D1 Process Costing

8/11/2019 D1 Process Costing

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(. The last step in a process-costing system is to determine the e$uivalent units for theperiod.

Answer: alse Difficulty: 2 Objective: 2Terms to Learn: process costing

The last step in a process-costing system is to assign the costs incurred to completedunits and to units in ending wor& in process.

'. E$uivalent units are calculated separately for each input.

Answer: True Difficulty: 2 Objective: !Terms to Learn: e$uivalent units

). *n a process-costing system+ there is always a separate ,or&-in-"rocess account foreach different process.

Answer: True Difficulty: 2 Objective: !Terms to Learn: process costing

. "rocess-costing journal entries and job-costing journal entries are similar withrespect to direct materials and conversion costs.

Answer: True Difficulty: 2 Objective: #Terms to Learn: process-costing system

1. The accounting /for a ba&ery0 entry to record the transfer of rolls from the mixingdepartment to the ba&ing department is:

,or& in "rocess-ixing epartment,or& in "rocess-3a&ing epartment

Answer: alse Difficulty: 2 Objective: #Terms to Learn: process-costing systemThe correct accounting entry is the opposite of the entry shown here.

11. The weighted-average process costing method does not distinguish between unitsstarted in the previous period but completed during the current period and unitsstarted and completed during the current period.

Answer: True Difficulty: 2 Objective: %Terms to Learn: weighted-average process-costing method

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12. E$uivalent units in beginning wor& in process 4 e$uivalent units of wor& done inthe current period e$uals e$uivalent units completed and transferred out in thecurrent period minus e$uivalent units in ending wor& in process.

Answer: alse Difficulty: 2 Objective: %

Terms to Learn: e$uivalent unitsThe second part of the e$uation should be: e$uivalent units completed andtransferred out in the current period "567 e$uivalent units in ending wor& inprocess.

1!. *n the weighted-average costing method+ the costs of direct materials in beginninginventory are not included in the cost per unit calculation since direct materials arealmost always added at the start of the production process.

Answer: alse Difficulty: 2 Objective: %Terms to Learn: weighted-average process-costing method

The costs of the direct materials are included in the cost per unit calculation.

1#. The weighted-average cost is the total of all costs entering the ,or&-in-"rocessaccount /whether they are from beginning wor&-in-process or from wor& startedduring the current period0 divided by total e$uivalent units of wor& done to date.

Answer: True Difficulty: 2 Objective: %Terms to Learn: weighted-average process-costing method

1%. The e$uivalent units are not needed in a weighted-average system+ because all costsare just averaged.

Answer: alse Difficulty: 2 Objective: %Terms to Learn: e$uivalent units+ weighted-average process-costing methodThe e$uivalent units are needed in a weighted-average system+ even though all costsare averaged.

1(. The cost of units completed can differ materially between the weighted average andthe *8 methods of process costing.

Answer: True Difficulty: 2 Objective: %+ (Terms to Learn: weighted-average process-costing method+ first-in+ first-out/*80 process-costing method

1'. The first-in+ first-out /*80 process costing method assigns the cost of the previousaccounting period9s e$uivalent units in beginning wor&-in-process inventory to thefirst units completed and transferred out of the process.

Answer: True Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method

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1). distinctive feature of the *8 process costing method is that the wor& done onbeginning inventory before the current period is averaged with wor& done in thecurrent period.

Answer: alse Difficulty: 2 Objective: (

Terms to Learn: first-in+ first-out /*80 process-costing method distinctive feature of the *8 process costing method is that the wor& done onbeginning inventory before the current period is &ept separate from wor& done inthe current period.

1. The *8 process costing method merges the wor& and the costs of the beginninginventory with the wor& and the costs done during the current period.

Answer: alse Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method*8 only includes the wor& done during the current period.

2. The first-in+ first-out process-costing method assumes that units in beginninginventory are completed during the current accounting period.

Answer: True Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method

21. "rocess-costing *8 is usually applied to both the units entering a department andthe units leaving a department.

Answer: alse Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method*8 is only applied to the goods transferred out.

22. ctivity-based costing has more applicability in a process-costing system than in ajob-costing environment.

Answer: alse Difficulty: 2 Objective: (Terms to Learn: process-costing systemctivity-based costing is less applicable to process costing because the process-costing units all go through similar processes.

2!. major advantage of the weighted-average process costing is that it providesmanagers with information about changes in the costs per unit from one period tothe next.

Answer: alse Difficulty: 2 Objective: (Terms to Learn: weighted-average process-costing methodThis is an advantage of *8+ not the weighted-average method.

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2#. 7tandard costing is extremely useful when uni$ue+ high cost products are produced+as compared to the production of multiple products.

Answer: alse Difficulty: 2 Objective: 'Terms to Learn: process-costing system

;ob costing is especially useful in this situation.

2%. 6nder standard costing the cost per e$uivalent-unit calculation is more difficult thanin either weighted average or *8.

Answer: alse Difficulty: 2 Objective: 'Terms to Learn: e$uivalent units+ first-in+ first-out /*80 process-costingmethod+ weighted-average process-costing methodThe cost per e$uivalent-unit calculation is simpler because the cost is assumedconstant during the accounting period.

2(. 7tandard costing is not possible in a firm that uses process costing.

Answer: alse Difficulty: 2 Objective: 'Terms to Learn: process costing7tandard costing is possible in a firm that uses process costing.

2'. Transferred-out costs are incurred in previous departments that are carried forwardas the productybrid costing systems are developed to cost products that are produced in astandardi=ed environment+ but which are often customi=ed to meet the needs ofsome of its customers.

Answer: True Difficulty: 2 Objective: )Terms to Learn: hybrid-costing system

!. n operation-costing system uses wor& orders that specify needed direct materialsand step-by-step operations.

Answer: True Difficulty: 2 Objective: Terms to Learn: operation-costing system

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MULTIPLE CHOICE

!1. ?osting systems that are used for the costing of li&e or similar units of products inmass production are called:a. inventory-costing systems

b. job-costing systemsc. process-costing systemsd. weighted-average costing systems

Answer: c Difficulty: 1 Objective: 1Terms to Learn: process-costing system

!2. ,hich of the following manufactured products would not use process costing@a. '(' jet aircraftb. 1-inch television setsc. ?ustom built houses

d. 3oth a and c are correct.

Answer: d Difficulty: 2 Objective: 1Terms to Learn: process-costing system

!!. "rocess costing should be used to assign costs to products when the:a. units produced are similarb. units produced are dissimilarc. calculation of unit costs re$uires the averaging of unit costs over all units

producedd. Either a or c are correct.


!#. ,hich one of the following statements is true@a. *n a job-costing system+ individual jobs use different $uantities of production

resources.b. *n a process-costing system each unit uses approximately the same amount of

resources.c. n averaging process is used to calculate unit costs in a job-costing system.d. 3oth a and b are correct.


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!%. ?onversion costs:a. include all the factors of productionb. include direct materialsc. in process costing are usually considered to be added evenly throughout the

production process

d. 3oth b and c are correct.

Answer: c Difficulty: 2 Objective: 1Terms to Learn: process-costing system

!(. n example of a business which would have no beginning or ending inventory butwhich could use process costing to compute unit costs would be a:a. clothing manufacturerb. corporation whose sole business activity is processing the customer deposits

of several ban&sc. manufacturer of custom houses

d. manufacturer of large TAsAnswer: b Difficulty: 2 Objective: 1Terms to Learn: process-costing system

!'. ,hich of the following statement/s0 concerning conversion costs is correct@a. Estimating the degree of completion of direct materials in a partially

completed unit is usually easier to calculate than estimating the degree ofcompletion for conversion costs.

b. The calculation of e$uivalent units is relatively easy for the textile industry.c. Estimates are usually not considered acceptable.d. 3oth /b0 and /c0 are correct.

Answer: a Difficulty: 2 Objective: 1Terms to Learn: process-costing system+ e$uivalent units

!). The purpose of the e$uivalent-unit computation is to:a. convert completed units into the amount of partially completed output units

that could be made with that $uantity of input.b. assist the business in determining ending inventory.c. convert partially completed units into the amount of completed output units

that could be made with that $uantity of input.d. 3oth b and c are correct.

Answer: c Difficulty: 2 Objective: !Terms to Learn: e$uivalent units

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!. *n a process-costing system+ the calculation of e$uivalent units is used forcalculating:a. the dollar amount of ending inventoryb. the dollar amount of the cost of goods sold for the accounting periodc. the dollar cost of a particular job

d. 3oth a and b are correct.Answer: d Difficulty: 1 Objective: !Terms to Learn: e$uivalent units

#. ,hen a ba&ery transfers goods from the 3a&ing epartment to the ecoratingepartment+ the accounting entry isa. ,or& in "rocess B 3a&ing epartment

,or& in "rocess B ecorating epartmentb. ,or& in "rocess B ecorating epartment

ccounts "ayablec. ,or& in "rocess B ecorating epartment

,or& in "rocess B 3a&ing epartmentd. ,or& in "rocess B 3a&ing epartment

ccounts "ayable

Answer: c Difficulty: 2 Objective: #Terms to Learn: process-costing system

T>E 8558,*CD *C8T*8C ""5*E7 T8 F6E7T*8C7 #1 C #2:*njection olding+ *nc.+ manufactures plastic moldings for car seats. *ts costing systemutili=es two cost categories+ direct materials and conversion costs. Each product mustpass through epartment and epartment 3. irect materials are added at thebeginning of production. ?onversion costs are allocated evenly throughout production.

Data for Department A for February 20X5 are:,or& in process+ beginning inventory+ #G converted 2 units6nits started during ebruary ( units,or& in process+ ending inventory 1 units

Costs for Department A for February 20X5 are:,or& in process+ beginning inventory:

irect materials H1+?onversion costs H1+

irect materials costs added during ebruary H1++?onversion costs added during ebruary H1+2%+

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#1 ,hat is the unit cost per e$uivalent unit in epartment @a. H1+b. H1+'%c. H!+%d. H!+'%

Answer: b Difficulty: 2 Objective: !Terms to Learn: e$uivalent unitsirect materials per unit /H1+I2 units0 H %?onversion costs per unit /H1+I/2 x .#0 units0 1+2%Total costs per unit H1+'%

#2. >ow many units were completed and transferred out of epartment duringebruary@a. 1 unitsb. ( units

c. ' unitsd. ) units

Answer: c Difficulty: 2 Objective: !Terms to Learn: e$uivalent units2 units 4 ( units J 1 units K ' units

#!. *njection olding+ *nc.+ manufactures plastic moldings for car seats. *ts costingsystem uses two cost categories+ direct materials and conversion costs. Each productmust pass through epartment and epartment 3. irect materials are added atthe beginning of production. ?onversion costs are allocated evenly throughoutproduction.

Data for Department A for February 20X5 are:,or& in process+ beginning inventory+ #G converted 2 units6nits started during ebruary ( units,or& in process+ ending inventory: 1 units

!G complete as to conversion costs1G complete as to materials

Costs for te Department A for February 20X5 are:,or& in process+ beginning inventory:

irect materials H1+?onversion costs H1+

irect materials costs added during ebruary H1++?onversion costs added during ebruary H1+2%+

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,hat were the e$uivalent units of direct materials and conversion costs+respectively+ at the end of ebruary@ ssume *njection olding+ *nc.+ uses theweighted-average process costing method.a. )L '!b. )L )

c. )L 'd. (L %

Answer: a Difficulty: 2 Objective: !Terms to Learn: e$uivalent units

E$uivalent units of direct materials under weighted average K units completed 4e$uivalent units in ending inventory K ' 4 1?onversion costs K ' 4 /1 x !G0 K '!

##. The weighted-average process-costing method calculates the e$uivalent units by:

a. considering only the wor& done during the current periodb. the units started during the current period minus the units in ending inventoryc. the units started during the current period plus the units in ending inventoryd. the e$uivalent units completed during the current period plus the e$uivalent

units in ending inventory

Answer: d Difficulty: 2 Objective: %Terms to Learn: weighted-average process-costing method+ e$uivalent units

#%. *n the computation of the cost per e$uivalent unit+ the weighted-average method ofprocess costing considers all the costs:a. entering wor& in process from the units in beginning inventory plus the costs

for the wor& completed during the current accounting periodb. costs that have entered wor& in process from the units started or transferred in

during the current accounting periodc. that have entered wor& in process during the current accounting period from

the units started or transferred in minus the costs associated with endinginventory

d. that have entered wor& in process during the current accounting period fromthe units started or transferred in plus the costs associated with endinginventory

Answer: a Difficulty: ! Objective: %Terms to Learn: e$uivalent units

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#(. *f there was no beginning wor& in process and no ending wor& in process under theweighted-average process costing method+ the number of e$uivalent units for directmaterials+ if direct materials were added at the start of the process+ would be:a. e$ual to the units started or transferred inb. e$ual to the units completed

c. less than the units completedd. 3oth a and b are correct.

Answer: d Difficulty: ! Objective: %Terms to Learn: weighted-average process-costing method+ e$uivalent units

#'. 6nder the weighted-average method+ the stage of completion of beginning wor& inprocess:a. is relevant in determining the e$uivalent unitsb. must be combined with the wor& done during the current period to determine

the e$uivalent units

c. is irrelevant in determining the e$uivalent-unit calculationd. can almost always be determined with a high degree of precision

Answer: c Difficulty: 2 Objective: %Terms to Learn: weighted-average process-costing method+ e$uivalent units

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T>E 8558,*CD *C8T*8C ""5*E7 T8 F6E7T*8C7 #) T>86D> %!:The 7wiss ?loc& 7hop manufactures cloc&s on a highly automated assembly line. *tscosting system uses two cost categories+ direct materials and conversion costs. Eachproduct must pass through the ssembly epartment and the Testing epartment. irectmaterials are added at the beginning of the production process. ?onversion costs are

allocated evenly throughout production. 7wiss ?loc& 7hop uses weighted-averagecosting.

Data for te Assembly Department for !une 20X5 are:,or& in process+ beginning inventory 2% units

irect materials /1G complete0?onversion costs /%G complete0

6nits started during ;une ) units,or& in process+ ending inventory: 1% units

irect materials /1G complete0

?onversion costs /'%G complete0

Costs for !une 20X5:,or& in process+ beginning inventory:

irect materials H1)+?onversion costs H2'+

irect materials costs added during ;une H1++?onversion costs added during ;une H1++

#). ,hat are the e$uivalent units for direct materials and conversion costs+ respectively+for ;une@a. 1+2.% unitsL 1+1(.(# unitsb. 1+% unitsL 1+12.% unitsc. 1+% unitsL 1+% unitsd. (2 unitsL units

Answer: b Difficulty: 2 Objective: %Terms to Learn: weighted-average process-costing method+ e$uivalent units

irect materials ?onversion costs?ompleted and transferred out .,or& in process+ ending 1% 112.%Total e$uivalent units 1+% 1+12.%

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%2. ,hat amount of direct materials costs is assigned to the ending ,or&-in-"rocessaccount for ;une@a. H1()+%'1.%b. H2)!+%%2.%c. H2%+%!

d. H2!(+)%

Answer: a Difficulty: ! Objective: %Terms to Learn: weighted-average process-costing method/H1++ K H1)+0I1+%K H1+12!.)1 cost per e$uivalent unitH1+12# x 1%K H1()+%'1.%/see calculations for answer to $uestion #)0

%!. ,hat amount of conversion costs are assigned to the ending ,or&-in-"rocessaccount for ;une@a. H11+%(.(#

b. H1#1+111.c. H12(+#%.%d. H1))+1#).

Answer: b Difficulty: ! Objective: %Terms to Learn: weighted-average process-costing method/1% units x '%G0 x H1+2%#.!2 K H1#1+111/see calculations for answer to $uestion %10

T>E 8558,*CD *C8T*8C ""5*E7 T8 F6E7T*8C7 %# T>86D> %':The est-a-5ot ?hair ?ompany manufacturers a standard recliner. uring ebruary+ thefirm


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%%. ,hat were the e$uivalent units for materials for ebruary@a. %+ chairsb. )%+ chairsc. )+ chairsd. '%+ chairs

Answer: a Difficulty: ! Objective: %Terms to Learn: weighted-average process-costing method+ e$uivalent units1+ 4 )%+ K %+

%(. ,hat were the e$uivalent units for conversion costs for ebruary if the beginninginventory was 'G complete as to conversion costs and the ending inventory was#G complete as to conversion costs@a. )+b. '%+c. )%+

d. %+

Answer: a Difficulty: ! Objective: %Terms to Learn: weighted-average process-costing method+ e$uivalent units)%+ 4 /.# x 1+0 K )+

%'. 8f the '%+ units est-a-5ot started during ebruary+ how many were finishedduring the month@a. '%+b. )%+c. (%+d. %+

Answer: c Difficulty: ! Objective: %Terms to Learn: weighted-average process-costing method'%+ J 1+ K (%+

%). ,eighty 7teel processes a single type of steel. or the current period the followinginformation is given:

Units Material Costs Conversion Costs

3eginning *nventory !+ H#+% H%+#

7tarted uring the ?urrent "eriod 2+ !2+ ')+2Ending *nventory 2+%

ll materials are added at the beginning of the production process. The beginninginventory was #G complete as to conversion+ while the ending inventory was !Gcompleted for conversion purposes.

,eighty uses the weighted-average costing method.

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,hat is the total cost assigned to the units completed and transferred this period@a. H1'+1b. H1+##c. H11!+1(

d. H12+1

Answer: c Difficulty: ! Objective: %Terms to Learn: weighted-average process-costing methodE6 /materials0 K 2+% 4 /2+% x 1G0 K 2!+./H#+% 4 H!2+0 I 2!+ K H1.% per unit for materialE6 /conversion0 K 2+% 4 /2+% x !G0 K 21+2%./H%+# 4 H')+20 I 21+2% K H!.! per unit for conversion.Total cost per unit K H1.% 4 H!.! K H%.%2?ostoftransferred units K 2+% x H%.%2 K H11!+1(

%. distinct feature of the *8 process-costing method is that the:a. wor& done on beginning inventory before the current period is blended withthe wor& done during the current period in the calculation of e$uivalent units

b. wor& done on beginning inventory before the current period is &ept separatefrom the wor& done during the current period in the calculation of e$uivalentunits

c. wor& done on ending inventory is &ept separate from the wor& done during thecurrent period in the calculation of e$uivalent units and is usually not includedin the calculation

d. *8 process-costing method is only minimally different from the weighted-average process-costing method

Answer: b Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method

(. 8n occasion+ the *8 and the weighted-average methods of process costing willresult in the same dollar amount of costs being transferred to the next department.,hich of the following scenarios would have that result@a. when the beginning and ending inventories are e$ual in terms of unit numbersb. when the beginning and ending inventories are e$ual in terms of the

percentage of completion for both direct materials+ and conversion costsc. when there is no ending inventoryd. when there is no beginning inventory

Answer: d Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method+ weighted-average process-costing method

(1. n assumption of the *8 process-costing method is that:

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a. the units in beginning inventory are not necessarily assumed to be completedby the end of the period

b. the units in beginning inventory are assumed to be completed firstc. ending inventory will always be completed in the next accounting periodd. no calculation of conversion costs is possible

Answer: b Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method

T>E 8558,*CD *C8T*8C ""5*E7 T8 F6E7T*8C7 (2 T>86D> (%:The est-a-5ot chair company manufacturers a standard recliner. uring ebruary+ thefirmow many of the units that were started during ebruary were completed duringebruary@a. )%+b. )+c. '%+d. (%+

Answer: d Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method'%+ J 1+ K (%+

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(!. ,hat were the e$uivalent units for conversion costs during ebruary@a. )!+%b. )%+c. '%+d. '+%

Answer: a Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units/1%+ x .'0 4 (%+ 4 /1+ x .)0 K )!+%

(#. ,hat is the amount of direct materials cost assigned to ending wor&-in-processinventory at the end of ebruary@a. H1+2b. H22+#c. H2%+(d. H22+%

Answer: b Difficulty: ! Objective: (Terms to Learn: first-in+ first-out /*80 process-costing methodH1()+I'%+ K H2.2# x 1+ K H22+#

(%. ,hat is the cost of the goods transferred out during ebruary@a. H#1'+'%b. H#%(+1%c. H#'(+'%d. H%%+

Answer: b Difficulty: ! Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent unitsThe costs in beginning inventory H2#+ 4 H!%+ K H %+irect materials K H2.2# x (%+ K 1#%+(?onversion costs K

MH2')+I/1+% 4 )+ 4 (%+0N x (%+ K 21(+#%also D beginning inventory /1%+ x .' x H!.!!0 K !#+(%

Total H#%(+1%/see calculations for answers to $uestions (2+ (!+ and (#0

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((. reason/s0 why OpureO *8 is rarely encountered in process costing is that:a. *8 is usually applied within a department to compute the cost of units

transferred outb. the units transferred into the department during a given time period are usually

carried at a single average unit cost

c. trac&ing costs on a PpureO *8 basis is very difficultd. ll of these answers are correct.

Answer: d Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method

('. 8perating income can differ materially between the results for the weighted-averageand *8 methods when:a. direct materials or conversion costs per unit vary significantly from period to

periodb. the physical inventory levels of wor& in process are large relative to the total

number of units transferred outc. Ceither of these answers is correct.d. 3oth of these answers is correct.

Answer: d Difficulty: 2 Objective: (Terms to Learn: weighted-average process-costing method+ first-in+ first-out/*80 process-costing method

(). major advantage of using the *8 process-costing method is that:a. *8 ma&es the unit cost calculations simplerb. in contrast with the weighted-average method+ *8 is considered D"c. *8 provides managers with information about changes in the costs per unit

from one period to the nextd. ll of these answers are correct.

Answer: c Difficulty: 2 Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method

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(. disadvantage of the weighted-average method compared to the *8 process-costing method is that:a. *8 is computationally simplerb. *8 provides better management information for planning and control

purposes

c. when unit cost per input prices fluctuate mar&edly from month to month+ itsper unit cost is less representative than *8d. the information it provides about changes in unit prices from one period to the

next is less useful than the information provided by *8

Answer: d Difficulty: 2 Objective: (Terms to Learn: weighted-average process-costing method+ first-in+ first-out/*80 process-costing method

'. ctivity-based costing has less applicability in a process-costing environmentbecause:

a. the use of activity-based costing ma&es the computational process moredifficultb. the products tend to be similar and thus use the resources in a similar mannerc. cost control in process costing is achieved by controlling the cost of the

various processes rather than the individual activitiesd. 3oth b and c are correct.

Answer: d Difficulty: 2 Objective: (Terms to Learn: process-costing system

'1. *8 luminum processes a single type of aluminum. uring the current period thefollowing information was given:

Units Material Costs Conversion Costs

3eginning *nventory !+ H#+% H#+)

7tarted uring the ?urrent "eriod 2+ #)+ (%+

Ending *nventory 2+%

ll materials are added at the beginning of the production process. The beginninginventory was !G complete as to conversion+ while the ending inventory was #Gcompleted for conversion purposes.

*8 luminum uses the first-in+ first-out system of process costing.

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,hat were the costs assigned to the units transferred out this period /rounde$uivalent unit cost to the nearest penny0@a. H11!+1(b. H11!+2!(c. H11!+)

d. H122+!

Answer: a Difficulty: ! Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method/!+ x 'G0 4 1'+% 4 /2+% x #G0 K 2+( E6 /conversion0.H(%+ I 2+( K H!.1( per unit for conversion costs.H#)+ I 2+ K H2.# cost per unit for materials.H#+) conversion costs already incurred.H!.1( x /1-!G0 x !+ K H(+(!( to complete beginning inventory.H#+) 4 H(+(!( K H11+#!( conversion costs assigned to beginning inventory

transferred out this period.

H#+% material costs assigned to beginning inventory transferred out this period.6nit cost for units started and completed this period K H!.1( 4 H2.# K H%.%(?ost for units started and completed K H%.%( x 1'+% K H'+!Total costs transferred out K H11+#!( 4 H#+% 4 H'+! K H11!+2!(.

'2. 7tandard costing is popular among companies that:a. produce masses of similar or identical productsb. manufacture textiles or ceramicsc. produce a product that uses few direct materials items+ and has relatively few

operational activitiesd. ll of these answers are correct.

Answer: d Difficulty: 2 Objective: 'Terms to Learn: process-costing system

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T>E 8558,*CD *C8T*8C ""5*E7 T8 F6E7T*8C7 '! T>86D> '(:>udson oc& ?ompany manufactures boat doc&s on an assembly line. *ts standardcosting system uses two cost categories+ direct materials and conversion costs. Eachproduct must pass through the ssembly epartment and the inishing epartment.irect materials are added at the beginning of the production process. ?onversion costs

are allocated evenly throughout production.

Data for te Assembly Department for $ay 20X5 are:,or& in process+ beginning inventory: ' units

irect materials /1G complete0?onversion costs /2%G complete0

6nits started during ay # units

,or& in process+ ending inventory: 1 unitsirect materials /1G complete0

?onversion costs /%G complete0

Costs for $ay:7tandard costs for ssembly:

irect materials H#+ per unit?onversion costs H1(+ per unit

,or& in process+ beginning inventory:irect materials H1#+?onversion costs H2(+

'!. ,hat is the balance in ending wor&-in-process inventory@a. H)2+b. H12+c. H1%%+d. H1'+

Answer: b Difficulty: ! Objective: 'Terms to Learn: process-costing system1 units x H#+ K H #+1 units x %G x H1(+ K )+

H12+

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'#. ,hich of the following journal entries records the ssembly epartment


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'(. ,hich of the following journal entries properly records direct materials re$uisitionsfor the wor&-in-process inventory and direct materials variances+ assuming that thessembly epartment used 1G less materials than expected@a. ,or& in "rocess B ssembly 1(+

ssembly epartment aterials ?ost ?ontrol 1(+

b. ,or& in "rocess B ssembly 1(+irect aterials Aariance 1(+ssembly epartment aterials ?ost ?ontrol 1##+

c. ,or& in "rocess B ssembly 1##+ssembly epartment aterials ?ost ?ontrol 1##+

d. ,or& in "rocess B ssembly 1##+irect aterials Aariances 1(+ssembly epartment aterials ?ost ?ontrol 1(+

Answer: b Difficulty: 2 Objective: 'Terms to Learn: process-costing system

# x H#+ K H1(+H1(+ x . K H1##+

''. *n a process-costing system when goods move from department to department+ theaccounting for such transfers is relatively simple under:a. standard costingb. *8 costingc. weighted-average costingd. operations costing

Answer: a Difficulty: 1 Objective: )Terms to Learn: process-costing system

'). Transferred-in costs are treated as if they are:a. conversion costs added at the beginning of the processb. costs of beginning inventory added at the beginning of the processc. direct labor costs added at the beginning of the processd. a separate direct material added at the beginning of the process

Answer: d Difficulty: 2 Objective: )Terms to Learn: transferred-in costs

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'. mpco is& ?ompany operates a computer dis& manufacturing plant. irectmaterials are added at the end of the process. The following data were for ;une2Q%:

,or& in process+ beginning inventory %+ units

Transferred-in costs /1G complete0irect materials /G complete0?onversion costs /G complete0

Transferred in during current period 1%+ units?ompleted and transferred out 1'%+ units

,or& in process+ ending inventoryTransferred-in costs /1G complete0irect materials /G complete0?onversion costs /(%G complete0

>ow many units must be accounted for during the period@a. 22%+ unitsb. 2+ unitsc. 1'+% unitsd. 1%+ units

Answer: b Difficulty: 1 Objective: )Terms to Learn: process-costing system%+ 4 1%+ K 2+

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). mpco is& ?ompany operates a computer dis& manufacturing plant. irectmaterials are added at the end of the process. The following data were for ugust2Q%:

,or& in process+ beginning inventory 1+ units

Transferred-in costs /1G complete0irect materials /G complete0?onversion costs /G complete0

Transferred in during current period !+ units?ompleted and transferred out 2%+ units

,or& in process+ ending inventory %+Transferred-in costs /1G complete0irect materials /G complete0?onversion costs /(%G complete0

?alculate e$uivalent units for conversion costs using the *8 method.a. #1+% unitsb. !%+ unitsc. !+ unitsd. 22+% units

Answer: d Difficulty: 2 Objective: )Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units3eginning wor& in process /1+ x .10 1+ units?ompleted and transferred out 2%+ unitsEnding wor& in process /%+ x .(%0 !2+% units

22+% units

)1. n operation costing system would be applicable to:a. batches of similar products where each batch is a variation of a single designb. the construction of a bridgec. a suit-ma&ing operationd. 3oth a and c are correct.

Answer: d Difficulty: 2 Objective: Terms to Learn: operation-costing system

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)2. anagers find operation costing useful in cost management because it:a. often results in profit maximi=ationb. results in cost minimi=ationc. captures the financial impact of the control of physical processesd. ll of these answers are correct.

Answer: c Difficulty: 2 Objective: Terms to Learn: operation-costing system

EXERCISES AND PROBLEMS

)!. There are basically two distinct methods of calculating product costs.

Reqire!:?ompare and contrast the two methods.

Ans"er:*n job costing the job or product is a distinctly identifiable product or service. Eachjob re$uires /or can re$uire0 vastly different amounts of input. ;ob costing is usuallyassociated with products that are uni$ue or heterogeneous. Thus+ each job re$uiresdifferent amounts of input+ and they can re$uire vastly different amount of costs tofinish. ;ob-costed products tend to be high cost per unit. Thus the costs of each/uni$ue0 job are important for planning+ pricing+ and profitability.

*n process costing+ the jobs or products are similar /or homogeneous0. Each jobusually re$uires the same inputs+ and results in approximately the same costs perunit. The cost of a product or service is obtained by assigning total costs to manyidentical or similar units. ,e assume each unit receives the same amount of directmaterial costs+ direct manufacturing labor costs+ and indirect manufacturing costs.6nit costs are then computed by dividing total costs by the number of units.

The principal difference between process costing and job costing is the extent ofaveraging used to compute unit costs. s noted above in job costing+ individual jobsuse different $uantities of production resourcesL whereas in process costing+ weassume that each job uses approximately the same amount of resources.

Difficulty: 2 Objective: 1Terms to Learn: process-costing system

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)#. ,hy do we need to accumulate and calculate unit costs in process costing /and alsojob costing0@

Ans"er:,e need to accumulate unit costs to:

1. 3udget /planning02. "rice!. ccount for the costs

1. "u%#etin#BTo operate a successful business+ we should prepare budgets+review the results+ and ma&e decisions as to how well our business is doing.8ur business has formulated plans for the future. The resources we need forthe future /materials+ conversion costs+ facilities+ etc.0 will depend on ourestimate of the resources we need to accomplish these goals. n importantpart of these estimates is the unit costs of the products we plan to produce.These unit costs will tell us how many dollars we must ac$uire to accomplish

our plans.

2. &riceB *n order to be a profitable business+ we must sell our product at aprice in excess of what it costs us to produce the product. Essential for thepricing decision is the cost per unit. ,e will also learn whether we can sell aproduct at a profit.

!. Accountin#B uring the course of the accounting period+ we will beaccumulating costs. t the end of the accounting period+ we must allocate thispool of costs between the units that were transferred out and the goods inending inventory. 6nit costs are essential for this purpose.


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)%. The Rygon ?orporation was recently formed to produce a semiconductor chip thatforms an essential part of the personal computer manufactured by a majorcorporation. The direct materials are added at the start of the production processwhile conversion costs are added uniformly throughout the production process. ;uneis Rygon


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)(. ?edar apids ?hemical placed 22+ liters of direct materials into the mixingprocess. t the end of the month+ 1+ liters were still in process+ !G convertedas to labor and factory overhead. ll direct materials are placed in mixing at thebeginning of the process and conversion costs occur evenly during the process.?edar apids ?hemical uses weighted-average costing.

Reqire!:a. etermine the e$uivalent units in process for direct materials and conversion

costs+ assuming there was no beginning inventory.

b. etermine the e$uivalent units in process for direct materials and conversioncosts+ assuming that 12+ liters of chemicals were #G complete prior to theaddition of the 22+ liters.

Ans"er:a. irect materials:

3eginning inventory liters6nits started 22+ litersE$uivalent units 22+ liters

?onversion costs:3eginning inventory liters6nits started 22+ litersTo account for 22+ liters6nits transferred out 21+ litersEnding inventory 1+ liters

6nits transferred out 21+ litersEnding inventory+ !G complete !+ litersE$uivalent units 21!+ liters

b. irect materials:?ompleted and transferred out /21+ 4 12+0 222+ litersEnding inventory+ 1G complete 1+ litersE$uivalent units 2!2+ liters

?onversion costs:?ompleted and transferred out 222+ litersEnding inventory+ !G complete !+ litersE$uivalent units 22%+ liters

Difficulty: 2 Objective: %Terms to Learn: weighted-average process-costing method+ e$uivalent units

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)'. ;ordana ,oolens is a manufacturer of wool cloth. The information for arch is asfollows:

3eginning wor& in process 1+ units6nits started 2+ units

6nits completed 2%+ units

3eginning wor&-in-process direct materials H (+3eginning wor&-in-process conversion H 2+(irect materials added during month H!+irect manufacturing labor during month H12+actory overhead H %+

3eginning wor& in process was half converted as to labor and overhead. irectmaterials are added at the beginning of the process. ll conversion costs areincurred evenly throughout the process. Ending wor& in process was (G complete.

Reqire!:"repare a production cost wor&sheet using the weighted-average method. *ncludeany necessary supporting schedules.

Ans"er:"86?T*8C ?87T ,8S7>EET

Flow of pro%uction P$%si#al Units Dire#t Materials Conversion

,or& in process+ beginning 1+

7tarted during period 2+

To account for !+

6nits completed 2%+ 2%+ 2%+

,or& in process+ ending %+ %+ !+

ccounted for !+ !+ 2)+

Costs Totals Dire#t Materials Conversion

,or& in process+ beginning H )+( H (+ H 2+(

?osts added during period #'+ !+ 1'+

Total costs to account for H%%+( H!(+ H1+(

ivided by e$uivalent units !+ 2)+E$uivalent unit costs H 1. H 1.2 H .'

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)'. /continued0

Assi#nment of costs?osts transferred out /2%+ x H1.0 H#'+%,or& in process+ ending

irect materials /%+ x H1.20 (+ ?onversion /%+ x H.' x .(0 2+1?osts accounted for H%%+(

Difficulty: ! Objective: %Terms to Learn: weighted-average process-costing method+ e$uivalent units

)). our 7easons ?ompany ma&es snow blowers. aterials are added at the beginningof the process and conversion costs are uniformly incurred. t the beginning of7eptember+ wor& in process is #G complete and at the end of the month it is (G

complete. 8ther data for the month include:

3eginning wor&-in-process inventory 1+( units6nits started 2+ units6nits placed in finished goods !+2 units

?onversion costs H2+?ost of direct materials H2(+3eginning wor&-in-process costs: aterials H1%#+ ?onversion H )2+)

Reqire!:a. "repare a production cost wor&sheet with supporting schedules using the

weighted-average method of process costing.b. "repare journal entries to record transferring of materials to processing and

from processing to finished goods.

Ans"er:a. "86?T*8C ?87T ,8S7>EET

Flow of &ro%uctionP$%si#al

Units

Dire#t

Materials Conversion

,or& in process+ beginning 1+(


To account for !+(

6nits completed !+2 !+2 !+2

,or& in process+ ending # # 2#

ccounted for !+( !+( !+##

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CostsTotals

Dire#t


,or& in process+ beginning H2!(+) H1%#+ H )2+)?osts added during period #(+ 2(+ 2+

Total costs to account for H((+) H#1#+ H2)2+)

ivided by e$uivalent units !+( !+##

E$uivalent-unit costs H1' H 11% H )2

Assi#nment of costs

?ompleted units /!+2 x H1'0 H(!+#

,or& in process+ ending

irect materials /# x

H11%0

H#(+

?onversion /# x H)2 x.(0

1+() (%+()

?osts accounted for H((+)

b.

,or& in "rocess 2(+

aterials *nventory 2(+

inished Doods (!+#

,or& in "rocess (!+#

Difficulty: ! Objective: #+ %Terms to Learn: weighted-average process-costing method+ e$uivalent units

). 7urf "roducts ?ompany uses an automated process to clean and polish its souveniritems. or arch+ the company had the following activities:

3eginning wor& in process inventory !+ items+ 1I! complete6nits placed in production 12+ units

6nits completed + unitsEnding wor& in process inventory (+ items+ 1I2 complete

?ost of beginning wor& in process H2+%irect material costs+ current H+?onversion costs+ current H'+'

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irect materials are placed into production at the beginning of the process andconversion costs are incurred evenly throughout the process.

Reqire!:

"repare a production cost wor&sheet using the *8 method.

Ans"er:"86?T*8C ?87T ,8S7>EET

Flow of pro%uctionP$%si#al

Units

Dire#t


,or& in process+ beginning !+


To account for 1%+

'nits Complete%:,or& in process+ beginning !+ 2+

7tarted and completed (+ (+ (+

,or& in process+ ending (+ (+ !+

1%+ 12+ 11+

CostsTotals

Dire#t


,or& in process+ beginning H 2+%

?osts added during period 1(+' H + H '+'

Total costs to account for H1+2 H + H '+'ivided by e$uivalent units 12+ 11+

E$uivalent-unit costs H1.#% H .'% H .'

). /continued0

Assi#nment of costs

,or& in process+ beginning H 2+%

?ompletion of beginning /2+ x H.'0 1+#

Total beginning inventory !+

7tarted and ?ompleted /(+ x H1.#%0 )+'Total costs transferred out H12+(


irect materials /(+ x H.'%0 H#+%

?onversion /(+ x H.' x .%0 2+1 (+(

?osts accounted for H1+2

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Difficulty: ! Objective: (Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units

. The 5aramie actory produces expensive boots. *t has two departments that processall the items. uring ;anuary+ the beginning wor& in process in the tanningdepartment was #G complete as to conversion and 1G complete as to directmaterials. The beginning inventory included H(+ for materials and H1)+ forconversion costs. Ending wor&-in-process inventory in the tanning department was#G complete. irect materials are added at the beginning of the process.

3eginning wor& in process in the finishing department was (G complete as toconversion. 3eginning inventories included H'+ for transferred-in costs andH1+ for conversion costs. Ending inventory was !G complete.

dditional information about the two departments follows:

Tannin& Finis$in&

3eginning wor&-in-process units %+ #+

6nits started this period 1#+ @

6nits transferred this period 1(+ 1)+

Ending wor&-in-process units @ 2+

aterial costs added H1)+ @

?onversion costs !2+ H1+

Transferred-out cost %+ @

Reqire!:"repare a production cost wor&sheet using weighted-average costing for thefinishing department.

Ans"er:"roduction ?ost ,or&sheet

inishing epartment,eighted-verage ethod

Flow of pro%uction P$%si#al Units Conversion Trans'In

,or& in process+ beginning #+Transferred in during period 1(+

To account for 2+

6nits transferred out 1)+ 1)+ 1)+

,or& in process+ ending 2+ ( 2+

ccounted for 2+ 1)+( 2+

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Costs Totals Conversion Trans'in

,or& in process+ beginning H1'+ H1+ H '+

?osts added during period (+ 1+ %+

Total costs to account for H)(+ H2+ H%'+ivided by e$uivalent units 1)+( 2+

E$uivalent-unit costs H #.#1 H 1.%( H 2.)%

Assi#nment of costs

Transferred out /1)+ x H#.#10 H'+!)

,or& inprocess+ ending

Transferred-in costs /2+ x H2.)%0 H%+'

?onversion /( x H1.%(0 !( (+(!(

?osts accounted for H)(+1(

Difficulty: ! Objective: )Terms to Learn: weighted-average process-costing method+ e$uivalent units

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1. 5exington ?ompany produces baseball bats and cric&et paddles. *t has twodepartments that process all products. uring ;uly+ the beginning wor& in process inthe cutting department was half completed as to conversion+ and complete as todirect materials. The beginning inventory included H#+ for materials andH(+ for conversion costs. Ending wor&-in-process inventory in the cutting

department was #G complete. irect materials are added at the beginning of theprocess.

3eginning wor& in process in the finishing department was )G complete as toconversion. irect materials for finishing the units are added near the end of theprocess. 3eginning inventories included H2#+ for transferred-in costs andH2)+ for conversion costs. Ending inventory was !G complete. dditionalinformation about the two departments follows:

Cttin& Finis$in&

3eginning wor&-in-process units 2+ 2#+

6nits started this period (+6nits transferred this period (#+ ()+

Ending wor&-in-process units 2+

aterial costs added H#)+ H!#+

?onversion costs 2)+ ()+%

Transferred-out cost 12)+

Reqire!:"repare a production cost wor&sheet+ using *8 for the finishing department.


inishing epartment*8 ethod


Units

Dire#t

Materials Conversion Trans'In

,or& in process+ beginning 2#+

7tarted during period (#+

To account for ))+

(oo% units complete%

3eginning wor& in process 2#+ 2#+ #+)

7tarted and completed ##+ ##+ ##+ ##+

Ending wor& in process 2+ (+ 2+

ccounted for ))+ ()+ %#+) (#+

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1. /continued0

Costs Totals DMaterials Conversion Trans'In

,*"+ beginning H %2+

?osts added during period 2!+% H!#+ H()+% H12)+

Total costs to account for H2)2+% H!#+ H()+% H12)+

ivided by e$uivalent units ()+ %#+) (#+E$uivalent-unit costs H !.'% H .% H 1.2% H 2.

Assi#nment of costs

,or& in process+ beginning H %2+

?ompletion of beginning:

irect aterials /2#+ x H.%0 H12+

?onversion /#+) x H1.2%0 (+ 1)+

Total 3eginning *nventory '+

7tarted and ?ompleted /##+ x H!.'%0 1(%+

Total costs transferred out 2!%+

,or& in process ending: Transferred-in /2+ x H2.0 H#+

?onversion /2+ x H1.2% x .!0 '+% #'+%

?osts accounted for H2)2+%

Difficulty: ! Objective: )Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units

2. Deneral abricators assembles its product in several departments. *t has twodepartments that process all units. uring 8ctober+ the beginning wor& in process inthe cutting department was half completed as to conversion+ and complete as to

direct materials. The beginning inventory included H12+ for materials andH!+ for conversion costs. Ending wor&-in-process inventory in the cuttingdepartment was #G complete. irect materials are added at the beginning of theprocess.

3eginning wor& in process in the finishing department was '%G complete as toconversion. irect materials are added at the end of the process. 3eginninginventories included H1(+ for transferred-in costs and H2+ for conversioncosts. Ending inventory was 2%G complete. dditional information about the twodepartments follows:

Cttin& Finis$in&3eginning wor&-in-process units 2+ 2+

6nits started this period #+ %+

6nits transferred this period %+

Ending wor&-in-process units 1+ 2+

aterial costs added H#)+ H2)+

irect manufacturing labor H1(+ H#+

8ther conversion costs H )+ H2#+

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Reqire!:"repare a production cost wor&sheet using weighted-average for the cuttingdepartment and *8 for the finishing department.


?utting epartment,eighted-verage ethod

Flow of &ro%uctionP$%si#al Units

Dire#t



7tarted during period #+

To account for (+

6nits transferred out %+ %+ %+

,or& in process+ ending 1+ 1+ #+

ccounted for (+ (+ %#+

CostsTotals

Dire#t


,or& in process+ beginning H1%+ H12+ H !+

?osts added during period '2+ #)+ 2#+

Total costs to account for )'+ (+ 2'+

ivided by e$uivalent units (+ %#+

E$uivalent-unit costs H 1.% H 1. H .%

Assi#nment of costs

Transferred out /%+ x H1.%0 H'%+


irect materials /1+ x H1.0 H1+

?onversion /1+ x .# x H.%0 2+ 12+

?osts accounted for H)'+

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2. /continued0

"roduction ?ost ,or&sheetinishing epartment

*8 ethod


Units

Dire#t

Materials Conversion Trans'In


7tarted uring "eriod %+

To account for '+

Dood 6nits ?ompleted:

3eginning ,or& in process 2+ 2+ %+

7tarted and ?ompleted !+ !+ !+ !+

Ending wor& in process 2+ %+ 2+

ccounted for '+ %+ #+ %+

CostsTotals Dire#t

Materials

Conversion Trans'In

,or& in process+ beginning H !(+

?osts added during period 1('+ H2)+ H(#+ H'%+

Total ?osts to account for H2!+ H2)+ H(#+ H'%+

ivided by e$uivalent units %+ #+ %+

E$uivalent-unit costs H !.(( H .%( H 1.( H 1.%

Assi#nment of costs

,or& in process+ beginning H !(+

?ompletion of beginning:

irect aterials /2+ x H.%(0 H11+2

?onversion /2+ x .2% x H1.(0 )+ 1+2

Total 3eginning *nventory %%+2

7tarted and ?ompleted /!+ x H!.((0 1+)

Total costs transferred out 1(%+

,or& inprocess ending

Transferred-in /2+ x H1.%0 H!+

?onversion /2+ x H1.( x .2%0 )+ !)+

?osts accounted for H2!+

Difficulty: ! Objectives: %-)Terms to Learn: first-in+ first-out /*80 process-costing method+ e$uivalent units

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CRITICAL THIN(IN)

!. The president of the Dulf ?oast efining ?orporation wants to &now why hisgolfing partner+ who is the chief financial officer of a large construction company+calculates his costs by the job+ but his own corporation calculates costs by large

units rather than by individual barrel of oil.

Ans"er:8il refineries use process costing to calculate their costs per barrel of oil. Eachbarrel of oil is essentially the same. Thus+ costs are accumulated for all the oilprocessed during a given time period+ and the total costs are divided by the barrelsof oil produced. n average cost is calculated. 7ince the costs to actually producethe oil are essentially the same+ accuracy is not lost by this process.

The construction company calculates costs by each job+ since each job can re$uiresubstantially different amounts of the various inputs. Thus+ the cost of each job

could be radically different from the other jobs.


#. 5ist and describe the five steps in process costing.

Ans"er:Ste* + involves s,,ari-in& t$e *$%si#al .lo" o. t$e nits o. ot*t Ste* 0

involves !eter,inin& t$e n,1er ot*t e2*resse! in ter,s o. eqivalent

nits T$is ,eans !eter,inin& $o" ,an% #o,*lete nits "ol! $ave 1een !one

"it$ t$e ,aterials3 ti,e3 an! e..ort e2*en!e! $a! nits 1een !one one at a

ti,e T$e t$ir! ste* involves #o,*tin& t$e #ost *er eqivalent nitB!eter,inin& $o" ,#$ a "$ole nit #ost .or ea#$ ite, t$is *erio! In t$e

.ort$ ste*3 t$e #osts t$at nee! to 1e assi&ne! to t$e nits are s,,ari-e! T$e

.i.t$ ste* involves assi&nin& t$e #osts to t$e #o,*lete! nits an! t$e nits still

re,ainin& in "or4 in *ro#ess

Difficulty: 2 Objective: 2Terms to Learn: process-cost system

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%. arv and Aic&i own and operate a vegetable canning plant. *n recent years+ theirbusiness has grown tremendously and+ at any point in time+ they may have ! to !%different vegetables being processed. lso+ during the pea& summer months thereare several thousand bushels of vegetables in some stage of processing at any onetime. ,ith the company


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Terms to Learn: first-in+ first-out /*80 process-costing method+ weighted-average process-costing method+

'. 6niversal *ndustries operates a division in 3ra=il+ a country with very high inflationrates. Traditionally+ the company has used the same costing techni$ues in allcountries to facilitate reporting to corporate head$uarters. >owever+ the financial

accounting reports from 3ra=il never seem to match the actual unit results of thedivision. anagement has studied the problem and it appears that beginninginventories may be the cause of the unmatched information. The reason for this isthat the inventories have a different financial base because of the severe inflation.

Reqire!:>ow can process costing assist in addressing the problem facing 6niversal*ndustries@

Ans"er:"robably the best way to address the problem of inflation is to use *8 costing.

This method &eeps the cost of beginning inventories separate from production unitsstarted and completed in a given period. Therefore+ the company may be able totrac& the cost of items that were actually produced in a given period+ versus mixingthe units and costs of multiple periods.

Difficulty: 2 Objective: (Terms to Learn: weighted-average process-costing method+ first-in+ first-out/*80 process-costing method

). 3*D anufacturing "roducts has been using *8 process costing for trac&ing thecosts of its manufacturing activities. >owever+ in recent months+ the system hasbecome somewhat bogged down with details. *t seems that+ when the companypurchased 3rown Electronics last year+ its product lines increased six-fold. This hascaused both the accountants and the suppliers of the information+ the line managers+great difficulty in &eeping the costs of each product line separate. 5i&ewise+ theestimation of the completion of ending wor&-in-process inventories and theassociated costs has become very cumbersome. The chief financial officer of thecompany is loo&ing for ways to improve the reporting system of product costs.

Reqire!:,hat can you recommend to improve the situation@

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Ans"er: beginning point would be to change to a standard costing system. 7tandardcosting eliminates many of the problems of *8 costing in trac&ing actual costs toproducts. ,ith standard costing+ only the e$uivalent units have to be determinedimmediately+ not the actual cost of the period. standard cost for materials and

conversion is then applied to the e$uivalent units for the reporting period. ctualcosts and variances from standard costing can be determined later. This approach isvery appropriate for a company that has many products.

Difficulty: ! Objective: 'Terms to Learn: first-in+ first-out /*80 process-costing method

. ord otor ?ompany is said to use a hybrid costing system. ,hat is a hybridcosting system+ and what would be the advantage to ord of such a system@

Ans"er:

hybrid costing system is one that combines the elements of job costing andprocess costing systems. *mportant elements of profitability include &nowing whatthe costs are+ and controlling costs. ord has a basic platform that they use toproduce cars. Aehicles undergo essentially the same processing and are in effectmanufactured in a continuous flow using standard parts and standardi=edmanufacturing processes.

nother important part of profitability is ma&ing a product different than othervehicles so buyers will be attracted to purchase the vehicle. Aehicles that aredifferent can command a higher price and increase profitability. ?osts areaccumulated using process costing up to the point where the product isdifferentiated. ;ob costing is used from that point forward.

Difficulty: 2 Objective: )Terms to Learn: hybrid-costing system

Documents

D1 Process Costing