88. 6 AP 110. 6 AP sg131. 2 K 47. 2 K 68. 5 AP 89. 6 AP 111. 6 AP st132. 2 K 48. 2 C 69. 5 AP 90. 6 C 112. 6 AP sg133. 5 K 49. 2 K 70. 5 AP 91. 6 C 113. 6 AP sg134. 5 K 50. 4 C 71. 5 AP 92. 6 AP 114. 7 K st135. 5 K 51. 4 C 72. 5 AP 93. 6 K 115. 7 K sg136. 6 AP 52. 4 C 73. 5 AP 94. 6 AP 116. 7 K st137. 6 K 53. 4 C 74. 5 AP 95. 6 AP 117. 8 C sg138. 6 C 54. 4 K 75. 5 AP 96. 6 AP 118. 8 C sg139. 6 AP 55. 4 C 76. 6 AP 97. 6 AP 119. 8 K st140. 6 K 56. 5 AP 77. 6 AP 98. 6 AP 120. 8 C sg141. 7 K 57. 5 AP 78. 6 AP 99. 6 AP 121. 8 C sg142. 8 K 58. 5 AP 79. 6 AP 100. 6 AP 122. 9 C

Brief Exercises 143. 5 AP 145. 5 AP 147. 6 AP 149. 6 AP 151. 6 AP144. 5 AP 146. 6 AP 148. 6 AP 150. 6 AP 152. 6 AP

sg This question also appears in the Study Guide. st This question also appears in a self-test at the student companion website. a This topic is dealt with in an Appendix to the chapter.

Test Bank for Accounting Principles, Eighth Edition

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SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S TAXONOMY Exercises

153. 4 AP 158. 5 AP 163. 5,6 AP 168. 6 AP 173. 7 AP154. 4 AP 159. 5 AP 164. 5,6 AP 169. 6 AP 155. 4 AP 160. 5,6 AP 165. 5,6 AP 170. 7 AP 156. 4 AP 161. 5,6 AN 166. 5,6 AP 171. 7 AP 157. 4 AP 162. 5,6 AP 167. 6 AP 172. 7 AP

Completion Statements 174. 1 K 177. 4 K 180. 6 AP 183. 8 K a186. 10 K175. 2 K 178. 5 K 181. 6 K 184. 9 K 176. 2 K 179. 6 K 182. 7 K 185. 9 K

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Item Type

Study Objective 1 1. TF 3. TF 38. MC 40. MC 42. MC 174. C 2. TF 31. TF 39. MC 41. MC 130. MC

Study Objective 2 4. TF 7. TF 44. MC 47. MC 131. MC 176. C 5. TF 32. TF 45. MC 48. MC 132. MC 6. TF 43. MC 46. MC 49. MC 175. C

Study Objective 3 33. TF

Study Objective 4 8. TF 11. TF 51. MC 54. MC 153. Ex 156. Ex 9. TF 34. TF 52. MC 55. MC 154. Ex 157. Ex

10. TF 50. MC 53. MC 133. MC 155. Ex 177. C Study Objective 5

12. TF 56. MC 62. MC 68. MC 74. MC 145. BE 163. Ex 13. TF 57. MC 63. MC 69. MC 75. MC 158. Ex 164. Ex 14. TF 58. MC 64. MC 70. MC 134. MC 159. Ex 165. Ex 15. TF 59. MC 65. MC 71. MC 135. MC 160. Ex 166. Ex 16. TF 60. MC 66. MC 72. MC 143. BE 161. Ex 178. C 35. TF 61. MC 67. MC 73. MC 144. BE 162. Ex

Study Objective 6 17. TF 79. MC 89. MC 99. MC 109. MC 146. BE 163. Ex 18. TF 80. MC 90. MC 100. MC 110. MC 147. BE 164. Ex 19. TF 81. MC 91. MC 101. MC 111. MC 148. BE 165. Ex 20. TF 82. MC 92. MC 102. MC 112. MC 149. BE 166. Ex 21. TF 83. MC 93. MC 103. MC 113. MC 150. BE 167. Ex 22. TF 84. MC 94. MC 104. MC 136. MC 151. BE 168. Ex 36. TF 85. MC 95. MC 105. MC 137. MC 152. BE 169. Ex 76. MC 86. MC 96. MC 106. MC 138. MC 160. Ex 179. C 77. MC 87. MC 97. MC 107. MC 139. MC 161. Ex 180. C 78. MC 88. MC 98. MC 108. MC 140. MC 162. Ex 181. C

Process Cost Accounting

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Study Objective 7 23. TF 25. TF 115. MC 141. MC 171. Ex 173. Ex 24. TF 114. MC 116. MC 170. Ex 172. Ex 182. C

Study Objective 8 26. TF 28. TF 118. MC 120. MC 142. MC 27. TF 117. MC 119. MC 121. MC 183. C

Study Objective 9 29. TF 122. MC 124. MC 126. MC 184. C 37. TF 123. MC 125. MC 127. MC 185. C

Study Objective a10 a30. TF a128. MC a129. MC a186. C

Note: TF = True-False BE = Brief Exercise C = Completion MC = Multiple Choice Ex = Exercise

The chapter also contains one set of ten Matching questions and four Short-Answer Essay questions.

CHAPTER STUDY OBJECTIVES 1. Understand who uses process cost systems. Process cost systems are used by

companies that mass-produce similar products in a continuous fashion. Once production begins, it continues until the finished product emerges. Each unit of finished product is indistinguishable from every other unit.

2. Explain the similarities and differences between job order cost and process cost

systems. Job order cost systems are similar to process cost systems in three ways: (1) Both systems track the same cost elements—direct materials, direct labor, and manufacturing overhead. (2) Costs are accumulated in the same accounts—Raw Materials Inventory, Factory Labor, and Manufacturing Overhead. (3) Accumulated costs are assigned to the same accounts—Work in Process, Finished Goods Inventory, and Cost of Goods Sold. However, the method of assigning costs differs significantly.

There are four main differences between the two cost systems: (1) A process cost system uses separate accounts for each production process department or manufacturing process, rather than only one work in process account used in a job order cost system. (2) In a process cost system, costs are summarized in a production cost report for each department. In a job cost system, costs are charged to individual jobs and summarized in a job cost sheet. (3) Costs are totaled at the end of a time period in a process cost system, but at the completion of a job in a job cost system. (4) In a process cost system, unit cost is calculated as: Total manufacturing costs for the period ÷ Units produced during the period. In a job cost system, unit cost is: Total cost per job ÷ Units produced.

3. Explain the flow of costs in a process cost system. Manufacturing costs for raw

materials, labor, and overhead are assigned to work in process accounts for various departments or manufacturing processes. The costs of units completed are transferred from one department to another as those units move through the manufacturing process. The costs of completed work are transferred to Finished Goods Inventory. When inventory is sold, costs are transferred to Cost of Goods Sold.


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4. Make the journal entries to assign manufacturing costs in a process cost system. Entries to assign the costs of raw materials, labor, and overhead consist of a credit to Raw Materials Inventory, Factory Labor, and Manufacturing Overhead, and a debit to Work in Process for each department. Entries to record the cost of good transferred to another department are a credit to Work in Process for the department whose work is finished and a debit to the department to which the goods are transferred. The entry to record units completed and transferred to the warehouse is a credit for the department whose work is finished and a debit to Finished Goods Inventory. The entry to record the sale of goods is a credit to Finished Goods Inventory and a debit to Cost of Goods Sold.

5. Compute equivalent units. Equivalent units of production measure work done during a

period, expressed in fully completed units. This concept is used to determine the cost per unit of completed product. Equivalent units are the sum of the units completed and transferred out plus equivalent units of ending work in process.

6. Explain the four steps necessary to prepare a production cost report. The four steps to

complete a production cost report are: (1) Compute the physical unit flow—that is, the total units to be accounted for. (2) Compute the equivalent units of production. (3) Compute the unit production costs, expressed in terms of equivalent units of production. (4) Prepare a cost reconciliation schedule, which shows that the total costs accounted for equal the total costs to be accounted for.

7. Prepare a production cost report. The production cost report contains both quantity and

cost data for a production department. There are four sections in the report: (1) number of physical units, (2) equivalent units determination, (3) unit costs, and (4) cost reconciliation schedule.

8. Explain just-in-time (JIT) processing. JIT is a manufacturing technique dedicated to

producing the right products at the right time as needed. One of the principal accounting effects is that a Raw and In-Process Inventory account replaces both the raw materials and work in process inventory accounts.

9. Explain activity-based costing (ABC). ABC is a method of product costing that focuses on

the activities performed to produce products. It assigns the cost of the activities to products by using cost drivers that measure the activities performed. The primary objective of ABC is accurate and meaningful product costs.

a10. Apply activity-based costing to specific company data. In applying ABC, it is necessary

to compute the overhead rate for each activity by dividing total expected overhead by the total expected usage of the cost driver. The overhead cost for each activity is then assigned to products on the basis of each product’s use of the cost driver.


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TRUE-FALSE STATEMENTS 1. Process cost accounting focuses on the process involved in mass-producing products that

are very similar in nature. 2. Process cost systems are used to apply costs to a specific job, such as the manufacturing

of a specialized machine. 3. A company that produces motion pictures would likely use a process cost system. 4. In a process cost system, costs are tracked through a series of connected manufacturing

processes or departments, rather than by individual jobs. 5. In a process cost system, total costs are determined at the end of a month or year. 6. Separate work in process accounts are maintained for each production department or

manufacturing process in a process cost system. 7. In a process cost system, materials, labor and overhead are only added in the first

production department. 8. The assignment of the three manufacturing cost elements to Work in Process in a process

cost system is the same as in a job order cost system. 9. Fewer materials requisitions are generally required in a process cost system than in a job

order cost system. 10. In a process cost system, all labor costs incurred within a producing department are a cost

of processing the raw materials. 11. A primary driver of overhead costs in continuous manufacturing operations is machine

time used. 12. Equivalent units of production are used to determine the cost per unit of completed

products. 13. Equivalent units of production measure the work done during a period, expressed in fully

completed units. 14. Equivalent units of production is the sum of units completed and transferred out plus

equivalent units of beginning work in process. 15. The weighted-average method of computing equivalent units is the most widely used

method in practice. 16. There are no units in process at the beginning of the period, 1,000 units in process at the

end of the period that are 40% complete, and 10,000 units transferred out during the period. Based on this information, there were 9,600 equivalent units of production during the period.

17. The first step performed in preparing a production cost report is computing the equivalent

units of production.


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18. Equivalent units of production must be calculated before the unit production costs can be computed.

19. The physical units in a department are another name for the equivalent units of

production. 20. Unit material cost is computed by taking total material costs charged to the department for

the period and dividing by the physical units in the process during the period. 21. When equivalent units of production are different for materials and conversion costs, unit

costs are computed for materials, conversion, and total manufacturing. 22. The total manufacturing cost per unit is used in costing the units completed and

transferred during the period. 23. A production cost report is an internal document for management that shows production

quantity and cost data for a particular job. 24. Production cost reports provide a basis for evaluating the productivity of a department. 25. Companies often use a combination of a process cost and a job order cost system, called

operations costing. 26. Large inventories of raw materials must be maintained in a just-in-time system. 27. Just-in-time strives to eliminate inventories by using a pull approach. 28. Rework costs typically increase in just-in-time processing. 29. Activity-based costing (ABC) can be used only with process cost systems. a30. ABC eliminates arbitrary assignments of overhead. Additional True-False Questions 31. In continuous process manufacturing, generally once the production begins, it continues

until the finished product emerges. 32. One similarity of process cost accounting with job order cost accounting is that both

determine total manufacturing costs after each job. 33. The flow of costs in a process costing system requires that materials be added in one

department, labor added in another department and manufacturing overhead in a third department.

34. When finished goods are sold, the entry to record the cost of goods sold is a debit to

Finished Goods Inventory and a credit to Cost of Goods Sold. 35. When there is no beginning work in process and materials are entered at the beginning of

the process, equivalent units of materials are the same as the units started into production.


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36. In order to compute the physical unit flow, a company must first compute unit production costs.

37. In activity-based costing, the focus is on the activities performed to produce specific

products. Answers to True-False Statements

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.1. T 7. F 13. T 19. F 25. T 31. T 37. T 2. F 8. F 14. F 20. F 26. F 32. F 3. F 9. T 15. T 21. T 27. T 33. F 4. T 10. T 16. F 22. T 28. F 34. F 5. T 11. T 17. F 23. F 29. F 35. T 6. T 12. T 18. T 24. T a30. F 36. F

MULTIPLE CHOICE QUESTIONS 38. A process cost accounting system is most appropriate when

a. a variety of different products are produced, each one requiring different types of materials, labor, and overhead.

b. the focus of attention is on a particular job or order. c. similar products are mass-produced. d. individual products are custom made to the specification of customers.

39. A characteristic of products that are mass-produced in a continuous fashion is that

a. the products are identical or very similar in nature. b. they are grouped in batches. c. they are produced at the time an order is received. d. their costs are accumulated on job cost sheets.

40. A process cost system would be used for all of the following products except

a. chemicals. b. computer chips. c. motion pictures. d. soft drinks.

41. In a process cost system,

a. a Work in Process account is maintained for each product. b. a materials requisition must identify the job on which the materials will be used. c. a Work in Process account is maintained for each process. d. one Work in Process account is maintained for all the processes, similar to a job order

cost system. 42. Differences between a job order cost system and a process cost system include all of the

following except the a. documents used to track costs. b. point at which costs are totaled. c. unit cost computations. d. flow of costs.


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43. Which of these best reflects a distinguishing factor between a job order cost system and a process cost system? a. The detail at which costs are calculated b. The time period each covers c. The number of work in process accounts d. The manufacturing cost elements included

44. Which of the following is a true statement about process cost systems?

a. In process cost systems, costs are accumulated but not assigned. b. A process cost system has one work in process account for each process. c. In process cost systems, costs are summarized on job cost sheets. d. Unit costs are not computed in process cost systems.

45. Which of the following is correct regarding cost systems?

Job Order Process a. Work in process account several one for each process b. Work in process account one one c. Work in process account one one for each process d. Work in process account several one

46. In a process cost system, unit costs are determined using a

a. numerator of costs of each job. b. denominator of units produced during the period. c. denominator of units produced for the job. d. denominator of units produced for the day.

47. In process cost accounting, manufacturing costs are summarized on a

a. job order cost sheet. b. process order cost sheet. c. production cost report. d. manufacturing cost sheet.

48. Which of the following manufacturing cost elements occurs in a process cost system?

a. Direct materials b. Direct labor c. Manufacturing overhead d. All of these

49. In a process cost system, product costs are summarized

a. on job cost sheets. b. on production cost reports. c. after each unit is produced. d. when the products are sold.

50. When manufacturing overhead costs are assigned to production in a process cost system,

they are debited to a. the Finished Goods Inventory account. b. Cost of Goods Sold. c. a Manufacturing Overhead account. d. the Work in Process account.


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51. A product requires processing in two departments, Department A and then Department B, before it is completed. Costs transferred out of Department A will be transferred to a. Finished Goods Inventory. b. Cost of Goods Sold. c. Work in Process—Department B. d. Manufacturing Overhead.

52. Which of the following would not appear as a debit in the Work in Process account of a

second department in a two stage production process? a. Materials used b. Overhead applied c. Labor assigned d. Cost of products transferred out

53. Materials requisitions are

a. not used in process costing. b. generally used more frequently in process costing than job order costing. c. generally used less frequently in process costing than job order costing. d. used more frequently by latter stage production departments.

54. A primary driver of overhead costs in continuous manufacturing operations is

a. direct labor dollars. b. direct labor hours. c. machine hours. d. machine maintenance dollars.

55. Price Manufacturing assigns overhead based on machine hours. Department A logs 1,200

machine hours and Department B shows 2,000 machine hours for the period. If the overhead rate is $5 per machine hour, the entry to assign overhead will show a a. debit to Manufacturing Overhead for $16,000. b. credit to Work in Process—Department B for $10,000. c. debit to Work in Process for $10,000. d. credit to Manufacturing Overhead for $16,000.

56. Barnes and Miller Manufacturing is trying to determine the equivalent units for conversion

costs with 3,000 units of ending work in process at 80% completion and 14,000 physical units. There are no beginning units in the department. Conversion costs occur evenly throughout the entire production period. What are the equivalent units for conversion costs for the current period? a. 17,000 b. 16,800 c. 2,400 d. 13,400

57. 7,000 units in a process that are 70% complete are referred to as

a. 7,000 equivalent units of production. b. 2,100 equivalent units of production. c. 4,900 equivalent units of production. d. 2,100 unequivalent units of production.


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58. A process with no beginning work in process, completed and transferred out 45,000 units during a period and had 30,000 units in the ending work in process inventory that were 30% complete. The equivalent units of production for the period were a. 45,000 equivalent units. b. 75,000 equivalent units. c. 54,000 equivalent units. d. 22,500 equivalent units.

Use the following information for questions 59–60. A department adds raw materials to a process at the beginning of the process and incurs conversion costs uniformly throughout the process. For the month of January, there were no units in the beginning work in process inventory; 80,000 units were started into production in January; and there were 20,000 units that were 40% complete in the ending work in process inventory at the end of January. 59. What were the equivalent units of production for materials for the month of January?

a. 88,000 equivalent units b. 72,000 equivalent units c. 60,000 equivalent units d. 80,000 equivalent units

60. What were the equivalent units of production for conversion costs for the month of

January? a. 60,000 equivalent units b. 72,000 equivalent units c. 68,000 equivalent units d. 80,000 equivalent units

61. Equivalent units are calculated by

a. multiplying the percentage of work done by the equivalent units of output. b. dividing physical units by the percentage of work done. c. multiplying the percentage of work done by the physical units. d. dividing equivalent units by the percentage of work done.

62. Minor Company had the following department data:

Physical Units Work in process, July 1 16,000 Completed and transferred out 72,000 Work in process, July 31 24,000

Materials are added at the beginning of the process. What is the total number of equivalent units for materials in July? a. 72,000 b. 80,000 c. 112,000 d. 96,000


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63. Corsi Company had the following department data: Physical Units Work in process, beginning -0- Completed and transferred out 70,000 Work in process, ending 7,000

Materials are added at the beginning of the process. What is the total number of equivalent units for materials during the period? a. 70,000 b. 7,000 c. 77,000 d. 63,000

64. Gantner Company had the following department information about physical units and

percentage of completion: Physical Units Work in process, May 1 (60%) 36,000 Completed and transferred out 90,000 Work in process, May 31 (40%) 30,000

If materials are added at the beginning of the production process, what is the total number of equivalent units for materials during May? a. 126,000 b. 120,000 c. 116,400 d. 102,000

65. It is necessary to calculate equivalent units of production in a department because

a. a physical count of units is impossible. b. some units worked on in the department are not fully complete. c. the physical units in the department are always 100% complete. d. at times a department may use a job order cost system and then switch to a process

cost system. Use the following information for questions 66–68.

In the month of June, a department had 10,000 units in beginning work in process that were 70% complete. During June, 40,000 units were transferred into production from another department. At the end of June there were 5,000 units in ending work in process that were 40% complete. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. 66. How many units were transferred out of the process in June?

a. 40,000 units b. 35,000 units c. 45,000 units d. 50,000 units

67. The equivalent units of production for materials for June were

a. 45,000 equivalent units. b. 50,000 equivalent units. c. 52,000 equivalent units. d. 40,000 equivalent units.


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68. The equivalent units of production for conversion costs for June were a. 40,000 equivalent units. b. 47,000 equivalent units. c. 45,000 equivalent units. d. 50,000 equivalent units.

69. A process with no beginning work in process, completed and transferred out 10,000 units

during a period and had 5,000 units in the ending work in process that were 50% complete. How much is equivalent units of production for the period for conversion costs? a. 12,500 equivalent units b. 15,000 equivalent units c. 17,500 equivalent units d. 7,500 equivalent units

70. A process with 800 units of beginning work in process, completed and transferred out

10,000 units during a period. There were 5,000 units in the ending work in process that were 50% complete as to conversion costs. Materials are added 80% at the beginning of the process and 20% when the units are 90% complete. How much is equivalent units of production for the period for material costs? a. 12,000 equivalent units b. 15,000 equivalent units c. 11,000 equivalent units d. 14,000 equivalent units

71. Hanker Company had the following department data on physical units:

Work in process, beginning 1,000 Completed and transferred out 4,000 Work in process, ending 800

Materials are added at the beginning of the process. What is the total number of equivalent units for materials during the period? a. 4,200 b. 800 c. 4,800 d. 3,000

72. Super-Tech Industries had the following department information about physical units and

percentage of completion: Physical Units Work in process, June 1 (75%) 2,000 Completed and transferred out 4,500 Work in process, June 30 (50%) 3,000

If materials are added at the beginning of the production process, what is the total number of equivalent units for materials during June? a. 3,750 b. 7,500 c. 8,000 d. 6,000


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73. Gloria Company had no beginning work in process. During the period, 5,000 units were completed, and there were 500 units of ending work in process. How many units were started into production? a. 5,500 b. 5,000 c. 4,500 d. 500

74. Cohen Manufacturing is trying to determine the equivalent units for conversion costs with

2,000 units of ending work in process at 80% completion and 14,000 physical units that are 100% complete as to materials. There are no beginning units in the department. Materials are added at the beginning of the process, and conversion costs occur evenly throughout the entire production period. What is the equivalent units for conversion costs for the current period? a. 16,000 b. 15,600 c. 1,600 d. 13,600

75. If beginning work in process is 2,000 units, ending work in process is 1,000 units, and the

units accounted for equals 5,000 units, what must units started into production be? a. 7,000 b. 6,000 c. 3,000 d. 4,000

76. Cinder Company had the following department information for the month:

Total materials costs $ 80,000 Equivalent units of materials 10,000 Total conversion costs $120,000 Equivalent units of conversion costs 20,000

How much is the total manufacturing cost per unit? a. $14.00 b. $6.67 c. $6.00 d. $8.00

Use the following information for questions 77–78. Materials costs of $200,000 and conversion costs of $214,200 were charged to a processing department in the month of September. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. There were no units in beginning work in process, 100,000 units were started into production in September, and there were 8,000 units in ending work in process that were 40% complete at the end of September. 77. What was the total amount of manufacturing costs assigned to those units that were

completed and transferred out of the process in September? a. $184,000 b. $391,000 c. $414,200 d. $425,200


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78. What was the total amount of manufacturing costs assigned to the 8,000 units in the ending work in process? a. $16,000 b. $7,200 c. $13,600 d. $23,200

79. Charley Company’s Assembly Department has materials cost at $3 per unit and

conversion cost at $6 per unit. There are 9,000 units in ending work in process, all of which are 70% complete as to conversion costs. How much are total costs to be assigned to inventory? a. $37,800 b. $64,800 c. $56,700 d. $81,000

80. Byrd Manufacturing decided to analyze certain costs for June of the current year. Units

started into production equaled 14,000 and ending work in process equaled 2,000 units. With no beginning work in process inventory, how much is the conversion cost per unit if ending work in process was 25% complete and total conversion costs equaled $50,000? a. $3.13 b. $12.50 c. $4.00 d. $2.00

81. Reed Manufacturing has recently tried to improve its analysis for its manufacturing

process. Units started into production equaled 6,000 and ending work in process equaled 400 units. Reed had no beginning work in process inventory. Conversion costs are applied equally throughout production, and materials are applied at the beginning of the process. How much is the materials cost per unit if ending work in process was 25% complete and total materials costs equaled $60,000? a. $10.00 b. $10.53 c. $37.50 d. $9.38

82. Conversion cost per unit equals $6.00. Total materials costs are $40,000. Equivalent units

are 20,000. How much is the total manufacturing cost per unit? a. $8.00 b. $6.00 c. $10.00 d. $2.00

83. Physical units are 40,000. Total conversion costs are $197,500. There are 1,000 units in

ending inventory which are 50% complete as to conversion costs. How much are conversion costs per unit? a. $5.00 b. $4.93 c. $9.88 d. $4.82


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84. Madison Industries has equivalent units of 2,000 for materials and for conversion costs. Total manufacturing costs are $200,000. Total materials costs are $150,000. How much is the conversion cost per unit? a. $10.00 b. $25.00 c. $100.00 d. $20.00

85. Equivalent units for materials total 15,000. There were 12,000 units completed and

transferred out. Equivalent units for conversion costs equals 13,500. How much are the physical units for conversion costs if ending work in process is 50% complete? a. 14,000 b. 15,000 c. 4,000 d. 12,000

86. If equivalent units are 6,000 for conversion costs and units transferred out equals 4,000,

what stage of completion should the ending work in process be for the 8,000 units remaining? a. 75% b. 25% c. 10% d. 20%

Use the following information for questions 87–88.

In the month of April, a department had 500 units in the beginning work in process inventory that were 60% complete. These units had $20,000 of materials costs and $15,000 of conversion costs. Materials are added at the beginning of the process and conversion costs are added uniformly throughout the process. During April, 10,000 units were completed and transferred to the finished goods inventory and there were 2,000 units that were 25% complete in the ending work in process inventory on April 30. During April, manufacturing costs charged to the department were: Materials $460,000; Conversion costs $510,000. 87. The cost assigned to the units transferred to finished goods during April was

a. $900,000. b. $905,000. c. $940,000. d. $895,000.

88. The cost assigned to the units in the ending work in process inventory on April 30 was

a. $180,000. b. $105,000. c. $80,000. d. $145,000.

89. Zibba Company enters materials at the beginning of the process. In January, there was no

beginning work in process, but there were 100 units in the ending work in process inventory. The number of units completed equals the number of a. units started. b. units started less 100. c. units started plus 100. d. equivalent units.


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90. If there are no units in process at the beginning of the period, then a. the company must be using a job order cost system. b. only one computation of equivalent units of production will be necessary. c. the units started into production will equal the number of units transferred out. d. the units to be accounted for will equal the units transferred out and the units in

process at the end of the period. 91. Which of the following is not a necessary step in preparing a production cost report?

a. Compute the equivalent units of production b. Compute the physical unit flow c. Prepare the job order cost sheet d. Prepare a cost reconciliation schedule

92. Honrad Company's Assembly Department has materials cost at $4 per unit and

conversion cost at $8 per unit. There are 9,000 units in ending work in process, all of which are 70% complete as to conversion costs. How much are total costs to be assigned to inventory? a. $50,400 b. $86,400 c. $75,600 d. $108,000

93. In a process cost system, units to be accounted for in a department are equal to the

a. number of units started or transferred into the department. b. number of units transferred out of the department. c. units in the beginning inventory plus the units started or transferred into the department. d. ending inventory plus the units started or transferred into the department.

94. The total units accounted for equals units in

a. beginning work in process – units transferred out. b. beginning work in process + ending work in process. c. ending work in process + units transferred out. d. ending work in process – units started into production.

Use the following information for questions 95–96.

Department 1 of a two department production process shows: Units Beginning Work in Process 10,000 Ending Work in Process 50,000 Total units to be accounted for 120,000

95. How many units were started into production in Department 1?

a. 50,000 b. 70,000 c. 120,000 d. 110,000

96. How many units were transferred out to Department 2?

a. 50,000 b. 70,000 c. 120,000 d. 110,000


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97. The Assembly Department shows the following information: Units Beginning Work in Process 20,000 Ending Work in Process 50,000 Units Transferred Out 90,000

How many total units are to be accounted for by the Assembly Department? a. 140,000 b. 50,000 c. 70,000 d. 120,000

98. The last department in a production process shows the following information at the end of

the period: Units Beginning Work in Process 15,000 Started into Production 105,000 Ending Work in Process 30,000

How many units have been transferred out to finished goods during the period? a. 105,000 b. 120,000 c. 135,000 d. 90,000

99. A process began the month with 3,000 units in the beginning work in process inventory

and ended the month with 2,000 units in the ending work in process. If 9,000 units were completed and transferred out of the process during the month, how many units were started into production during the month? a. 8,000 b. 10,000 c. 9,000 d. 7,000

100. If 75,000 units are started into production and 30,000 units are in process at the end of the

period, how many units were completed and transferred out? a. 75,000 b. 30,000 c. 45,000 d. 105,000

101. Total units to be accounted for less units in beginning work in process equals

a. total units accounted for. b. units transferred out. c. units started into production. d. equivalent units.

102. If 80,000 units are transferred out of a department and there are 16,000 units still in

process at the end of a period, the number of units that were started into production during the period is a. 96,000. b. 80,000. c. 64,000. d. 16,000.


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103. A department adds materials at the beginning of the process and incurs conversion costs uniformly throughout the process. For the month of July, there was no beginning work in process; 20,000 units were completed and transferred out; and there were 10,000 units in the ending work in process that were 40% complete. During July, $72,000 materials costs and $63,000 conversion costs were charged to the department.

The unit production costs for materials and conversion costs for July was

Materials Conversion Costs a. $2.40 $2.10 b. $2.40 $2.63 c. $3.00 $2.10 d. $3.60 $3.15

104. Conversion cost per unit equals $6.00. Total materials costs equal $60,000. Equivalent

units for materials are 20,000. How much is the total manufacturing cost per unit? a. $9.00 b. $6.00 c. $12.00 d. $3.00

105. The following department data are available:

Total materials costs $120,000 Equivalent units of materials 60,000 Total conversion costs $70,000 Equivalent units of conversion costs 30,000

What is the total manufacturing cost per unit? a. $2.00 b. $2.33 c. $4.33 d. $2.11

106. Byers Company had the following department information for the month:

Total materials costs $30,000 Equivalent units of materials 5,000 Total conversion costs $50,000 Equivalent units of conversion costs 10,000

What is the total manufacturing cost per unit? a. $5.34 b. $5.00 c. $6.00 d. $11.00

107. Physical units are 80,000. Total conversion costs are $197,500. There are 2,000 units in

ending inventory which are 50% complete as to conversion costs. How much is the conversion cost per unit? a. $2.50 b. $2.47 c. $2.44 d. $2.41


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108. A department had the following information for the month:

Total materials costs $120,000 Conversion cost per unit $3.00 Total manufacturing cost per unit $5.00

What are the equivalent units of production for materials? a. 60,000 b. 40,000 c. 24,000 d. Cannot be determined

109. Maisley Manufacturing decided to analyze certain costs for June of the current year. Units

started into production equaled 28,000 and ending work in process equaled 4,000. With no beginning work in process inventory, how much is the conversion cost per unit if ending work in process was 25% complete and total conversion costs equaled $50,000? a. $1.57 b. $6.25 c. $2.00 d. $1.00

Use the following information for questions 110–111. Materials costs of $400,000 and conversion costs of $510,000 were charged to a processing department in the month of September. Materials are added at the beginning of the process, while conversion costs are incurred uniformly throughout the process. There were no units in beginning work in process, 20,000 units were started into production in September, and there were 5,000 units in ending work in process that were 40% complete at the end of September. 110. What was the total amount of manufacturing costs assigned to those units that were

completed and transferred out of the process in September? a. $750,000 b. $1,000,000 c. $803,250 d. $682,500

111. What was the total amount of manufacturing costs assigned to the 5,000 units in the

ending work in process? a. $227,500 b. $250,000 c. $160,000 d. $100,000

112. Snead Manufacturing has recently tried to improve its analysis for its manufacturing

process. Units started into production equaled 9,000 and ending work in process equaled 600 units. Snead had no beginning work in process inventory. Conversion costs are applied equally throughout production, and materials are applied at the beginning of the process. How much is the materials cost per unit if ending work in process was 25% complete and total materials costs equaled $60,000? a. $6.67 b. $7.02 c. $25.00 d. $6.25


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113. Madison Industries has equivalent units of 4,000 for materials and for conversion costs. Total manufacturing costs are $200,000. Total materials costs are $150,000. How much is the conversion cost per unit? a. $37.50 b. $12.50 c. $50.00 d. $10.00

114. In a process cost system, a production cost report is prepared

a. only for the first processing department. b. for all departments in the aggregate. c. for each processing department. d. only for the last processing department.

115. A production cost report

a. is prepared for each product. b. is prepared from a job cost sheet. c. will show quantity and cost data for a production department. d. will not identify a specific department if more than one department is involved in the

production process. 116. In the production cost report, the total

a. physical units accounted for equals the costs accounted for. b. physical units accounted for equals the units to be accounted for. c. costs charged equals the units to be accounted for. d. costs accounted for equals the costs of the units started into production.

117. Just-in-time processing requires

a. a constant build-up of finished goods inventory just in case unexpected or rush orders are received.

b. that suppliers of the company be able to deliver on short notice exact quantities of raw materials.

c. that the quality control system be eliminated so that production is completed without interruption.

d. an increase in the level of raw materials inventory so that production can be completed just-in-time before the delivery date promised.

118. Many U.S. firms are switching to JIT processing because

a. they desire a "push" approach to manufacturing. b. it eliminates conversion costs. c. it can reduce the funds invested in inventories. d. it is a means of building up inventories.

119. The elements of JIT do not include

a. dependable suppliers. b. efficient competitors. c. a total quality control system. d. a multiskilled work force.


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120. In a JIT cost accounting system, a. reduced product quality is offset by reduced cost. b. manufacturing overhead is applied in the traditional manner. c. Raw Materials and Work in Process Inventory accounts are replaced by Raw and In-

Process Inventory. d. conversion costs are eliminated.

121. Which of the following is not considered a benefit of JIT processing?

a. More efficient production because all raw materials are delivered to one central receiving warehouse.

b. Product quality is enhanced through a total quality control system. c. Rework costs and inventory storage costs should be reduced or eliminated. d. Manufacturing inventories are significantly reduced.

122. What is the biggest disadvantage of ABC?

a. It does not provide costing information needed for GAAP purposes. b. It causes management to make frivolous decisions. c. It often causes managers to argue about the best activity measure. d. It is expensive.

123. An important assumption in using ABC is that

a. production must take place on a continuous basis. b. all costs in an activity should respond proportionately to changes in the activity level of

the cost driver. c. production must take place on a just-in-time basis. d. all costs are pushed through each process when customer orders are received.

124. What is true concerning an ABC philosophy?

a. Costs should be applied using one activity level for simplicity. b. Each overhead cost should respond proportionally to changes in the activity level of its

cost driver. c. One best cost driver should be selected. d. No work in process inventories should be used.

125. Under the ABC philosophy,

a. all inventories should be reduced or eliminated. b. the push approach should be used in the first department of a process and the pull

approach should be used in all subsequent departments. c. the cost of a product is equal to the sum of the costs of all activities performed to

manufacture it. d. only one cost driver can be used.

126. Which would be an appropriate cost driver for the delivery activity?

a. Customers b. Purchase orders c. Shipments d. Inspections

127. Which would be an appropriate cost driver for the ordering activity?

a. Machine setups b. Purchase orders c. Machine hours d. Inspections


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a128. Which of the following is not a benefit of activity-based costing? a. More accurate product costing b. Enhanced control over overhead costs c. Better management decisions d. Less costly to use

a129. Which of the following is a limitation of activity-based costing?

a. More cost bases b. Less control over overhead costs c. Poorer management decisions d. Some arbitrary allocations continue

Additional Multiple Choice Questions 130. A process cost system would be used by all of the following except a(n)

a. chemical company. b. advertising company. c. oil company. d. computer chip company.

131. Which of the following is considered a difference between a job order cost and a process

cost system? a. The manufacturing cost elements b. Documents used to track costs c. The accumulation of the costs of materials, labor, and overhead d. The flow of costs

132. The basic similarities between job order cost and process cost systems include all of the

following except the a. manufacturing cost elements. b. flow of costs. c. point at which costs are totaled. d. accumulation of the costs of materials, labor, and overhead.

133 Equivalent units of production are a measure of

a. units completed and transferred out. b. units transferred out. c. units in ending work in process. d. the work done in a period expressed in fully completed units.

134. Total physical units to be accounted for are equal to the units

a. started (or transferred) into production. b. started (or transferred) into production plus the units in beginning work in process. c. started (or transferred) into production less the units in beginning work in process. d. completed and transferred out.

135. In computing equivalent units, ___________ is not part of the equivalent units of

production formula. a. units transferred out b. beginning work in process c. ending work in process d. None of these is correct.


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136. In Saint-Simon, Inc., the Assembly Department started 12,000 units and completed 14,000 units. If beginning work in process was 6,000 units, how many units are in ending work in process? a. 0 b. 2,000 c. 4,000 d. 8,000

137. The total units to be accounted for is computed by adding

a. beginning units in process to units transferred out. b. ending units in process to units started into production. c. beginning units in process to units started into production. d. ending units in process to total units accounted for.

138. In the Camria Company, materials are entered at the beginning of the process. If there is

no beginning work in process, but there is an ending work in process inventory, the number of equivalent units as to materials costs will be a. the same as the units started. b. the same as the units completed. c. less than the units started. d. less than the units completed.

139. For the Assembly Department, unit materials cost is $8 and unit conversion cost is $12. If

there are 6,000 units in ending work in process 75% complete as to conversion costs, the costs to be assigned to the inventory are a. $120,000. b. $102,000. c. $90,000. d. $108,000.

140. The total costs accounted for in a production cost report equal the

a. cost of units completed and transferred out only. b. cost of units started into production. c. cost of units completed and transferred out plus the cost of ending work in process. d. cost of beginning work in process plus the cost of units completed and transferred out.

141. In a production cost report, which one of the following sections is not shown under Costs?

a. Unit costs b. Costs to be accounted for c. Costs during the period d. Units accounted for

142. Which of the following statements is incorrect concerning just-in-time (JIT) processing?

a. U.S. firms are switching to JIT processing in response to foreign competition. b. JIT manufacturing is dedicated to producing the right products at the right time as they

are needed. c. JIT strives to eliminate inventories by using a "push" approach in manufacturing. d. JIT accounting creates a Raw and In-Process Inventory account.


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Answers to Multiple Choice Questions Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.

38. c 53. c 68. b 83. a 98. d 113. b a128. d39. a 54. c 69. a 84. b 99. a 114. c a129. d 40. c 55. d 70. d 85. b 100. c 115. c 130. b 41. c 56. d 71. c 86. b 101. c 116. b 131. b 42. d 57. c 72. b 87. a 102. a 117. b 132. c 43. c 58. c 73. a 88. b 103. b 118. c 133. c 44. b 59. d 74. b 89. b 104. a 119. b 134. b 45. c 60. c 75. c 90. d 105. c 120. c 135. b 46. b 61. c 76. a 91. c 106. d 121. a 136. c 47. c 62. d 77. b 92. b 107. a 122. d 137. c 48. d 63. c 78. d 93. c 108. a 123. b 138. a 49. b 64. b 79. b 94. c 109. c 124. b 139. b 50. d 65. b 80. c 95. d 110. a 125. c 140. c 51. c 66. c 81. a 96. b 111. c 126. c 141. d 52. d 67. b 82. a 97. a 112. a 127. b 142. c

BRIEF EXERCISES BE 143 Tip Top Painting Company has the following production data for January:

• Beginning work in process, 0 units • Units transferred out, 35,000 • Units in ending work in process, 4,000, which are 30% complete for conversion costs

Materials are added only at the beginning of the process. Instructions Compute equivalent units of production for both materials and conversion costs. Solution 143 (4 min.)

Equivalent Units QUANTITIES Physical Units Materials Conversion Costs Units to be accounted for Work in process, January 1 0 Started into production 39,000 Total units 39,000 Units accounted for Transferred out 35,000 35,000 35,000 Work in process, January 31 4,000 4,000 1,200 (4,000 × 30%) Total units 39,000 39,000 36,200


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BE 144 Tip Top Painting Company has the following production data for March:

• Beginning work in process, 2,000 units • Units transferred out, 42,000 • Units in ending work in process, 6,000, which are 80% complete for conversion costs

Materials are added only at the beginning of the process. Instructions Compute equivalent units of production for both materials and conversion costs. Solution 144 (4 min.)

Equivalent Units QUANTITIES Physical Units Materials Conversion Costs

Units to be accounted for Work in process, March 1 2,000 Started into production 46,000 Total units 48,000

Units accounted for Transferred out 42,000 42,000 42,000 Work in process, March 31 6,000 6,000 4,800 (6,000 × 80%) Total units 48,000 48,000 46,800 BE 145 The Kirkland Department of Delta Manufacturing began the month of December with beginning work in process of 4,000 units that are 100% complete as to materials and 30% complete as to conversion costs. Units transferred out are 10,000 units. Ending work in process contains 1,000 units that are 100% complete as to materials and 60% complete as to conversion costs. Instructions Compute the equivalent units of production for materials and conversion costs for the month of December. Solution 145 (4 min.)

Equivalent Units QUANTITIES Physical Units Materials Conversion Costs

Units to be accounted for Work in process, December 1 4,000 Started into production 7,000 Total units 11,000

Units accounted for Transferred out 10,000 10,000 10,000 Work in process, December 31 1,000 1,000 600 (1,000 × 60%) Total units 11,000 11,000 10,600


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BE 146 White Supplies’ total material costs are $50,000 and total conversion costs are $65,000. Equivalent units of production for materials are 10,000, and 3,250 for conversion costs. Instructions Compute the unit costs for materials, conversion costs, and total manufacturing costs for the month. Solution 146 (3 min.)

COSTS Unit costs Materials Conversion Costs Total Costs incurred $50,000 $65,000 $115,000 Equivalent units 10,000 3,250 Unit costs $ 5.00 $ 20.00 $25.00 BE 147 Apoly Manufacturing Company has the following production data for January.

Ending Work in Process

Beginning Work in Process

Units Started into Production

Units

% Complete as to Conversion Cost

-0- 6,500 700 30% Instructions Compute the physical units for January. Solution 147 (4 min.)

Beginning work in process -0- Started into production 6,500 Total units to be accounted for 6,500 Transferred out 5,800 Ending work in process 700 Total units accounted for 6,500 BE 148 Sandusky Widget Company has the following production data for March.

Ending Work in Process

Month

Beginning Work in Process

Units Transferred Out

Units

% Complete as to Conversion Cost

March 1,200 5,100 800 20%


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BE 148 (cont.) Instructions Compute the physical units for March. Solution 148 (4 min.)

Beginning work in process 1,200 Started into production 4,700 Total units to be accounted for 5,900 Transferred out 5,100 Ending work in process 800 Total units accounted for 5,900 BE 149 Sequal Company has the following production data for June: units transferred out 46,000, and ending work in process 4,000 units that are 100% complete for materials and 30% complete for conversion costs. Unit materials cost is $5 and unit conversion cost is $11. Instructions Determine the costs to be assigned to the units transferred out and the units in ending work in process. Solution 149 (4 min.)

Work in process, June 30 Materials (4,000 × $5) $20,000 Conversion costs (4,000 × 30% × $11) 13,200 Total cost of work in process $33,200 Units transferred out (46,000 × $16) $736,000 BE 150 Tomlinson Company has the following production data for May: • Beginning work in process, 0 units • Units started, 62,000 • Ending work in process, 7,000 units that are 100% complete for materials and 60% complete

for conversion costs • Unit materials cost, $7 • Unit conversion cost, $10 Instructions Determine the costs to be assigned to the units transferred out and the units in ending work in process.


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Solution 150 (4 min.)

Work in process, May 31 Materials (7,000 × $7) $49,000 Conversion costs (7,000 × 60% × $10) 42,000 Total cost of work in process $91,000 Units transferred out (55,000 × $17) $935,000 BE 151 Dirt Cleaners, Inc. has the following production data for January:

Transferred out 50,000 units Ending work in process 6,000 units

The units in ending work in process are 100% complete for materials and 60% complete for conversion costs. There is no beginning work in process. Materials cost is $10 per unit and conversion costs are $11 per unit. Instructions Determine the costs to be assigned to the units transferred out and the units in ending work in process. Solution 151 (4 min.)

Cost Reconciliation Schedule Costs accounted for Transferred out (50,000 × $21) $1,050,000 Work in process, June 30 Materials (6,000 × $10) $ 60,000 Conversion costs (3,600* × $11) 39,600 99,600 Total costs $1,149,600 *(6,000 x 60%) BE 152 Production costs chargeable to the Sanding Department in July for Joyful Art are $12,500 for materials, $26,000 for labor, and $10,000 for manufacturing overhead. Equivalent units of production are 25,000 for materials and 18,000 for conversion costs. Instructions Compute the unit costs for materials and conversion costs.


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COSTS Unit costs Materials Conversion Costs Total Costs in July $12,500 $36,000 $48,500 Equivalent units 25,000 18,000 Unit costs $0.50 $2.00 $2.50

EXERCISES Ex. 153 Baez Manufacturing Company produces a product in two departments: (1) Mixing and (2) Finishing. The company uses a process cost accounting system. (a) Purchased raw materials for $50,000 on account. (b) Raw materials requisitioned for production were: Direct materials Mixing department $20,000 Finishing department 14,000 (c) Incurred labor costs of $80,000. (d) Factory labor used: Mixing department $48,000 Finishing department 32,000 (e) Manufacturing overhead is applied to the product based on machine hours used in each

department: Mixing department—600 machine hours at $45 per machine hour. Finishing department—500 machine hours at $30 per machine hour. (f) Units costing $66,000 were completed in the Mixing Department and were transferred to the

Finishing Department. (g) Units costing $60,000 were completed in the Finishing Department and were transferred to

finished goods. (h) Finished goods costing $30,000 were sold on account for $45,000. Instructions Prepare the journal entries to record the preceding transactions for Baez Manufacturing Company.


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Solution 153 (20–28 min.)

(a) Raw Materials Inventory ............................................................... 50,000 Accounts Payable ................................................................ 50,000 (Purchase of raw materials on account) (b) Work in Process—Mixing ............................................................. 20,000 Work in Process—Finishing ......................................................... 14,000 Raw Materials Inventory ...................................................... 34,000 (To record materials used in production) (c) Factory Labor ............................................................................... 80,000 Wages Payable.................................................................... 80,000 (To record payroll liability) (d) Work in Process—Mixing ............................................................. 48,000 Work in Process—Finishing ......................................................... 32,000 Factory Labor....................................................................... 80,000 (To assign factory labor to production) (e) Work in Process—Mixing (600 × $45).......................................... 27,000 Work in Process—Finishing (500 × $30)...................................... 15,000 Manufacturing Overhead ..................................................... 42,000 (To assign overhead to processes) (f) Work in Process—Finishing ......................................................... 66,000 Work in Process—Mixing..................................................... 66,000 (To record transfer of units to the Finishing Department) (g) Finished Goods Inventory............................................................. 60,000 Work in Process—Finishing................................................. 60,000 (To record transfer of units to finished goods) (h) Accounts Receivable .................................................................... 45,000 Sales.................................................................................... 45,000 (To record sale of finished goods on account) Cost of Goods Sold ...................................................................... 30,000 Finished Goods Inventory.................................................... 30,000 (To record cost of goods sold) Ex. 154 Sanders Company has two production departments: Fabricating and Finishing. Beginning inventories are: Work in Process—Fabricating, $6,030; Work in Process—Finishing, $4,100; and Finished Goods, $5,600. During the month the following transactions occurred: 1. Purchased $45,000 of raw materials on account. 2. Incurred $65,000 of factory labor. Wages are unpaid. 3. Incurred $50,000 of manufacturing overhead; $44,000 was paid and the remainder is unpaid. 4. Requisitioned materials for Fabricating, $10,000 and Finishing, $8,000.


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Ex. 154 (cont.)

5. Used factory labor for Finishing, $52,000 and Fabricating, $13,000. 6. Applied $45,000 of overhead based on machine hours used in each department. The

Finishing Department used twice as many machine hours as did Fabricating. Instructions Journalize the transactions for the month. Solution 154 (12–16 min.)

1. Raw Materials Inventory................................................................... 45,000 Accounts Payable.................................................................... 45,000 2. Factory Labor ................................................................................... 65,000 Wages Payable ....................................................................... 65,000 3. Manufacturing Overhead.................................................................. 50,000 Accounts Payable.................................................................... 6,000 Cash........................................................................................ 44,000 4. Work in Process—Fabricating.......................................................... 10,000 Work in Process—Finishing ............................................................. 8,000 Raw Materials Inventory.......................................................... 18,000 5. Work in Process—Fabricating.......................................................... 13,000 Work in Process—Finishing ............................................................. 52,000 Factory Labor .......................................................................... 65,000 6. Work in Process—Fabricating.......................................................... 15,000 Work in Process—Finishing ............................................................. 30,000 Manufacturing Overhead......................................................... 45,000 Ex. 155 The Pasta Factory manufactures spaghetti sauce through two production departments: Cooking and Packaging. For the month of February, the work in process accounts show the following debits: Cooking Packaging Beginning work in process $ -0- $ 6,000 Materials 40,000 21,000 Labor 21,000 9,000 Overhead 25,000 14,000 Costs transferred in 50,000

Instructions Journalize the February transactions that involved the work in process accounts.


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Work in Process—Cooking ................................................................... 40,000 Work in Process—Packaging................................................................ 21,000 Raw Materials Inventory ............................................................... 61,000

Work in Process—Cooking ................................................................... 21,000 Work in Process—Packaging................................................................ 9,000 Factory Labor ............................................................................... 30,000

Work in Process—Cooking ................................................................... 25,000 Work in Process—Packaging................................................................ 14,000 Manufacturing Overhead.............................................................. 39,000

Work in Process—Packaging................................................................ 50,000 Work in Process—Cooking........................................................... 50,000 Ex. 156 Benson Industries uses a process cost system. Products are processed first by Department A, second by Department B, and then they are transferred to the finished goods warehouse. Shown below is the cost information for Department B during the month of October: Costs of units transferred in $120,000 Manufacturing costs added in Department B: Direct materials $40,000 Direct labor 11,000 Manufacturing overhead 19,000 70,000 Total costs charged to Department B in October $190,000 The cost of work in process in Department B at October 1 is $25,000, and the cost of work in process at October 31 has been determined to be $30,000.

Instructions Prepare journal entries to record for the month of October: (a) The transfer of production from Department A to B. (b) The manufacturing costs incurred by Department B. (c) The transfer of completed units from Department B to the finished goods warehouse. Solution 156 (8–11 min.)

(a) Work in Process—Dept. B ............................................................. 120,000 Work in Process—Dept. A...................................................... 120,000 (b) Work in Process—Dept. B ............................................................. 70,000 Factory Labor ......................................................................... 11,000 Raw Materials Inventory ......................................................... 40,000 Manufacturing Overhead ........................................................ 19,000 (c) Finished Goods Inventory ($25,000 + $190,000 – $30,000).......... 185,000 Work in Process—Dept. B...................................................... 185,000


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Ex. 157 Hardy Company manufactures a single product by a continuous process, involving two production departments. The records indicate that $120,000 of direct materials were issued to and $200,000 of direct labor was incurred by Department 1 in the manufacture of the product. The factory overhead rate is $15 per machine hour; machine hours were 6,000 in Department 1. Work in process in the department at the beginning of the period totaled $35,000; and work in process at the end of the period was $25,000. Instructions Prepare entries to record (a) The flow of costs into Department 1 for (1) direct materials (2) direct labor (3) overhead (b) The transfer of production costs to Department 2. Solution 157 (7–10 min.)

(a) (1) Work in Process—Dept. 1 .................................................... 120,000 Raw Materials Inventory .............................................. 120,000 (2) Work in Process—Dept. 1 .................................................... 200,000 Factory Labor .............................................................. 200,000 (3) Work in Process—Dept. 1 .................................................... 90,000 Manufacturing Overhead (6,000 × $15) ...................... 90,000 (b) Work in Process—Dept. 2............................................................. 420,000* Work in Process—Dept. 1 .................................................... 420,000 *$35,000 + $120,000 + $200,000 + $90,000 – $25,000 = $420,000 Ex. 158 Muffy Painting Company has the following production data for March. Ending Work in Process Beginning Units % Complete as to Month Work in Process Transferred Out Units Conversion Cost March 2,000 42,000 8,000 80% Instructions Compute equivalent units of production for March for both materials and conversion costs. Materials are entered at the beginning of the process.


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Equivalent Units Quantities Physical Units Materials Conversion Costs Units to be accounted for Work in process, March 1 2,000 Started into production 48,000 Total units 50,000

Units accounted for Transferred out 42,000 42,000 42,000 Work in process, March 31 8,000 8,000 6,400 (8,000 × 80%) Total units 50,000 50,000 48,400 Ex. 159 The Nitrogen Fixation Department of Tomco Manufacturing began the month of December with beginning work in process of 4,000 units that are 100% complete as to materials and 30% complete as to conversion costs. Units transferred out are 10,000 units. Ending work in process contains 3,000 units that are 100% complete as to materials and 60% complete as to conversion costs. Instructions Compute the equivalent units of production for materials and conversion costs for the month of December. Solution 159 (10 min.)

Equivalent Units Quantities Physical Units Materials Conversion Costs Units to be accounted for Work in process, December 1 4,000 Started into production 9,000 Total units 13,000

Units accounted for Transferred out 10,000 10,000 10,000 Work in process, December 31 3,000 3,000 1,800 (3,000 × 60%) Total units 13,000 13,000 11,800 Ex. 160 At Crenshaw Company, materials are entered at the beginning of each process. Work in process inventories, with the percentage of work done on conversion, and production data for its Painting Department in selected months are as follows:

Beginning Work In Process Ending Work In Process Percentage Units Completed Percentage Month Units Completed and Transferred Out Units Completed July -0- — 10,000 500 90% Sept. 2,500 20% 9,000 4,000 70%


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Ex. 160 (cont.) Instructions (a) Compute the physical units for July. (b) Compute the equivalent units of production for materials and conversion costs for

September. Solution 160 (10–14 min.)

(a) COMPUTATION OF PHYSICAL UNITS July Beginning work in process -0- Started into production 10,500 Total units to be accounted for 10,500

Transferred out 10,000 Ending work in process 500 Total units accounted for 10,500 (b) COMPUTATION OF EQUIVALENT UNITS Equivalent Units Units accounted for Physical Units Materials Conversion Costs Transferred out 9,000 9,000 9,000 Work in process, Sept. 30 4,000 4,000 2,800 (4,000 × .70) Total equivalent units 13,000 13,000 11,800 Ex. 161 Watts Company adds materials at the beginning of the process and conversion costs are incurred uniformly throughout the process. Instructions Complete the following calculation of equivalent units for materials and conversion costs.

Equivalent Units Physical Units Materials Conversion Costs

Completed and transferred out 40,000

Ending work in process Materials Conversion costs, 75% complete 18,000 Total units


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Equivalent Units Physical Units Materials Conversion Costs Completed and transferred out 40,000 40,000 40,000 Ending work in process Materials 24,000* 24,000* Conversion costs—75% complete 18,000 Total units 64,000 58,000

*18,000 ÷ .75 Ex. 162 The general ledger of Oates Company has the following work in process account.

WORK IN PROCESS—FINISHING 6/1 Balance 8,000 6/30 Transferred out ? 6/30 Materials 1,800 6/30 Labor 2,400 6/30 Overhead 3,350 6/30 Balance ?

Production records show that there were 2,000 units in beginning inventory, 50% complete; 5,000 units started, and 4,500 units transferred out. The beginning work in process had conversion costs of $3,700. The units in ending inventory were 60% complete. Materials are added at the beginning of the process. Instructions Answer the following questions. (a) How many units are in process at June 30? (b) What is the unit conversion cost for June? (c) What is the conversion cost in the June 30 inventory? Solution 162 (10–14 min.)

(a) Work in process, June 1 2,000 Started into production 5,000 Units to be accounted for 7,000 Less: Transferred out 4,500 Work in process, June 30 2,500 (b) Conversion costs Physical Units Equivalent Units Transferred out 4,500 4,500 Work in process, June 30 2,500 1,500 (2,500 × .60) Total 7,000 6,000

Unit conversion cost = $1.58 ($3,700 + $5,750) ÷ 6,000 = $1.58 (c) Conversion cost in June 30 inventory: 1,500 × $1.58 = $2,370


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Ex. 163 The Assembly Department uses a process cost accounting system and a weighted-average cost flow assumption. The department adds materials at the beginning of the process and incurs conversion costs uniformly throughout the process. During July, $190,000 of materials costs and $133,000 in conversion costs were charged to the department. The beginning work in process inventory was $108,000 on July 1, comprised of $80,000 of materials costs and $28,000 of conversion costs. Other data for the month of July are as follows:

Beginning work in process inventory, 7/1 25,000 units (40% complete) Units completed and transferred out 90,000 units Ending work in process inventory, 7/31 10,000 units (20% complete) Instructions Answer the following questions and show computations to support your answers.

1. How many physical units have to be accounted for in July?

2. What are the equivalent units of production for materials and for conversion costs for the month of July?

3. What is the total cost assigned to the 90,000 units that were transferred out of the process in July?

4. What is the total cost of the July 31 inventory? Solution 163 (15–20 min.)

1. Units transferred out 90,000 Work in process, July 31 10,000 Units accounted for 100,000 2. Equivalent units of production: Equivalent Units Physical Units Materials Conversion Costs Transferred out 90,000 90,000 90,000 Work in process, July 31 10,000 10,000 2,000* Total 100,000 100,000 92,000

*(10,000 × .20) 3. Materials cost per unit = $2.70 ($270,000* ÷ 100,000 units) Conversion cost per unit = $1.75 ($161,000** ÷ 92,000 units) Total unit cost $4.45

*($80,000 + $190,000) **($28,000 + $133,000)

Total cost assigned to units transferred out: 90,000 × $4.45 = $400,500 4. Total cost of July 31 inventory: (10,000 × $2.70) + (2,000 × $1.75) = $30,500


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Ex. 164 The Finishing Department of Edwards Manufacturing has the following production and cost data for July: 1. Transferred out, 3,000 units. 2. Started 5,000 units that are 40% completed at July 31. 3. Materials added, $32,000; conversion costs incurred, $12,500. Materials are entered at the beginning of the process. Conversion costs are incurred uniformly during the process. Instructions (a) Compute the equivalent units of production for materials and conversion costs for the month

of July.

(b) Compute unit costs and prepare a cost reconciliation schedule. Solution 164 (15–20 min.)

(a) Equivalent Units Physical Units Materials Conversion Costs Transferred Out 3,000 3,000 3,000 Work in Process, July 31 5,000 5,000 2,000* Total 8,000 8,000 5,000

*(5,000 × .40) (b) Materials cost per unit = $4.00 ($32,000 ÷ 8,000 units) Conversion cost per unit = 2.50 ($12,500 ÷ 5,000 units) $6.50 Cost Reconciliation Schedule Costs accounted for Transferred out (3,000 × $6.50) $19,500 Work in process, July 31 Materials (5,000 × $4.00) $20,000 Conversion costs (2,000 × $2.50) 5,000 $25,000 Total costs $44,500 Ex. 165 Massey Corporation uses a process cost system and the weighted-average cost flow assumption. Production begins in the Fabricating Department where materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. On March 1, the beginning work in process inventory consisted of 20,000 units which were 60% complete and had a cost of $125,000, $95,000 of which were materials costs. During March, the following occurred: Materials added $230,000 Conversion costs incurred $129,000 Units completed and transferred out in March 50,000 Units in ending work in process March 31 (20% complete) 15,000


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Ex. 165 (cont.)

Instructions Answer the following questions and show the computations that support your answers. 1. What are the equivalent units of production for materials and conversion costs in the

Fabricating Department for the month of March? 2. What are the costs assigned to the ending work in process inventory on March 31? 3. What are the costs assigned to units completed and transferred out during March? Solution 165 (15–20 min.)

1. Equivalent units of production: Equivalent Units Physical Units Materials Conversion Costs Transferred out 50,000 50,000 50,000 Work in process, March 31 15,000 15,000 3,000* Total 65,000 65,000 53,000

*(15,000 × .20) 2. Materials unit cost $5 ($325,000* ÷ 65,000 units) Conversion unit cost 3 ($159,000** ÷ 53,000 units) Total unit cost $8

*($95,000 + $230,000) **[($125,000 – $95,000) + $129,000]

Costs assigned to work in process, March 31 Materials costs $75,000 (15,000 units × $5) Conversion costs 9,000 (3,000 units × $3) Total $84,000 3. Costs assigned to units completed and transferred out: 50,000 × $8 = $400,000 Ex. 166 Given below are the production data for Department No. 1 for the first month of operation: Costs charged to Department 1: Materials $12,000 Labor 2,800 Overhead 12,400 During this first month of operations, 4,000 units were started into production; 3,500 units were transferred out; and the remaining 500 units are 100% completed with respect to materials and 60% complete with respect to conversion costs.

Instructions Compute the following: (a) Unit materials cost. (b) Equivalent units of conversion costs. (c) Unit conversion cost. (d) Total cost of 500 units in process at end of month. (e) Total cost of 3,500 units transferred out.


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(a) Unit materials cost: $12,000 ÷ 4,000 equivalent units for materials = $3.00. (b) Equivalent units of conversion costs: 3,500 completed + (60% × 500) = 3,800 equivalent units of conversion costs. (c) Unit conversion cost: ($2,800 + $12,400) ÷ 3,800 equivalent units = $4.00. (d) Total cost of 500 units in work in process Materials, 500 × $3.00 = $1,500 Conversion costs, 300 × $4.00 = 1,200 Total $2,700 (e) Total cost of 3,500 transferred out units: 3,500 × ($3.00 + $4.00) = $24,500. Ex. 167 Grey Building Supplies' total materials costs are $40,000 and total conversion costs are $39,000. Equivalent units of production for materials are 10,000, and 6,500 for conversion costs. Instructions Compute the unit costs for materials, conversion costs, and total manufacturing costs for the month. Solution 167 (6–8 min.)

COSTS Unit Costs Materials Conversion Costs Total Costs incurred $40,000 $39,000 $79,000 Equivalent units 10,000 6,500 Unit costs $4.00 $6.00 $10.00 Ex. 168 Glazer, Inc. has the following production data for June:

Transferred out 50,000 units Ending work in process 6,000 units

The units in work in process are 100% complete for materials and 60% complete for conversion costs. Materials costs are $8 per unit and conversion costs are $11 per unit. Instructions Determine the costs to be assigned to the units transferred out and the units in ending work in process.


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Cost Reconciliation Schedule Costs accounted for Transferred out (50,000 × $19) $ 950,000 Work in process, June 30 Materials (6,000 × $8) $48,000 Conversion costs (3,600* × $11) 39,600 87,600 Total costs $1,037,600 *(6,000 × 60%) Ex. 169 Production costs chargeable to the Sanding Department in July in Magnum Company are $20,000 for materials, $17,000 for labor, and $10,000 for manufacturing overhead. Equivalent units of production are 25,000 for materials and 18,000 for conversion costs.

Instructions Compute the unit costs for materials and conversion costs. Solution 169 (6-8 min.)

COSTS Unit Costs Materials Conversion Costs Total Costs in July $20,000 $27,000 $47,000 Equivalent units 25,000 18,000 Unit costs $0.80 $1.50 $2.30 Ex. 170 Poole Manufacturing Company uses a process cost system. The Molding Department adds materials at the beginning of the process and conversion costs are incurred uniformly throughout the process. Work in process on May 1 was 75% complete and work in process on May 31 was 40% complete. Instructions Complete the Production Cost Report for the Molding Department for the month of May using the above information and the information below.


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Ex. 170 (cont.)

POOLE MANUFACTURING COMPANY Molding Department

Production Cost Report For the Month Ended May 31, 2008

Equivalent Units QUANTITIES Physical Units Materials Conversion Costs Units to be accounted for Work in process, May 1 16,000 Started into production 50,000 Total units 66,000 Units accounted for Transferred out 46,000 Work in process, May 31 20,000 Total units 66,000 COSTS Unit costs Materials Conversion Costs Total Costs in May $198,000 $135,000 $333,000 Equivalent units Unit costs $ $ $ Costs to be accounted for Work in process, May 1 $ 83,000 Started into production 250,000 Total costs $333,000 Cost Reconciliation Schedule Costs accounted for Transferred out $ Work in process, May 31 Materials $ Conversion costs Total costs $333,000


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POOLE MANUFACTURING COMPANY Molding Department

Production Cost Report For the Month Ended May 31, 2008

Equivalent Units QUANTITIES Physical Units Materials Conversion Costs Units to be accounted for Work in process, May 1 16,000 Started into production 50,000 Total units 66,000 Units accounted for Transferred out 46,000 46,000 46,000 Work in process, May 31 20,000 20,000 8,000 (20,000 × 40%) Total units 66,000 66,000 54,000 COSTS Unit costs Materials Conversion Costs Total Costs in May $198,000 $135,000 $333,000 Equivalent units 66,000 54,000 Unit costs $ 3.00 $ 2.50 $ 5.50 Costs to be accounted for Work in process, May 1 $ 83,000 Started into production 250,000 Total costs $333,000 Cost Reconciliation Schedule Costs accounted for Transferred out (46,000 × $5.50) $253,000 Work in process, May 31 Materials (20,000 × $3.00) $ 60,000 Conversion costs (8,000 × $2.50) 20,000 80,000 Total costs $333,000 Ex. 171 Baker Winery manufactures fine wine in two departments, Fermenting and Bottling. In the Fermenting Department, grapes are aged in casks for a period of 30 days. In the Bottling Department, the wine is bottled and then sent to the finished goods warehouse. Labor and overhead are incurred uniformly through both processes. Materials are entered at the beginning of both processes. Cost and production data for the Fermenting Department for December 2008 are presented below:

Cost data Beginning work in process inventory $ 37,000 ($30,000 of materials cost) Materials 390,000 Conversion costs 153,000 Total costs $580,000


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Ex. 171 (cont.)

Production data Beginning work in process (gallons) 10,000 (40%) Gallons started into production 130,000 Ending work in process (gallons) 16,000 (25%) Instructions (a) Compute the equivalent units of production. (b) Determine the unit production costs. (c) Determine the costs to be assigned to units transferred out and ending work in process. Solution 171 (17–25 min.)

(a) Equivalent Units Physical Units Materials Conversion Costs Transferred out 124,000* 124,000 124,000 Ending work in process 16,000 16,000 4,000 (16,000 × .25) Total 140,000 140,000 128,000

*(10,000 + 130,000) – 16,000 (b) Unit Production Costs: Materials $3.00 ($420,000* ÷ 140,000) Conversion costs 1.25 ($160,000** ÷ 128,000) Total unit cost $4.25

*($30,000 + $390,000) **[($37,000 – $30,000) + $153,000] (c) Costs assigned to units transferred out and ending work in process: Total Costs Assigned Transferred out (124,000 × $4.25) $527,000 Ending work in process Materials (16,000 × $3.00) $48,000 Conversion costs (4,000 × $1.25) 5,000 53,000 $580,000 Ex. 172 The Assembly Department of Lynn Company has the following production and cost data at the end of May, 2008.

Production: 35,000 units started into production; 25,000 units transferred out and 10,000 units 100% completed as to materials and 40% completed as to conversion costs.

Manufacturing Costs: Materials added at beginning of process, $70,000; labor, $100,000;

overhead $74,000. Instructions Prepare a production cost report for the month of May.


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LYNN COMPANY Assembly Department—Production Cost Report

For the Month Ended May 31, 2008 Equivalent Units Physical Units Materials Conversion Costs QUANTITIES Units to be accounted for Work in process, May 1 0 Started into production 35,000 Total units 35,000 Units accounted for Transferred out 25,000 25,000 25,000 Work in process, May 31 10,000 10,000 4,000 Total units accounted for 35,000 35,000 29,000 COSTS Unit costs Materials Conversion Costs Total Costs in May $70,000 $174,000 $244,000 Equivalent units 35,000 29,000 Unit costs $2.00 $6.00 $8.00 Costs to be accounted for Work in process, May 1 $ 0 Started into production 244,000 Total costs $244,000 Cost Reconciliation Schedule Costs accounted for Transferred out (25,000 × $8) $200,000 Work in process, May 31 Materials (10,000 × $2) 20,000 Conversion Costs (4,000 × $6) 24,000 44,000 Total costs $244,000 Ex. 173 Bunker Company—Perth Division is a new state of the art production facility that manufactures landing gear for airplanes. The ending September 30th work in process is comprised of labor and overhead and is approximately 60% complete. All materials are assumed to be 100% complete. Total materials costs during the period totaled $910,000. Instructions As the new plant accountant, you are asked to complete the production cost report which appears as follows:


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Ex. 173 (cont.)

BUNKER COMPANY—Perth Division Assimilation Department Production Cost Report

For the Month Ended September 30, 2008 Equivalent Units QUANTITIES Physical Units Materials Conversion Costs Units to be accounted for Work in process, September 1 300 Started into production 1,000 Total units 1,300 Units accounted for Transferred out 900 900 900 Work in process, September 30 400 400 Total units 1,300 1,300 COSTS Unit Costs Materials Conversion Costs Total Costs in September $910,000 $ $1,195,000 Equivalent units Unit costs $ $ 250 $ Costs to be accounted for Work in process, Sept. 1 $ 263,400 Started into production Total costs $ Cost Reconciliation Schedule Costs accounted for Transferred out $ Work in process, September Materials $ Conversion costs 60,000 Total costs $1,195,000


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Solution 173 (10-15 min.)

BUNKER COMPANY—Perth Division Assimilation Department Production Cost Report

For the Month Ended September 30, 2008 Equivalent Units QUANTITIES Physical Units Materials Conversion Costs Units to be accounted for Work in process, September 1 300 Started into production 1,000 Total units 1,300 Units accounted for Transferred out 900 900 900 Work in process, September 30 400 400 240 Total units 1,300 1,300 1,140 COSTS Unit Costs Materials Conversion Costs Total Costs in September $910,000 $285,000 $1,195,000 Equivalent units 1,300 1,140 Unit costs $ 700 $ 250 $950 Costs to be accounted for Work in process, Sept. 1 $ 263,400 Started into production 931,600 Total costs $1,195,000 Cost Reconciliation Schedule Costs accounted for Transferred out (900 × $950) $ 855,000 Work in process, September Materials (400 × $700) $280,000 Conversion costs (240 × $250) 60,000 340,000 Total costs $1,195,000


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COMPLETION STATEMENTS 174. Process cost systems are used to apply costs to similar products that are ____________

in a ____________ fashion.

175. Separate _________________ accounts are maintained for each production department or manufacturing process in a process cost system.

176. In a process cost system, manufacturing costs are summarized in a ________________ report for each department.

177. A primary driver of overhead costs in continuous manufacturing operations is _______________.

178. Equivalent units of production measure the work done during the period, expressed in fully ________________ units.

179. Unit production costs are expressed in terms of _____________ units of production.

180. If a processing department has 27,000 units in process at the beginning of the period, completes and transfers out 80,000 and has 18,000 units in process at the end of the period, then the number of units started into production during the period was ______________ units.

181. A cost reconciliation schedule is prepared to assign total costs to units ______________, and to the units in the _________________ work in process.

182. The production cost report is an internal document that shows production quantity and ______________ for a production department.

183. One of the major benefits of JIT is the elimination of ______________ and ____________ inventory accounts.

184. Under ABC, costs are traced from ________________ to products.

185. ABC seeks to identify the _______________ that measure the activities performed on the product.

186. The primary benefit of activity-based costing is ______________ product costing. Answers to Completion Statements 174. mass-produced, continuous 181. transferred out, ending 175. work in process 182. cost data 176. production cost 183. raw materials, work in process 177. machine hours 184. activities 178. completed 185. cost drivers 179. equivalent 186. more accurate 180. 71,000


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MATCHING 187. Match the items in the two columns below by entering the appropriate code letter in the

space provided. A. Just-in-time processing F. Units transferred out B. Equivalent units of production G. Activity-based costing C. Total units accounted for H. Physical units D. Production cost report I. Unit production costs E. Cost reconciliation schedule J. Total manufacturing cost per unit ____ 1. A summary of both production quantity and cost data for a production department. ____ 2. Shows that the total costs accounted for equal the total costs to be accounted for. ____ 3. Work done during a period expressed in fully completed units. ____ 4. Focuses on the activities performed in manufacturing a specific product. ____ 5. Actual units to be accounted for during a period, irrespective of any work performed. ____ 6. Units transferred out during the period plus units in ending work in process. ____ 7. Unit materials costs plus unit conversion costs. ____ 8. Total units accounted for minus units in ending work in process. ____ 9. Costs expressed in terms of equivalent units of production. ____ 10. Uses a “pull approach” in manufacturing. Answers to Matching 1. D 6. C 2. E 7. J 3. B 8. F 4. G 9. I 5. H 10. A


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SHORT-ANSWER ESSAY QUESTIONS S-A E 188 Why do some companies need a cost accounting system while others do not? What are the determining characteristics or factors that influence the type of cost accounting system that is appropriate for a company? Solution 188 Companies need a cost accounting system only if they need to measure, record, and report the costs of manufacturing products. The two basic types of cost accounting systems are job order costing and process costing. A job order cost system is appropriate when production consists of batches of unique products (jobs). A process cost system is used to apply costs to similar products that are mass-produced in a continuous fashion. S-A E 189 The production cost report summarizes the activities that have taken place in a department or process over a period of time. Identify the major types of information found on a production cost report, and indicate who in the business organization uses this type of information and for what purpose the information is used. Solution 189 The types of information found in a production cost report are units to be accounted for and units accounted for, unit costs, and costs to be accounted for and costs accounted for. Production cost reports provide a basis for evaluating the productivity of a department and so are used by production managers. In addition, the cost data can be used by middle management to assess whether unit costs and total costs are reasonable. When the quantity and cost data are compared with predetermined goals, top management can also ascertain whether current performance is meeting planned objectives. Of course, the information in the report is also used for recordkeeping and income determination by the accounting department. S-A E 190 (Ethics)

Dolly's Dream Homes, Inc. manufactures doll houses in a continuous process. Various customizing features and furnishings are added at the end of the process to create the various models that are sold. The basic design and floor plans of all the houses are identical, however.

During the most recent month, the lumber used in trimming the houses was inadvertently recorded as direct materials. At month end, when the error was discovered, Betty Gray, the accountant, was told by the accounting manager, Donna Foxx, not to bother with correcting the error, because the dollar amount of the error was not "worth it." Betty believes that the dollar amount is not as important as the quality of the reports. She wonders whether she would be committing an unethical act if she were to make the changes anyway, despite her superior's telling her not to.

Required: 1. Who are the stakeholders in this situation? 2. Was it unethical for the company to ask that the error not be corrected? Explain briefly. 3. Would it be unethical for Betty to correct the error? Explain briefly.


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Solution 190 1. The stakeholders include:

• Betty Gray and Donna Foxx • Dolly's Dream Homes • possibly the present customer, or future customers

2. The company was not unethical in asking that the error not be corrected because it was too

small in dollar amount to be considered material. In fact, ignoring small errors improves efficiency.

3. Betty would be failing in the obedience due to her superior if she went ahead and corrected

the error. Whether it would be a serious fault depends upon how easily the error could be corrected. The superior probably would not care, either way, if the dollar amount is small and the correction procedure is minor. However, just letting the matter drop would be better.

S-A E 191 (Communication)

Lawrence Leather Goods recently instituted just-in-time management of its inventories. The accounting department carefully modified all its reports to reflect these changes. Required: Prepare a short memo to production department managers, briefly explaining the primary changes they will see on the production cost report. Solution 191

TO: Managers in all Production Departments

FROM: Accounting

RE: JIT and reporting Congratulations on a job well done, in instituting JIT! You are already realizing many of the benefits of efficient handling of inventory. Another of the benefits you will enjoy is simplified reporting.

In the production cost reports you have been provided, there have been separate categories for materials and conversion costs. In some cases, there were several kinds of materials. JIT has allowed us to simplify this, and now there is only one column, for Raw and In Process.

You may remember that each category was also adjusted for beginning and ending inventories. Since we no longer will have routine levels of inventory, we will be able to simplify this part of the reporting as well. We will now report only this month's use of materials, for example, and only the costs added to work in process costs this month, and only finished goods completed this period. If adjustments are needed for ending inventories, we will make them at the end of the year as a single adjustment.

Please contact the accounting department if you have further questions. (signed)