True/False Questions

1. In a process costing system, the costs of one processing department become part of
the costs of the next processing department. Ans: True

2. The equivalent units of production will be the same under the weighted-average and the FIFO
method if there is no beginning work in process inventory. Ans: True

3. Under the weighted-average method, the equivalent units used to compute the unit costs of
ending inventories relate only to work done during the current period. Ans: False

4. In order to equitably allocate costs in a process costing system, dissimilar products

are restated in terms of equivalent units by weighting the number of units produced by
their market values. Ans: False

In a process costing system, units transferred to the next processing department are
presumed to be 100% complete with respect to the work performed by the transferring
department. Ans: True

5. Under a weighted-average process costing system when all materials are added at
the beginning of the production process, the equivalent units for materials is equal to
the units completed and transferred out. Ans: False

6. In calculating cost per equivalent unit under the weighted-average method,

prior period costs are combined with current period costs. Ans: True

7. The equivalent units of production for a department using the FIFO process
costing method is equal to the number of units completed plus the equivalent units in
the ending inventory. Ans: False

8. The step-down method of cost allocation is more accurate than the direct method
since the step-down method considers services that service departments provide to
each other. Ans: True

9. The step-down method and the direct method of cost allocation will result in the same amount of
service department cost being allocated to a given operating department, although the step-down
method is easier to apply than the direct method. Ans: False
10. The order in which the costs of service departments are allocated will affect the amounts
allocated to an operating department when the direct method is used. Ans: False

11. The units in beginning work in process inventory plus the units started into
production must equal the units transferred out of the department plus the units
in ending work in process inventory. Ans: True

12. In a process costing system, direct labor cost combined with manufacturing
overhead cost is known as conversion cost. Ans: True

13. Process costing is employed in industries that produce basically homogeneous

products such as bricks, flour, or cement but would not be appropriate for assembly-type
operations such as those that manufacture computers. Ans: False

14. Process costing is used where many different products are produced each
period to customer specifications. Ans: False
Multiple Choice Questions

1. Which of the following statements related to job-order costing and process

costing are true?

a. Under both costing methods, manufacturing overhead costs are

included in the computation of unit product costs.
b. Under both costing methods, the journal entry to record the completion
of production will involve crediting a work in process account.
c. Under both costing methods, the journal entry to record the cost of
goods sold will involve crediting the finished goods account.
d. All of the above are true.

2. The completion of goods is recorded as a decrease in the work in process

inventory account when using:

Job-order costing Process costing

a. Yes No
b. Yes Yes
c. No Yes
d. No No
3. In process costing, a separate work in process account is kept for each:
a. individual order.
b. equivalent unit.
c. processing department.
d. cost category (i.e., materials, conversion cost).

4. The weighted-average method of process costing differs from the FIFO

method of process costing in that the weighted-average method:
a. does not consider the degree of completion of beginning
work in process inventory when computing equivalent units of
production.
b. considers ending work in process inventory to be fully complete.
c. will always yield a higher cost per equivalent unit.
d. All of the above.

5. Which of the following are needed to compute equivalent units for

conversion costs under the weighted-average method of process costing?

Percentage completion of Percentage completion of

beginning work in process ending work in process
A) Yes Yes
B) No Yes
 C) Yes No
D) No No

6. Malcolm Company uses a weighted-average process costing system. All

materials at Malcolm are added at the beginning of the production process.
The equivalent units for materials at Malcolm would be the sum of:
a. units in ending work in process and the units started.
b. units in beginning work in process and the units started.
c. units in ending work in process and the units started and completed.
d. units in beginning work in process and the units started and completed

7. In the computation of costs per equivalent unit, the weighted-average

method of process costing considers:
a. costs incurred during the current period only.
b. costs incurred during the current period plus cost of ending work in
process inventory.
c. costs incurred during the current period plus cost of beginning
work in process inventory.
d. costs incurred during the current period less cost of beginning work in
process inventory.

8. Which of the following are needed to compute the cost per equivalent unit
for materials under the weighted-average method of process costing?

Material cost assigned to beginning Material cost added to production

work in process last period during the current period
A) Yes Yes
B) No Yes
C) Yes No
D) No No
9. Under which of the following conditions will the FIFO method of process
costing result in the same amount of cost being transferred to the next
department as the weighted-average method?
a. When the beginning and ending inventories are each fifty percent complete.
b. When there is no beginning inventory.
c. When there is no ending inventory.
d. When units in the beginning inventory are all completed and
transferred at the same time.

10. In order to compute equivalent units of production using the FIF0 method of
process costing, work for the period must be broken down into parts:
a. completed during the period and units in ending inventory.
b. completed from beginning inventory, started and completed
during the month, and units in ending inventory.
c. started during the period and units transferred out during the period.
d. processed during the period and units completed during the period.

11. Which of the following methods of allocating service departments take into
account all of the effects of interdepartmental services?

Direct Step-Down
A) Yes Yes
B) Yes No
C) No Yes
D) No No

12. All of the following statements are correct when referring to process costing except:
a. Process costing would be appropriate for a jeweler who makes
custom jewelry to order.
b. A process costing system has the same basic purposes as a job-order
costing system.
c. Units produced are indistinguishable from each other.
d. Costs are accumulated by department.

13. For which of the following would it be best to use an operation costing system?
a. home remodeling
b. automobile production
c. cement used for roadways
d. trash bags used for yard waste

14. Health Beverage Company uses a process costing system to collect costs
related to the production of its celery flavored cola. The cola is first processed
in a Mixing Department at Health and is then transferred out and finished up
in the Bottling Department. The finished cases of cola are then transferred to
Finished Goods Inventory. The following information relates to Health's two
departments for the month of January:
 Mixing Bottling
Cases of cola in work in process, January 1.................... 10,000 3,000
Cases of cola completed/transferred out during January. 77,000 ?
Cases of cola in work in process, January 31.................. 4,000 8,000

How many cases of cola were completed and transferred to Finished Goods
Inventory during January?
a. 66,000
b. 71,000
c. 72,000
d. 74,000

15. The Assembly Department started the month with 83,000 units in its
beginning work in process inventory. An additional 334,000 units were
transferred in from the prior department during the month to begin
processing in the Assembly Department. There were 34,000 units in the
ending work in process inventory of the Assembly Department.
How many units were transferred to the next processing department during the month?
a. 417,000
b. 285,000
c. 451,000
d. 383,000

16. Colby Company has a process costing system in which the weighted-average method is
used. The company adds all materials at the beginning of the process in the Molding
Department, which is the first of two stages of its production process. Information
concerning the materials used in the Molding Department during March is as follows:

Materials
Units Costs
22,00
Work in process at March 1............................................. 0 $11,000
90,00
Units started during March.............................................. 0 $46,120
Units completed and transferred to next department 97,00
during March................................................................ 0

What was the materials cost of the work in process inventory at March 31?
a. $11,220
b. $7,500
c. $5,100
d. $7,650

17. Barnett Company uses the weighted-average method in its process costing
system. The company adds materials at the beginning of the process in
Department M. Conversion costs were 75% complete with respect to the
 4,000 units in work in process at May 1 and 50% complete with respect to the
6,000 units in work in process at May 31. During May, 12,000 units were
completed and transferred to the next department. An analysis of the costs
relating to work in process at May 1 and to production activity for May follows:

Materials Conversion
Work in process 5/1....................... $13,800 $3,740
Costs added during May................ $42,000 $26,260

The total cost per equivalent unit for May was:

a. $5.02
b. $5.10
c. $5.12
d. $5.25

18. Maurice Company uses the weighted-average method in its process costing system.
The company adds materials at the beginning of the process in the Forming
Department, which is the first of two stages of its production process. Information
concerning the materials used in the Forming Department in April follows:

Materials
Units Costs
Work in process at April 1............................................... 12,000 $6,000
100,00
Units started during April................................................ 0 $51,120
Units completed and transferred to next department
during April.................................................................. 88,000

What was the materials cost of the work in process at April 30?
a. $6,120
b. $11,040
c. $12,000
d. $12,240

19. Limber Company uses the weighted-average method in its process costing system.
Operating data for the first processing department for the month of June appear below:

Percent
Complete with
Respect to
Units Conversion
18,00
Beginning work in process inventory........ 0 80%
81,00
Started into production during June........... 0
17,00
 Ending work in process inventory............. 0 80%

According to the company's records, the conversion cost in beginning work in

process inventory was $15,264 at the beginning of June. Additional conversion
costs of $68,208 were incurred in the department during the month.
What was the cost per equivalent unit for conversion costs for the month?
(Round off to three decimal places.)
a. $0.873
b. $0.696
c. $0.842
d. $1.060

20. Jimmy Company uses the weighted-average method in its process costing
system. The ending work in process inventory consists of 9,000 units. The ending
work in process inventory is 100% complete with respect to materials and 70%
complete with respect to labor and overhead. If the cost per equivalent unit for
the period is $3.75 for material and $1.25 for labor and overhead, what is the
balance of the ending work in process inventory account?
a. $41,625
b. $33,750
c. $45,000
d. $31,500
21. Jersey Company has a process costing system in which it uses the weighted-
average method. The equivalent units for conversion costs for the month were
47,500 units. The beginning work in process inventory consisted of 15,000
units, 60% complete with respect to conversion costs. The ending work in
process inventory consisted of 10,000 units, 75% complete with respect to
conversion costs. The number of units started during the month was:
a. 25,000 units
b. 34,000 units
c. 35,000 units
d. 40,000 units

22. Wit Company uses the weighted-average method in its process costing
system. Information for the month of May concerning Department A, the
first stage of the company's production process follows:

Materials Conversion
Work in process, beginning....................... $ 4,000 $ 3,000
Current costs added................................... 20,000 16,000
Total costs.................................................. $24,000 $19,000
Equivalent units......................................... 100,000 95,000
Costs per equivalent unit........................... $0.24 $0.20
Goods completed....................................... 90,000 units
Work in process, ending............................ 10,000 units
 Material costs are added at the beginning of the process. The ending work in process is
50% complete with respect to conversion costs. How would the costs be distributed?

Ending work in
Goods completed and transferred out process
A) $39,600 $3,400
B) $39,600 $4,400
C) $43,000 $0
D) $44,000 $3,400

23. Koehl Corporation uses the direct method to allocate service department costs to
operating departments. The company has two service departments, Administrative
and Facilities, and two operating departments, Assembly and Wholesaling.

Service Department Operating Department

Assembl
Administrative Facilities y Wholesaling
Departmental costs.... $19,440 $71,340 $185,580 $392,950
Employee hours........ 4,000 2,000 22,000 14,000
Space occupied......... 3,000 1,000 39,000 2,000

Administrative costs are allocated on the basis of employee hours and Facilities
costs are allocated on the basis of space occupied. The total Wholesaling
Department cost after the allocations of service department costs is closest to:
a. $403,990
b. $396,430
c. $403,642
d. $402,601

24. Behrend Clinic uses the direct method to allocate service department costs to
operating departments. The clinic has two service departments, Personnel
and Support, and two operating departments, Prenatal and Pediatrics.

Service Department Operating Department

Personnel Support Prenatal Pediatrics
Departmental costs.... $29,200 $55,040 $242,050 $423,200
Employee hours........ 5,000 1,000 26,000 14,000
Space occupied......... 3,000 2,000 35,000 8,000
Personnel Department costs are allocated on the basis of employee hours
and Support Department costs are allocated on the basis of space occupied
in square feet. The total Pediatrics Department cost after the allocations of
service department costs is closest to:
a. $441,260
b. $443,660
c. $433,440
d. $444,471
 Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 4B LO: 8 Level: Easy

Solution:
Operating
Service Department Department
Admin- Facil- Assem- Whole-
istrative ities bly saling Total
Departmental costs
before allocation..... $19,440 $71,340 $185,580 $392,950 $669,310
Allocation:
Administrative costs
(22/36, 14/36) *...... (19,440) 11,880 7,560
Facilities costs
(39/41, 2/41)**....... (71,340) 67,860 3,480
Total cost after
allocation................ $ 0 $ 0 $265,320 $403,990 $669,310

Based on the employee hours in the two operating departments, which

are 22,000 hours + 14,000 hours = 36,000 hours
**Based on the space occupied by the two operating departments, which is
39,000 + 2,000 = 41,000.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking

AICPA FN: Reporting Appendix: 4B LO: 8 Level: Easy

Solution:
Service Department Operating Department
Personnel Support Prenatal Pediatrics Total
Departmental
costs before
allocation............ $29,200 $55,040 $242,050 $423,200 $749,490
Allocation:
Personnel costs
(26/40, 14/40)* (29,200) 18,980 10,220
Support costs
(35/43, 8/43)** (55,040) 44,800 10,240
Total cost after
allocation............ $ 0 $ 0 $305,830 $443,660 $749,490