Process Costing
Medium to Hard Practice Test
Medium to Hard Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. Total equivalent units for materials when beginning work in process is 30% complete, all materials are added at the beginning of the process, and there is no ending work in process could be
a. equal to beginning units
b. equal to the units to account for during the period
c. units started plus 30% of the beginning inventory units
d. units started and completed less all units in beginning inventory
Answer
B. Units started plus beginning inventory is total units to account for which in this case will be equal to beginning inventory plus started and completed. When all material is added at the beginning, equivalent units for both beginning and started and completed will be at 100%.
2. Transferred in costs are
a. not reported on the process cost report
b. the costs from the previous department
c. do not include direct costs
d. only the cost of the units that are complete for the period
Answer
B. Transferred in costs are simply the costs that come in from the previous department to have work added or to be completed in this department. They are part of the cost per equivalent unit and include all 3 types of product costs. They are considered to be the same as units started.
3. Which of the following statements is true relative to FIFO and weighted average?
a. FIFO and weighted average total equivalent units will never be the same
b. FIFO and weighted average equivalent units will always be the same
c. Equivalent units for beginning inventory is always the same
d. Equivalent units for ending inventory is always the same
Answer
D. Ending work in process inventory is treated the same under both methods. Equivalent units will be the same when there is no beginning inventory. The difference in the two methods is how beginning inventory is treated. Ending inventory equivalent units is always the same for both methods.
4. The FIFO and weighted average methods of process costing will give the same number of equivalent units to be transferred to completed goods when
a. beginning inventory units equals ending inventory units
b. there are no units in beginning inventory
c. beginning inventory is 50% complete
d. the same number of units is started and completed
Answer
B. Transferred to completed goods is beginning inventory plus started and completed. The difference between the two methods is how beginning inventory is treated. When there is no beginning inventory, there is no difference.
5. Which of the following is the correct journal entry for current period costs added
a. credit work in process, debit finished goods
b. debit work in process, credit cash
c. debit work in process, credit raw materials, credit salaries payable and other
d. debit work in process, credit finished goods
Answer
C. Costs added is always a debit to work in process. Work added will be for direct material, labor and overhead, which will cause a credit to those presented in c. For using direct material, the credit is to raw materials, not cash (b.) (a.) is the journal entry made when goods are completed. (d.) is never made.
6. In a process costing system, costs transferred in are
a. ignored
b. added to costs incurred this period
c. added as a cost of beginning inventory
d. considered only a conversion cost
Answer
B. Costs transferred in are added to costs incurred this period. It can consist of material and/or conversion.
7. When using the FIFO process costing system, current period work is stated in terms of:
a. completed during the period and ending inventory work done this period
b. units stated and completed during the period only
c. units incomplete at the beginning, units started, and units incomplete at the end of the period
d. both a. and c.
Answer
D. Work done this period includes work done to finish (only) beginning inventory, work done to complete units started this period and work done on incomplete units at the end of the period. The answers for a. & c. mean the same thing and are correct. FIFO does not include the work done on beginning inventory in the prior period
8. Which of the following equivalent units is added to FIFO total equivalent units to determine weighted average equivalent units?
a. ending inventory that is not complete
b. beginning inventory that was done this period
c. beginning inventory that was done last period
d. units that were started and completed this period
Answer
C. Weighted average includes work done in beginning inventory last period so it must be added to FIFO equivalent units because FIFO does not include work done last period on beginning inventory.
9. Equivalent units of production are
a. computed in both a job order costing system and a process costing system
b. the average number of equivalent units produced in a given period
c. whole units that would have been produced given the resources added during the period
d. the same thing as the amount of completed units during the period
Answer
C. The technical definition of equivalent units is given in (c.). It includes units that are not completed at the end of the period. It is not an average because it considers how much work has been done for different types of units and is a weighted average.
10. When costs differ from period to period, which method of process costing should be used
a. FIFO
b. weighted average
c. it does not matter, both give the same cost per unit
d. specific identification
Answer
A. FIFO gives this period’s cost per equivalent unit considering only work done this period and costs added this period only. FIFO will show the difference in the cost per equivalent unit this period and the cost per equivalent unit last period. Weighted average will not as it averages the two periods together.
11. A manufacturing company uses the FIFO method in the process costing system.
Data for the month is as follows:
|
|
Material
|
Conversion
|
|
|
Units
|
% complete
|
% complete
|
|
|
|
|
|
|
| Beginning WIP units: |
1,700
|
80%
|
60%
|
| Transferred in from another department |
25,000
|
|
|
| Completed and transferred out |
26,000
|
|
|
| Ending WIP: |
|
10%
|
20%
|
|
|
|
|
| Cost Data: |
Material
|
Conversion
|
| Beginning |
$2,045
|
$8,035
|
| Added this period |
$89,450
|
$126,000
|
A. Calculate equivalent units for material and conversion
B. Calculate the cost per E.U. for material and conversion
C. Prepare a cost reconciliation report
Answer
|
Quantity
|
|
|
|||
|
|
|
|
|||
| Beginning Inventory |
1,700
|
|
|
||
| +Started In to Production |
25,000
|
|
|
||
| =Total Units to be accounted for: |
26,700
|
|
|
||
|
|
Equivalent Units
|
||||
|
Quantity
|
Material
|
Conversion
|
|||
| Beginning Inventory |
1,700
|
340
|
680
|
||
| +Started and Completed |
24,300
|
24,300
|
24,300
|
||
| +Ending Inventory |
700
|
70
|
140
|
||
| =Total units accounted for |
26,700
|
24,710
|
25,120
|
||
Transferred in is the same as started this period.
Completed and transferred out means beginning plus started and completed.
Started and completed is determined by 26,000 completed – 1,700 beginning.
Ending inventory is what it takes to get the bottom = 26,700, same as top
For equivalent units:
Beginning is 1- % done last period or 1-80% is 20% for materials and 1-60%
is 40% for conversion. Beginning is only the work done this period for FIFO.
Ending is 700 quantity x % given complete, 10 % for materials, 20% for
conversion
B.
|
|
(labor + O/H)
|
||
| Costs: |
Materials
|
Conversion
|
|
| Beginning Inventory |
$0
|
$0
|
|
| +Current Period |
$89,450
|
$126,000
|
|
| Total Costs |
$89,450
|
$126,000
|
|
|
|
|
||
| / Equivalent Units above |
24,710
|
25,120
|
|
|
|
|
||
| = Cost per Eq. Unit |
$3.62
|
$5.02
|
C. Value WIP:
Material: 70 x $3.62 = $ 253
Conversion: 140 x $5.02 = $ 703
Total value $ 956 WIP value
Value Finished Goods:
Beginning Inventory dollars $ 10,080
Beginning inventory work this period:
Material: 340 x $3.62 = $ 1,231
Conversion: 680 x $5.02 = $ 3,414
Started/Completed 24,300 x $8.64 = $209,952
Total value of finished goods $224,677
Total Inventory Costs = $225,633
Total beginning + added this period costs = $225,530
Difference due to rounding
12. A manufacturing company uses the weighted average method in a process costing
system. Material is added all at the beginning of the process. Data for the period
is as follows:
|
Total Units
|
Costs $
|
% complete
|
||
|
|
|
|
||
| Material costs added |
|
$232,900
|
|
|
| Beginning material costs |
|
$21,090
|
|
|
| Conversion costs added |
|
$176,300
|
|
|
| Beginning conversion costs |
|
$11,800
|
|
|
| Conversion beginning |
|
|
20%
|
|
| Conversion ending % complete |
|
|
50%
|
|
| Beginning |
12,000
|
|
|
|
| Ending |
10,000
|
|
|
|
| Transferred out |
98,000
|
|
|
A. Calculate equivalent units for material and conversion
B. Calculate the cost per equivalent unit for material and conversion
C. Prepare a cost reconciliation report
Answer
|
Quantity
|
|
|
|||
|
|
|
|
|||
| Beginning Inventory |
12,000
|
|
|
||
| +Started In to Production |
96,000
|
|
|
||
| =Total Units to be accounted for: |
108,000
|
|
|
||
|
|
Equivalent Units
|
||||
|
Quantity
|
Material
|
Conversion
|
|||
| Beginning Inventory |
12,000
|
12,000
|
12,000
|
||
| +Started and Completed |
86,000
|
86,000
|
86,000
|
||
| +Ending Inventory |
10,000
|
10,000
|
5,000
|
||
| =Total units accounted for |
108,000
|
108,000
|
103,000
|
||
You have to do the bottom portion of total quantity first, due to the information
given. Transferred out, 98,000, is equal to beginning inventory plus started and
completed. You are given the beginning of 12,000, so 98,000 -12,000 =
86,000 started and completed. You are given ending inventory.
When the bottom part is done, there is no real need to do the top unless you are
asked to do it. Now that you know the total of 108,000, subtract the beginning
inventory of 12,000 and you get 96,000 started, which is not used for anything.
Equivalent units:
Weighted average means that beginning inventory is 100%
Started and completed is always 100%
Ending inventory, material is 100% because it was all added when the units
were started. Conversion is 50% of the 10,000 quantity.
B.
|
|
(labor + O/H)
|
||
| Costs: |
Materials
|
Conversion
|
|
| Beginning Inventory |
$21,090
|
$11,800
|
|
| +Current Period |
$232,900
|
$176,300
|
|
| Total Costs |
$253,990
|
$188,100
|
|
|
|
|
||
| / Equivalent Units above |
108,000
|
103,000
|
|
|
|
|
||
| = Cost per Eq. Unit |
$2.35
|
$1.83
|
C. Value WIP:
Material: 10,000 x $2.35 = $23,500
Conversion: 5,000 x $1.83 = $ 9,150
Total value $32,650 WIP value
Value Finished Goods:
12,000 beginning
+ 86,000 started and completed
98,000 x $4.18 total cost per unit = $409,640
total complete
Total Inventory Costs = $442,290
Total beginning + added this period costs = $442,090
Difference due to rounding
13. A manufacturing company uses the FIFO method and a process costing system. The company began the month with 1,000 units in process that were 55% complete as to conversion. During the month, 43,800 units were started. At the end of the month, 800 units were in process that were 60% complete as to conversion. Materials are added 25% at 10% of conversion and 75% at 80% of conversion. Cost information for the month is as follows:
|
Material
|
Conversion
|
|
| Beginning Inventory |
$13,181
|
$6,732
|
| Added this period |
$66,970
|
$29,040
|
A. Calculate equivalent units for material and conversion
B. Calculate the cost per equivalent unit for material and conversion
C. Prepare a cost reconciliation report
Answer
A.
|
Quantity
|
|
|
|||
|
|
|
|
|||
| Beginning Inventory |
1,000
|
|
|
||
| +Started In to Production |
43,800
|
|
|
||
| =Total Units to be accounted for: |
44,800
|
|
|
||
|
|
Equivalent Units
|
||||
|
Quantity
|
Material
|
Conversion
|
|||
| Beginning Inventory |
1,000
|
750
|
450
|
||
| +Started and Completed |
43,000
|
43,000
|
43,000
|
||
| +Ending Inventory |
800
|
200
|
480
|
||
| =Total units accounted for |
44,800
|
43,950
|
43,930
|
||
Equivalent units:
Beginning material: The process is 55% complete for materials and materials
are added 25% when conversion is 10% and the rest later. The later point,
80% of conversion has not yet occurred, so only 25% has been added before
the beginning of this period. FIFO only takes the % that is added this period,
which would be the 75%, or 1 – 25% last period.
Beginning conversion: Conversion was already 55% done, so 45% is done this
period ( 1- 55% = 45%. FIFO only counts work done this period.
Ending material: same logic as beginning, since it is only 60% complete for
conversion, the other 75% which is added at 80% has not happened yet. So,
only 25% of materials has been added this period.
Ending conversion: 60% done, so 60% is used
B.
|
|
(labor + O/H)
|
||
| Costs: |
Materials
|
Conversion
|
|
| Beginning Inventory |
$0
|
$0
|
|
| +Current Period |
$66,970
|
$29,040
|
|
| Total Costs |
$66,970
|
$29,040
|
|
|
|
|
||
| / Equivalent Units above |
43,950
|
43,930
|
|
|
|
|
||
| = Cost per Eq. Unit |
$1.52
|
$0.66
|
C. Value WIP:
Material: 200 x $1.52 = $ 304
Conversion: 480 x $.66 = $ 317
Total value $ 621 WIP value
Value Finished Goods:
Beginning Inventory dollars $ 19,913
Beginning inventory work this period:
Material: 750 x $1.52 = $ 1,140
Conversion: 450 x $0.66 = $ 297
Started/Completed 43,000 x $2.18 = $ 93,740
Total value of finished goods $115,090
Total Inventory Costs = $115,711
Total beginning + added this period costs = $115,923
Difference due to rounding