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EACost Accounting: A Managerial Emphasis, 16e, Global Edition (Horngren)Chapter 17 Process Costing17.1 Objective 17.11) Which of the following is the costing system used for mass produced like or similar units of products?A) inventory-costing systemsB) job-costing systemsC) process-costing systemsD) weighted-average costing systemsAnswer: CDiff: 1Objective: 1AACSB: Analytical thinking2) Which of the following companies is most likely to use process costing?A) Crimpson Color, a company selling customized garments for niche customersB) Effel & Associates, a consulting firm providing various audit and related servicesC) Dental Bright Inc., a company manufacturing and selling toothpaste on a large scaleD) Grimpy Corp., a company manufacturing furniture for customers as per their requirementsAnswer: CDiff: 2Objective: 1AACSB: Analytical thinking3) Process costing would most likely be used to assign costs to products produced by which of thesecompanies?A) Jones Flour MillB) Riley Automobile DealerC) Big Time Yacht CorporationD) Sullivan and Murphy Law Firm LLCAnswer: ADiff: 2Objective: 1AACSB: Analytical thinking4) Which of the following statements is true?A) In a job-costing system, average production cost is calculated for all units produced.B) In a process-costing system, each unit uses approximately the same amount of resources.C) In a job-costing system, overheads are allocated to all units equally.D) In a process-costing system, individual jobs use different quantities of production resources.Answer: BDiff: 2Objective: 1AACSB: Analytical thinking1Copyright 2018 Pearson Education, Ltd.

EA5) Which of the following most accurately describes the contrast between process and job costing?A) In process costing, they include all the factors of production but job costing includes only materialsand laborB) job costing includes materials, labor and overhead while process costing only considers conversioncostsC) the main difference is the extent of averaging used to compute the unit costsD) job costing measures the variable cost of identical jobs while process costing measures the cost ofidentical products using average units costs of materials and conversion costs, some of which are fixedcostsAnswer: CDiff: 3Objective: 1AACSB: Analytical thinking6) Which if the following are not conversion costs?A) the cost of direct laborers who assemble the parts of an automobileB) the cost of tires on an automobileC) the cost of depreciation on an automobile assembly plantD) the cost of electricity to run the tools in the automobile assembly plantAnswer: BDiff: 2Objective: 1AACSB: Analytical thinking7) Which of the following statements best describes conversion costs?A) Conversion costs are all manufacturing and nonmanufacturing costs.B) Conversion costs are all manufacturing costs other than direct materials costs.C) Conversion costs are all nonmanufacturing costs including marketing costs.D) Conversion costs are all nonmanufacturing costs other than fixed selling and distribution costs.Answer: BDiff: 2Objective: 1AACSB: Analytical thinking8) Job-costing systems separate costs into cost categories according to when costs are introduced into theprocess of manufacture.Answer: FALSEExplanation: Process-costing systems separate costs into cost categories according to when costs areintroduced into the process of manufacture.Diff: 2Objective: 1AACSB: Analytical thinking9) The principal difference between process costing and job costing is that in job costing an averagingprocess is used to compute the unit costs of products or services.Answer: FALSEExplanation: The averaging process is used to calculate unit costs in process costing.Diff: 2Objective: 1AACSB: Analytical thinking2Copyright 2018 Pearson Education, Ltd.

EA10) If manufacturing labor costs are added to the process at a different time compared to other conversioncosts, an additional cost category—direct manufacturing labor costs—would be needed to assign thesecosts to products.Answer: TRUEDiff: 2Objective: 1AACSB: Analytical thinking11) Estimating the degree of completion for the calculation of equivalent units is usually easier forconversion costs than it is for direct materials.Answer: FALSEExplanation: Estimating the degree of completion is easier for the calculation of direct materials sincedirect materials can be measured more easily than conversion costs.Diff: 2Objective: 1AACSB: Analytical thinking12) If two different direct materials—such as the circuit board and microphone—are added to the processat different times, a company will need two different direct-materials categories to assign direct materialscost.Answer: TRUEDiff: 2Objective: 1AACSB: Analytical thinking13) Conversion costs include direct materials and direct labor but excludes all other manufacturing andnon-manufacturing costs.Answer: FALSEExplanation: Conversion costs are all manufacturing costs other than direct material costs, includingmanufacturing labor, energy, plant depreciation, and so on.Diff: 2Objective: 1AACSB: Analytical thinking14) Job-costing and process-costing are mutually exclusive, hence a hybrid costing system that combineselements of both job and process costing cannot be used.Answer: FALSEExplanation: Job-costing and process-costing are not mutually exclusive. Many companies use a hybridcosting system combining elements of both job and process costing.Diff: 3Objective: 1AACSB: Analytical thinking3Copyright 2018 Pearson Education, Ltd.

EA15) There are basically two distinct methods of calculating product costs.Required:Compare and contrast the two methods.Answer: In job costing the job or product is a distinctly identifiable product or service. Each job requires(or can require) vastly different amounts of input. Job costing is usually associated with products that areunique or heterogeneous. Thus, each job requires different amounts of input, and they can require vastlydifferent amount of costs to finish. Job-costed products tend to be high cost per unit. Thus the costs ofeach (unique) job are important for planning, pricing, and profitability.In process costing, the jobs or products are similar (or homogeneous). Each job usually requires the sameinputs, and results in approximately the same costs per unit. The cost of a product or service is obtainedby assigning total costs to many identical or similar units. We assume each unit receives the same amountof direct material costs, direct manufacturing labor costs, and indirect manufacturing costs. Unit costs arethen computed by dividing total costs by the number of units.The principal difference between process costing and job costing is the extent of averaging used tocompute unit costs. As noted above in job costing, individual jobs use different quantities of productionresources; whereas in process costing, we assume that each job uses approximately the same amount ofresources.Diff: 2Objective: 1AACSB: Analytical thinking16) Why do we need to accumulate and calculate unit costs in process costing (and also job costing)?Answer: We need to accumulate unit costs to:1. Budget (planning)2. Price3. Account for the costs1. Budgeting — To operate a successful business, we should prepare budgets, review the results, andmake decisions as to how well our business is doing. Our business has formulated plans for the future.The resources we need for the future (materials, conversion costs, facilities, etc.) will depend on ourestimate of the resources we need to accomplish these goals. An important part of these estimates is theunit costs of the products we plan to produce. These unit costs will tell us how many dollars we mustacquire to accomplish our plans.2. Price — In order to be a profitable business, we must sell our product at a price in excess of what itcosts us to produce the product. Essential for the pricing decision is the cost per unit. We will also learnwhether we can sell a product at a profit.3. Accounting — During the course of the accounting period, we will be accumulating costs. At the endof the accounting period, we must allocate this pool of costs between the units that were transferred outand the goods in ending inventory. Unit costs are essential for this purpose.Diff: 1Objective: 1AACSB: Analytical thinking4Copyright 2018 Pearson Education, Ltd.

EA17) The president of the Gulf Coast Refining Corporation wants to know why his golfing partner, who isthe chief financial officer of a large construction company, calculates his costs by the job, but his owncorporation calculates costs by large units rather than by individual barrel of oil.Answer: Oil refineries use process costing to calculate their costs per barrel of oil. Each barrel of oil isessentially the same. Thus, costs are accumulated for all the oil processed during a given time period, andthe total costs are divided by the barrels of oil produced. An average cost is calculated. Since the costs toactually produce the oil are essentially the same, accuracy is not lost by this process.The construction company calculates costs by each job, since each job can require substantially differentamounts of the various inputs. Thus, the cost of each job could be radically different from the other jobs.Diff: 1Objective: 1AACSB: Analytical thinking18) Describe the differences between process costing and job costing. Discuss some typical productswhich would be more likely to use process costing as compared to some which would be more likely touse job costing.Answer: When products are unique, job costing is a more appropriate method to use in collecting costsand making decisions regarding price levels,. In a job-costing system, individual jobs require differinglevels of resources. Each job is treated separately and the resources used to complete the job have to becalculated separately. Construction jobs are most likely to use job costing because of their uniquespecifications.In a process-costing system, the units produced as output are very similar to one another. As a result, themeans by which the raw material is converted to a finished product is common among all of theproducts. This allows the conversion costs to be summed up and divided by the total number of units foran accurate conversion cost on a unit by unit basis. Some typical types of products which are likely to useprocess costing are oil refineries, ice cream, various food preparation industries, etc. This is because theraw material is processed in a similar manner for all of the units produced.Diff: 1Objective: 1AACSB: Analytical thinking5Copyright 2018 Pearson Education, Ltd.

EA17.2 Objective 17.21) In a process-costing system average unit costs are calculated .A) by dividing total costs in a given accounting period by total units produced in that periodB) by multiplying total costs in a given accounting period by total units produced in that periodC) by dividing total costs in a given accounting period by units started in that periodD) by multiplying total costs in a given accounting period by units started in that periodAnswer: ADiff: 1Objective: 2AACSB: Analytical thinking2) Vital Industries manufactured 2400 units of its product Huge in the month of April. It incurred a totalcost of 132,000 during the month. Out of this 132,000, 45,700 comprised of direct materials used in theproduct and the rest was incurred because of the conversion cost involved in the process. Ryan had noopening or closing inventory. What will be the total cost per unit of the product, assuming conversioncosts contained 10,000 of indirect labor?A) 55B) 50C) 39D) 35Answer: AExplanation: Total cost per unit 132,000 / 2400 55Diff: 3Objective: 2AACSB: Application of knowledge3) Serile Pharma places 800 units in production during the month of January. All 800 units are completedduring the month. It had no opening inventory. Direct material costs added during January was 74,000and conversion costs added during January was 8400. What is the total cost per unit of the productproduced during January?A) 103B) 10C) 80D) 93Answer: AExplanation: Total cost per unit [( 74,000 8400) / 800] 103Diff: 3Objective: 2AACSB: Application of knowledge4) When a company has no opening or ending inventory during the month, the cost per unit is calculatedby dividing the total costs incurred in the period by the total units produced during the period.Answer: TRUEDiff: 2Objective: 2AACSB: Analytical thinking6Copyright 2018 Pearson Education, Ltd.

EA17.3 Objective 17.31) The purpose of the equivalent-unit computation is to .A) convert completed units into the amount of partially completed output units that could be made withthat quantity of inputB) use a common metric to estimate the amount of work done on units in a periodC) predict the future production capabilities of the organizationD) satisfy the GAAP requirements which requires all partially completed goods to be reported asequivalent-unitsAnswer: BDiff: 2Objective: 3AACSB: Analytical thinking2) Which of the following is true regarding estimates of completion of units in a process costing system?A) estimating the degree of completion with regards to conversion costs is more of a science than an artB) estimating the degree of completion with regards to conversion costs is usually easier and moreaccurate than estimating the degree of completion with regards to direct materialsC) estimating the degree of completion with regards to direct materials is usually easier and moreaccurate than estimating the degree of completion with regards to conversion costsD) when estimating degree of completion, the degree of completion with regards to conversion costs isusually a portion similar to the degree of completion with regards to direct materialsAnswer: CDiff: 2Objective: 3AACSB: Analytical thinking3) When a Bakery transfers goods from the Mixing Department to the Baking Department, the accountingentry would be .A) Debit: Work in Process — Mixing DepartmentCredit: Work in Process — Baking DepartmentB) Debit: Work in Process — Baking DepartmentCredit: Accounts PayableC) Debt: Work in Process — Baking DepartmentCredit: Work in Process — Mixing DepartmentD) Debt: Work in Process — Mixing DepartmentCredit: Accounts PayableAnswer: CDiff: 2Objective: 3AACSB: Analytical thinking7Copyright 2018 Pearson Education, Ltd.

EA4) Charlie Chairs Inc., manufactures plastic moldings for car seats. Its costing system utilizes two costcategories, direct materials and conversion costs. Each product must pass through Department A andDepartment B. Direct materials are added at the beginning of production. Conversion costs are allocatedevenly throughout production.Data for Department A for February 2017 are:Work in process, beginning inventory, 30% convertedUnits started during FebruaryWork in process, ending inventoryCosts for Department A for February 2017 are:Work in process, beginning inventory:Direct materialsConversion costsDirect materials costs added during FebruaryConversion costs added during February200 units1000 units240 units 150,000 208,000 606,000 431,000What is the unit cost per equivalent unit of beginning inventory in Department A? (Round the finalanswer to the nearest whole dollar.)A) 750B) 2717C) 3735D) 4217Answer: DExplanation: Direct materials per unit ( 150,000 / 200 units) 750Conversion costs per unit ( 208,000 / (200 0.3) units)3467Total costs per unit 4217Diff: 2Objective: 3AACSB: Application of knowledge8Copyright 2018 Pearson Education, Ltd.

EA5) Charlie Chairs Inc., manufactures plastic moldings for car seats. Its costing system utilizes two costcategories, direct materials and conversion costs. Each product must pass through Department A andDepartment B. Direct materials are added at the beginning of production. Conversion costs are allocatedevenly throughout production.Data for Department A for February 2017 are:Work in process, beginning inventory, 30% convertedUnits started during FebruaryWork in process, ending inventory200 units800 units240 unitsCosts for Department A for February 2017 are:Work in process, beginning inventory:Direct materialsConversion costsDirect materials costs added during FebruaryConversion costs added during February 150,000 210,000 603,000 429,000How many units were completed and transferred out of Department A during February?A) 440 unitsB) 800 unitsC) 760 unitsD) 1000 unitsAnswer: CExplanation: Number of units completed and transferred out 200 units 800 units - 240 units 760unitsDiff: 2Objective: 3AACSB: Application of knowledge9Copyright 2018 Pearson Education, Ltd.

EA6) Dessa Cabinetry, Inc., manufactures standard sized modular cabinet units for kitchens and otherapplications within the home. Its costing system utilizes two cost categories, direct materials andconversion costs. Each product must pass through the rough cut department and the finish department.Direct materials are added at the beginning of production. Conversion costs are allocated evenlythroughout production.Data for Finishing Department for March 2017 are:Work in process, beginning inventory, 25% convertedUnits started during FebruaryWork in process, ending inventoryCosts for Finishing Department for March 2017 are:Work in process, beginning inventory:Direct materialsConversion costsDirect materials costs added during FebruaryConversion costs added during February850 units1200 units680 units 204,000 210,000 429,000 140,000What is the unit cost per equivalent unit of the beginning inventory in the Finishing Department? (Roundthe final answer to the nearest whole dollar.)A) 240B) 300C) 988D) 1228Answer: DDiff: 2Objective: 3AACSB: Application of knowledge10Copyright 2018 Pearson Education, Ltd.

EA7) Dessa Cabinetry, Inc., manufactures standard sized modular cabinet units for kitchens and otherapplications within the home. Its costing system utilizes two cost categories, direct materials andconversion costs. Each product must pass through the rough cut department and the finish department.Direct materials are added at the beginning of production. Conversion costs are allocated evenlythroughout production.Data for Finishing Department for March 2017 are:Work in process, beginning inventory, 20% convertedUnits started during FebruaryWork in process, ending inventoryCosts for Finishing Department for March 2017 are:Work in process, beginning inventory:Direct materialsConversion costsDirect materials costs added during FebruaryConversion costs added during February1000 units1800 units500 units 200,000 204,000 428,000 141,000How many units were completed and transferred out of the Finishing Department during March?A) 1000 unitsB) 1800 unitsC) 2300 unitsD) 2660 unitsAnswer: CExplanation: Number of units completed and transferred out 1000 units 1800 units - 500 units 2300unitsDiff: 2Objective: 3AACSB: Application of knowledge8) Which of the following entries is used to record direct materials purchased and used in productionduring a month in the Assembly department, before transferring the goods to Testing department?A) Debit: Work in Process—AssemblyCredit: Wages Payable ControlB) Debit: Accounts Payable ControlCredit: Work in Process—AssemblyC) Debit: Work in Process—AssemblyCredit: Accounts Payable ControlD) Debit: Accounts Payable ControlCredit: CashAnswer: CDiff: 2Objective: 3AACSB: Analytical thinking11Copyright 2018 Pearson Education, Ltd.

EA9) Stefan Ceramics is in the business of selling ceramic vases. It has two departments – molding andfinishing. Molding department purchases tungsten carbide and produces ceramic vases out of it. CeramicVases are then transferred to finishing department, which designs it as per the requirement of thecustomers.During the month of July, molding department purchased 720 kgs of tungsten carbide at 280 per kg. Itstarted manufacture of 4200 vases and completed and transferred 3800 vases during the month. It has 400vases in the process at the end of the month. It