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
  Ending work in process, all 40% complete
14,000
       
  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
     
   Beginning Inventory
18,000
  +Started In to Production
200,000
  =Total Units to be accounted for:
218,000
     
Equivalent Units
     
Quantity
Material
Conversion
     
    Beginning Inventory
18,000
18,000
18,000
    +Started and Completed
186,000
186,000
186,000
    +Ending Inventory
14,000
5,600
5,600
    =Total units accounted for
218,000
209,600
209,600

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)
  Costs:
Materials
Conversion
  Beginning Inventory
$4,500
$6,200
  +Current Period
$62,000
$93,400
  Total Costs
$66,500
$99,600
   
  / Equivalent Units above
209,600
209,600
   
  = 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
  Material
$8,900
$109,000
  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
     
  Beginning Inventory
2,500
  +Started In to Production
34,000
  =Total Units to be accounted for:
36,500
     
Equivalent Units
     
Quantity
Material
Conversion
     
    Beginning Inventory
2,500
0
500
    +Started and Completed
30,500
30,500
30,500
    +Ending Inventory
3,500
3,500
700
    =Total units accounted for
36,500
34,000
31,700

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.

   
(labor + O/H)
  Costs:
Materials
Conversion
  Beginning Inventory
$0
$0
  +Current Period
$109,000
$73,500
  Total Costs
$109,000
$73,500
   
  / Equivalent Units above
34,000
31,700
   
  = Cost per Eq. Unit
$3.21
$2.32
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
  Works in Process – beginning: 
    Units 20% complete for materials and conversion:
8,000 units
    Direct materials $18,900
    Conversion $11,050
       
  Costs added this period:
    Direct materials $201,000
    Conversion $113,090
       
  Work in Process – ending
3,000 units
   
Units 75% complete for materails and 60% complete for conversion

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.

     
Quantity
     
  Beginning Inventory
8,000
  +Started In to Production
96,000
  =Total Units to be accounted for:
104,000
     
Equivalent Units 
     
Quantity
Material
Conversion
     
    Beginning Inventory
8,000
6,400
6,400
    +Started and Completed
93,000
93,000
93,000
    +Ending Inventory
3,000
2,250
1,800
    =Total units accounted for
104,000
101,650
101,200

Beginning inventory E.U. is 80%, the work that is done this period only.

B.

   
(labor + O/H)
  Costs:
Materials
Conversion
  Beginning Inventory
$0
$0
  +Current Period
$201,000
$113,090
  Total Costs
$201,000
$113,090
   
  / Equivalent Units above
101,650
101,200
   
  = 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