Process Costing
Easy Practice Test
Cost Accounting
Easy Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. Production costs for the current period are not mixed with prior period costs when using
a. FIFO method
b. Weighted average method
c. both the FIFO and weighted average method
d. all process costing methods
Answer
A. The FIFO method uses only the costs added this period in computing the cost per equivalent unit. Prior period work done is not included so prior period costs are not included either.
2. When using weighted average process costing, beginning inventory costs are
a. not included with current period costs
b. added to current period costs to get an average cost per unit
c. added with ending inventory costs to get an average cost per unit
d. not considered when getting an average cost per unit
Answer
B. Weighted average uses all costs that flow through the production process during the period, including beginning inventory costs incurred in the prior period.
3. Equivalent units of production are
a. the number of completed units the company produced this period
b. equal to the number of units started and completed
c. the number of units the company expected to produce this period
d. the number of whole units the company could have completed given
the amount of resources added to the production process this period
Answer
D. Equivalent units is not the number of units completed. The definition of an equivalent unit is given in d.
4. A company that produces which of the following products would not use a process costing system?
a. gasoline
b. butter
c. hand lotion
d. custom lamps
Answer
D. Process costing is used when all products produced are the same and have the same process. Custom lamps would not be all the same product.
5. Process costing is used by companies that
a. produce products that are very different and to customer specification
b. produce products by special request from customers
c. produce products that are homogeneous
d. want to know the cost for each batch and job
Answer
C. Process costing is used by companies who produce the same product over and over again, which is homogeneous. Production is not done to customer specification or request and the cost of each batch or job is not tracked.
6. Weighted average gives a less accurate cost per unit than FIFO because it
a. is difficult to determine the cost per unit
b. ignores the work that is performed in the prior period
c. averages the cost in two different periods which may be different
d. only considers the units totally complete at the end of the period
Answer
C. Weighted average gives the average cost per equivalent unit of work in last period and this period. FIFO considers only this period’s work in the cost per equivalent unit and gives a cost per equivalent unit for this period only. With both, it is easy to determine a cost per unit. Both give a cost per equivalent unit, not a cost of completed units.
7. The major difference between FIFO and weighted average costing is
a. equivalent units in ending inventory
b. weighted average ignores work done this period in beginning inventory
c. FIFO ignores work done this period in beginning inventory
d. weighted average considers all work done to beginning inventory to be done in the current period
Answer
D. FIFO does not include work done last period, not this period (c.) Ending inventory is treated the same under both methods. (a.) Weighted average includes work done last period in beginning inventory in the current period as if it was done this period. (b.)
8. The method that combines beginning inventory units with current period units produced is
a. FIFO
b. weighted average
c. specific identification
d. LIFO
Answer
B. Weighted average includes all work done on units in beginning inventory and all work done on units started and completed and ending inventory this period.
9. The cost per equivalent unit using FIFO is calculated
a. total costs to account for divided by total units to account for
b. total costs added during the period divided by total equivalent units
c. total beginning inventory costs divided by total equivalent units
d. total costs to account for divided by total equivalent units
Answer
B. FIFO only uses costs added during this period and divides this by total equivalent units to get the cost per equivalent unit.
10. Which of the following is not necessary to determine weighted average equivalent units
a. ending inventory % complete
b. beginning inventory % complete
c. units started
d. units in beginning inventory
Answer
B. Beginning inventory is always considered to be 100% complete always under the weighted average method. Therefore, the actual % complete for beginning inventory is not relevant.
11. The company had the following data occur when using a weighted average
process costing system:
| Units: |
|
|
| Beginning work in process, all 30% complete |
18,000
|
|
| Started |
200,000
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|
| Ending work in process, all 40% complete |
14,000
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| Costs: | |||
| Beginning work in process: | materials $4,500 | conversion $6,200 | |
| Added during the period: | materials $62,000 | conversion $93,400 |
A. Prepare a schedule of equivalent units
B. Calculate the cost per equivalent unit for material and conversion
C. Prepare a cost reconciliation report – value work in process, finished goods
Answer
|
Quantity
|
|
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| Beginning Inventory |
18,000
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|
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| +Started In to Production |
200,000
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|
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| =Total Units to be accounted for: |
218,000
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Equivalent Units
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||||
|
Quantity
|
Material
|
Conversion
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|||
| Beginning Inventory |
18,000
|
18,000
|
18,000
|
||
| +Started and Completed |
186,000
|
186,000
|
186,000
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||
| +Ending Inventory |
14,000
|
5,600
|
5,600
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| =Total units accounted for |
218,000
|
209,600
|
209,600
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||
Weighted average: beginning inventory E.U is always 100%
Started and completed quantity is 218,000 total – 14,000 known – 18,000 known
Ending inventory equivalent units is quantity x % complete
B.
|
|
(labor + O/H)
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| Costs: |
Materials
|
Conversion
|
|
| Beginning Inventory |
$4,500
|
$6,200
|
|
| +Current Period |
$62,000
|
$93,400
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| Total Costs |
$66,500
|
$99,600
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|
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| / Equivalent Units above |
209,600
|
209,600
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| = Cost per Eq. Unit |
$0.32
|
$0.475
|
C. Value WIP:
Material: 5,600 x $0.32 = $1,792
Conversion: 5,600 x $0.475 = $2,660
Total value $4,452 WIP value
Value Finished Goods:
18,000 Beginning
+186,000 Started & Complete
204,000 x $0.795 total cost per unit = $162,180
total units finished
Total beginning + costs added this period = $166,100
Difference due to rounding
12. A company began the period with 2,500 units in production. During the period enough costs were added to complete 34,000 units. 33,000 units were transferred to finished goods during the period. Material is all added at the beginning of the process. Beginning inventory was 80% complete for conversion and ending inventory was 20% complete for conversion. The company uses the FIFO method. Cost information for the period is as follows:
|
Beginning
|
Added during the period
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| Material |
$8,900
|
$109,000
|
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| Conversion |
$5,400
|
$73,500
|
A. Prepare a schedule of equivalent units
B. Calculate the cost per equivalent unit for material and conversion
C. Prepare a cost reconciliation report – value work in process, finished goods
Answer
|
Quantity
|
|
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|||
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| Beginning Inventory |
2,500
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|
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| +Started In to Production |
34,000
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| =Total Units to be accounted for: |
36,500
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Equivalent Units
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||||
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Quantity
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Material
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Conversion
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|||
| Beginning Inventory |
2,500
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0
|
500
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||
| +Started and Completed |
30,500
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30,500
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30,500
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| +Ending Inventory |
3,500
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3,500
|
700
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| =Total units accounted for |
36,500
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34,000
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31,700
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Transferred of 33,000 is beginning inventory + started and completed, so started and completed is solved for when you know beginning inventory, (33,000 – 2,500 = 30,500) Ending inventory is solved for to get the total to equal the same quantity of units to be accounted for as above. (36,500 – 2,500 – 30,500 = 3,500)
Beginning material equivalent units is 0 because all was added the prior period when it was started and FIFO only counts what was added this period. Beginning conversion E.U. is 20%, 1-80% done last period = 20% this period Ending material equivalent units is 100% because all was added when it was started. Ending conversion is the 20% done this period
B.
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(labor + O/H)
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| Costs: |
Materials
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Conversion
|
|
| Beginning Inventory |
$0
|
$0
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| +Current Period |
$109,000
|
$73,500
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| Total Costs |
$109,000
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$73,500
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| / Equivalent Units above |
34,000
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31,700
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| = Cost per Eq. Unit |
$3.21
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$2.32
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C. Value WIP:
Material: 3,500 x $3.21 = $11,235
Conversion: 700 x $2.32 = $ 1,624
Total value $12, 859 WIP value
Value Finished Goods:
Beginning Inventory dollars $ 14,300
Beginning inventory work this period:
Material: 0 x $3.21 = $ 0
Conversion: 500 x $2.32 = $ 1,160
Started/Completed 30,500 x $5.53 = $168,665
Total value of finished goods $184,125
Total Inventory Costs = $196,984
Total beginning + added this period costs = $196,800
Difference due to rounding
13. A manufacturing company using the FIFO method of process costing has the following information related to production for the period:
| Units Started: |
96,000 units
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| Works in Process – beginning: |
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| Units 20% complete for materials and conversion: |
8,000 units
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| Direct materials | $18,900 |
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| Conversion | $11,050 |
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| Costs added this period: | ||||
| Direct materials | $201,000 |
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| Conversion | $113,090 |
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| Work in Process – ending |
3,000 units
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Units 75% complete for materails and 60% complete for conversion
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A. Prepare a schedule of equivalent units
B. Calculate the cost per equivalent unit for material and conversion
C. Prepare a cost reconciliation report – value work in process, finished goods
Answer
A.
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Quantity
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| Beginning Inventory |
8,000
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|
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| +Started In to Production |
96,000
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| =Total Units to be accounted for: |
104,000
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Equivalent Units
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||||
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Quantity
|
Material
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Conversion
|
|||
| Beginning Inventory |
8,000
|
6,400
|
6,400
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| +Started and Completed |
93,000
|
93,000
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93,000
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| +Ending Inventory |
3,000
|
2,250
|
1,800
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| =Total units accounted for |
104,000
|
101,650
|
101,200
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Beginning inventory E.U. is 80%, the work that is done this period only.
B.
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(labor + O/H)
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| Costs: |
Materials
|
Conversion
|
|
| Beginning Inventory |
$0
|
$0
|
|
| +Current Period |
$201,000
|
$113,090
|
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| Total Costs |
$201,000
|
$113,090
|
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|
|
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| / Equivalent Units above |
101,650
|
101,200
|
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|
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| = Cost per Eq. Unit |
$1.98
|
$1.12
|
C. Value WIP:
Material: 2,250 x $1.98 = $4,455
Conversion: 1,800 x $1.12 = $2,016
Total value $6,471 WIP value
Value Finished Goods:
Beginning Inventory dollars $ 29,950
Beginning inventory work this period:
Material: 6,400 x $1.98 = $ 12,672
Conversion: 6,400 x $1.12 = $ 7,168
Started/Completed 93,000 x $3.10 = $288,300
Total value of finished goods $338,090
Total Inventory Costs = $344,561
Total beginning + costs added this period = $344,040
Difference due to rounding