Chapter 8

Process Costing

True/False Questions

T F 1. Process costing assumes all units are homogeneous and follow the same path through the
production process.

Answer: True Difficulty: Simple Learning Objective: 1

AACSB: Analytic

T F 2. Process costing is based on the assumption that all units in a large group have the same
unit cost.

Answer: True Difficulty: Simple Learning Objective: 1

AACSB: Analytic

T F 3. The equivalent unit concept applies to both job costing and process costing.

Answer: False Difficulty: Simple Learning Objective: 1

AACSB: Analytic

T F 4. In equivalent unit terms, two cans of paint that are 50% full are equivalent to four cans of
paint that are 25% full.

Answer: True Difficulty: Moderate Learning Objective: 1

AACSB: Analytic

T F 5. The equivalent unit concept refers to the actual amount of work during the period stated
in terms of the work required to complete an equal number of whole units.

Answer: True Difficulty: Moderate Learning Objective: 1

AACSB: Analytic

T F 6. The first step in assigning costs to products in a process costing system is to compute the
equivalent units of production (EUP).

Answer: False Difficulty: Simple Learning Objective: 2

AACSB: Analytic

Test Bank, Chapter 8 175

 T F 7. The number of units in the beginning Work-in-Process Inventory plus the units
transferred out during the period equals the number of units started during the period plus
the number of units in the ending Work-in-Process Inventory.

Answer: False Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

T F 8. If materials are added continuously throughout the production process, then the
equivalent units for materials will always equal the equivalent units for the conversion
costs.

Answer: True Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

T F 9. If materials are only added at the beginning of the production process, then the degree of
completion for materials in the ending Work-in-Process Inventory is always 100%.

Answer: True Difficulty: Simple Learning Objective: 2

AACSB: Analytic

T F 10. If materials are only added at the beginning of the production process, then the degree of
completion for materials in the ending Work-in-Process Inventory will be the same as the
degree of completion for the conversion costs.

Answer: False Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

T F 11. If materials are only added at the end of the production process, then the degree of
completion for units in the ending Work-in-Process Inventory is always 0%.

Answer: True Difficulty: Complex Learning Objective: 2

AACSB: Analytic

T F 12. The number of units transferred out cannot be greater than the equivalent number of units
produced during the period.

Answer: False Difficulty: Complex Learning Objective: 2

AACSB; Analytic

T F 13. The weighted-average approach to process costing combines the work and costs done in
prior periods with the work and costs done in the current period.

176 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 Answer: True Difficulty: Simple Learning Objective: 2
AACSB: Analytic

T F 14. The ending Work-in-Process Inventory balance using the first-in, first-out (FIFO)
approach to process costing includes only work and costs done in the current period.

Answer: True Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

T F 15. The first-in, first-out (FIFO) approach to process costing does not average the costs of
production over the number of equivalent units produced.

Answer: False Difficulty: Simple Learning Objective: 2

AACSB: Analytic

T F 16. The fourth step in assigning costs to products using process costing is to compute the
input cost(s) per equivalent unit of production.

Answer: True Difficulty: Simple Learning Objective: 3

AACSB: Analytic

T F 17. In a weighted-average process costing system, the costs in the beginning Work-in-
Process Inventory are not used to compute the costs transferred-out.

Answer: False Difficulty: Complex Learning Objective: 3

AACSB: Analytic

T F 18. The production cost report is used by managers to control the flow of costs and units
during the production process.

Answer: True Difficulty: Simple Learning Objective: 4

AACSB: Analytic

T F 19. In general, the production cost report summarizes the costs assigned to (a) the jobs
completed during the period and (b) the ending Work-in-Process Inventory.

Answer: False Difficulty: Simple Learning Objective: 4

AACSB: Analytic

T F 20. The total units to account for on the production cost report is equal to the units in the
ending Work-in-Process Inventory plus the units started during the current period.

Test Bank, Chapter 8 177

 Answer: False Difficulty: Moderate Learning Objective: 4
AACSB: Analytic

T F 21. The total costs accounted for on the production report is equal to the costs transferred out
plus the costs assigned to the ending Work-in-Process Inventory.

Answer: True Difficulty: Simple Learning Objective: 4

AACSB: Analytic

T F 22. One advantage of first-in, first-out (FIFO) process costing is that it separates current
period costs from the costs of products in the beginning inventory.

Answer: True Difficulty: Simple Learning Objective: 5

AACSB: Analytic

T F 23. First-in, first-out (FIFO) process costing transfers out the costs in beginning inventory
before transferring out the costs associated with units started and completed.

Answer: True Difficulty: Moderate Learning Objective: 5

AACSB: Analytic

T F 24. Weighted-average process costing provides better information about the work done in the
current period.

Answer: False Difficulty: Simple Learning Objective: 5

AACSB: Analytic

T F 25. First-in, first-out (FIFO) process costing requires one additional step in assigning costs to
the units transferred out and the ending Work-in-Process Inventory.

Answer: True Difficulty: Simple Learning Objective: 5

AACSB: Analytic

T F 26. If the beginning Work-in-Process inventory is zero, first-in, first-out (FIFO) and
weighted-average process costing will assign the same amount to the units transferred
out.

Answer: True Difficulty: Complex Learning Objective: 5

AACSB: Analytic

178 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 T F 27. In general, the ending Work-in-Process Inventory value computed using first-in, first-out
(FIFO) will be the same as the ending value computed using weighted-average process
costing.

Answer: False Difficulty: Complex Learning Objective: 5

AACSB: Analytic

T F 28. A company that uses first-in, first-out (FIFO) process costing to assign and control costs,
must use FIFO to value its Finished Goods Inventories.

Answer: False Difficulty: Complex Learning Objective: 5

AACSB: Analytic

T F 29. It is possible for units in the beginning Work-in-Process Inventory to also be part of the
ending Work-in-Process Inventory.

Answer: True Difficulty: Moderate Learning Objective: 5

AACSB: Analytic

T F 30. The T-accounts used for weighted-average process costing are the same as the T-accounts
used for first-in, first-out (FIFO) process costing.

Answer: True Difficulty: Simple Learning Objective: 5

AACSB: Analytic

T F 31. The more prices change during a period, the greater the difference between the costs
assigned to units transferred out using weighted-average costing and the costs assigned to
units transferred out using first-in, first-out (FIFO).

Answer: True Difficulty: Moderate Learning Objective: 6

AACSB: Analytic

T F 32. First-in, first-out (FIFO) is consistent with generally accepted accounting principles
(GAAP), whereas weighted-average costing is not consistent with GAAP.

Answer: False Difficulty: Simple Learning Objective: 6

AACSB: Analytic

Test Bank, Chapter 8 179

 T F 33. In general, weighted-average costing is simpler to use while first-in, first-out (FIFO)
costing provides greater decision-making benefits to managers.

Answer: True Difficulty: Simple Learning Objective: 6

AACSB: Analytic

T F 34. Prior department costs are the material, labor, and overhead costs incurred in a previous
department and charged to a subsequent department in the production process.

Answer: True Difficulty: Simple Learning Objective: 6

AACSB: Analytic

T F 35. The degree of completion associated with prior department costs is always 100%.

Answer: True Difficulty: Moderate Learning Objective: 6

AACSB: Analytic

T F 36. In essence, prior department costs should be treated as additional material costs in the
subsequent department.

Answer: True Difficulty: Moderate Learning Objective: 6

AACSB: Analytic

T F 37. It is possible for one department to use weighted-average costing and another department
in the same company to use first-in, first-out (FIFO) costing.

Answer: True Difficulty: Simple Learning Objective: 6

AACSB: Analytic

T F 38. Prior department costs are ultimately the responsibility of the last department in the
production process.

Answer: False Difficulty: Simple Learning Objective: 6

AACSB: Analytic

T F 39. It is not necessary to use predetermined manufacturing overhead rates in process costing
systems.

Answer: False Difficulty: Moderate Learning Objective: 7

AACSB: Analytic

180 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 T F 40. Job costing requires more detailed recordkeeping than process costing.

Answer: True Difficulty: Simple Learning Objective: 7

AACSB: Analytic

T F 41. Operation costing is used in manufacturing goods that have some common characteristics
and some individual characteristics.

Answer: True Difficulty: Simple Learning Objective: 8

AACSB: Analytic

T F 42. In general, conversion costs are the same for each work order (or batch) in an operation
costing system.

Answer: False Difficulty: Simple Learning Objective: 8

AACSB: Analytic

T F 43. Operational production processes use batches of units as cost objects instead of jobs (job
costing) or units (process costing).

Answer: True Difficulty: Moderate Learning Objective: 8

AACSB: Analytic

T F 44. Operational costing accounts for material costs like job costing and conversion costs like
process costing.

Answer: True Difficulty: Simple Learning Objective: 8

AACSB: Analytic

T F 45. Work orders typically take the place of job orders when a company moves from a job
costing system to an operation costing system.

Answer: True Difficulty: Simple Learning Objective: 8

AACSB: Analytic

T F 46. An automobile manufacturer is more likely to use a process costing system than an
operation costing system.

Answer: False Difficulty: Simple Learning Objective: 8

AACSB: Analytic

Test Bank, Chapter 8 181

Multiple Choice Questions

Part A: Conceptual Questions

47. Which of the following statements is (are) true regarding product costing?

(A) Twenty cans of paint that are 25% full are equivalent to four cans of paint that are
completely full.
(B) The equivalent unit concept refers to the actual amount of work during the period stated in
terms of whole units.

A) Only A is true
B) Only B is true.
C) Both A and B are true.
D) Neither A nor B is true.

Answer: B Difficulty: Simple Learning Objective: 1

AACSB: Analytic

48. Which of the following organizations would most likely be accounted for using a process costing
system?
A) Gasoline refinery
B) Automobile retailer
C) Airplane manufacturer
D) Public accounting firm

Answer: A Difficulty: Simple Learning Objective: 1

AACSB: Analytic

49. The following examples briefly describe the manufacture of two different products. Which
costing method (job-order or process) would be the best method to use for each project?

I. Fred Puetz manufactures Fred's Wine Cooler. Fred once made the statement, "People can
have any flavor of Fred's Wine Cooler they want as long it's boysenberry."
II. Ahmad Aerondonetics is manufacturing three space shuttles for the country of Kricherra.
Each shuttle is slightly different and production will last approximately two years.

I II
A) Process Process
B) Job-order Job-Order
C) Process Job-Order
D) Job-Order Process

Answer: C Difficulty: Moderate Learning Objective: 1

AACSB: Analytic

182 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 50. An equivalent unit of conversion costs is equal to the amount of conversion costs required to
A) start a unit.
B) complete a unit.
C) transfer a unit in.
D) transfer a unit out.

Answer: B Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

51. Which of the following process costing steps must be done last?
A) Compute the equivalent units of production
B) Compute the costs per equivalent unit of production.
C) Measure the physical flow of resources.
D) Identify the product costs to account for.

Answer: B Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

52. If the units in the beginning Work-in-Process Inventory are greater than the units in the ending
Work-in-Process Inventory, then the units transferred out are
A) more than the units started during the period.
B) equal to the equivalent units of production.
C) less the units started during the period.
D) equal to the actual work done during the period.

Answer: A Difficulty: Simple Learning Objective: 2

AACSB: Analytic

53. Which of the following statements concerning a process cost accounting system is false?
A) The units in beginning inventory plus the units transferred out during the month should equal
the units in the ending inventory plus the units transferred in during the month.
B) If material is used evenly throughout a process, the number of equivalent material units will
equal the number of equivalent units for the conversion (processing) costs.
C) A predetermined overhead rate must be used in a process costing system to assign indirect
overhead costs to departments.
D) The costs of operating a service department are accumulated separately and then charged to
the work-in-process of the production departments in proportion to their use of the service.

Answer: A Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

54. In the computation of the manufacturing cost per equivalent unit, the weighted average method of
process costing considers
A) current costs only.
B) current costs plus cost of beginning Work-in-Process Inventory.
C) current costs plus cost of ending Work-in-Process Inventory.

Test Bank, Chapter 8 183

 D) current costs less cost of beginning Work-in-Process Inventory.

Answer: B Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

55. In order to compute equivalent units of production using the FIFO method of process costing,
work for the period must be broken down to units
A) completed during the period and units in ending inventory.
B) started during the period and units transferred out during the period.
C) completed from beginning inventory, started and completed during the month, and units in
ending inventory.
D) processed during the period and units completed during the period.

Answer: C Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

56. Blue Company has beginning and ending Work-in-Process Inventories that are 45% and 10%
complete, respectively. Materials are added at the beginning of the process. If first-in, first-out
(FIFO) process costing is used, the total equivalent units for materials will equal the number of
units
A) transferred out during the period.
B) started and completed during the period.
C) started into the process during the period.
D) started into the process plus the units in the ending inventory.

Answer: C Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

57. Red Company has beginning and ending Work-in-Process Inventories that are 45% and 10%
complete, respectively. Materials are added at the beginning of the process. If weighted-average
process costing is used, the total equivalent units for materials will equal the number of units
A) transferred out during the period.
B) started and completed during the period.
C) started into the process during the period.
D) transferred out during the process plus the units in the ending inventory.

Answer: D Difficulty: Moderate Learning Objective: 2

AACSB: Analytic

184 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 59. A form prepared periodically for each processing department summarizing (1) the units for which
the department is accountable and the disposition of these units and (2) the costs charged to the
department and the allocation of these costs is called a
A) schedule of Cost of Goods Manufactured.
B) production report.
C) job order cost sheet.
D) schedule for Cost of Goods Sold.

Answer: B Difficulty: Simple Learning Objective: 4

AACSB: Analytic

60. Materials are added at the beginning of a process in a process costing system. The beginning
Work-in-Process Inventory was 30% complete as to conversion costs. Using first-in, first-out
(FIFO) process costing, the total equivalent units for material are
A) beginning inventory this period for this process.
B) units started this period in this process.
C) units started this period in this process plus the beginning inventory.
D) units started this period in this process plus 70% of the beginning inventory this period.

Answer: B Difficulty: Moderate Learning Objective: 5

AACSB: Analytic

61. An error was made by ROC Company in computing the percentage-of-completion of the current
year's ending Work-in-Process Inventory. The error resulted in the assignment of a lower
percentage of completion to each component of the inventory than actually was the case. There was
no beginning Work-in-Process Inventory. What is the effect of this error on (1) cost assigned to
cost of goods completed for the period and (2) the computation of costs per equivalent unit?

1 2
A) Understated understated
B) Understated Overstated
C) Overstated Understated
D) Overstated Overstated
Answer: D Difficulty: Complex Learning Objective: 5
AACSB: Analytic

62. Which of the following statements regarding first-in, first-out (FIFO) process costing is/are true?

(A) First-in, first-out (FIFO) process costing transfers out the costs in beginning inventory before
transferring out the costs associated with units started and completed.
(B) First-in, first-out process costing requires one additional step in assigning costs to the units
transferred out and the ending Work-in-Process Inventory.

A) A only.

Test Bank, Chapter 8 185

 B) B only.
C) Both A and B.
D) Neither A nor B.

Answer: A Difficulty: Simple Learning Objective: 5

AACSB: Analytic

63. In a production-cost report using process costing, transferred-in costs are similar to
A) material added at the beginning of the process.
B) conversion costs added during the process.
C) costs transferred to the next process.
D) costs included in beginning inventory.

Answer: A Difficulty: Moderate Learning Objective: 6

AACSB: Analytic

64. Additional materials are added in the second department of a four-department production process.
However, this addition does not increase the number of units being produced in the second
department, but will
A) increase the equivalent units of production.
B) increase the total cost per unit.
C) decrease the value of the transferred-in costs.
D) decrease the total costs to account for.

Answer: B Difficulty: Moderate Learning Objective: 6

AACSB: Analytic

65. Under which of the following conditions will the FIFO method produce the same cost of goods
manufactured as the weighted-average method?
A) There is no ending inventory.
B) There is no beginning inventory.
C) The beginning and ending inventories are equal.
D) The beginning and ending inventories are both 50% complete.

Answer: B Difficulty: Moderate Learning Objective: 6

AACSB: Analytic

66. Which of the following statements is (are) true?

I. For cost control, the FIFO method of process costing is better than the weighted-average
method.
II. The weighted-average method of process costing assigns more cost to units completed
(transferred out) than the FIFO method.

A) I only.

186 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 B) II only.
C) Both I and II.
D) Neither I nor II.

Answer: A Difficulty: Simple Learning Objective: 6

AACSB: Analytic

67. Which of the following statements is (are) false?

(A) Operations costing accounts for material costs like job costing and conversion costs like
process costing.
(B) An automobile manufacturer is more likely to use an operations costing system than a
process costing system.

A) A only.
B) B only.
C) Both A and B.
D) Neither A nor B.

Answer: C Difficulty: Moderate Learning Objective: 8

AACSB: Analytic

68. Operations costing systems are used when the products have
A) used a standardized method that is repeatedly performed.
B) common characteristics and no individual characteristics.
C) individual characteristics and no common characteristics.
D) been mass produced in a continuous production process.
E) some common characteristics and some individual characteristics.

Answer: E Difficulty: Simple Learning Objective: 8

AACSB: Analytic

69. An operations costing system is

A) identical to a process costing system except that actual cost is used for manufacturing
overhead.
B) the same as a process costing system except that materials are allocated on the basis of
batches of production.
C) the same as a job order costing system except that materials are accounted for in the same
way as they are in a process costing system.
D) the same as a job order costing system except that no overhead allocations are made since
actual costs are used throughout.
E) a system in which manufacturing activities are finely divided into individual, discrete steps or
operations.

Answer: B Difficulty: Simple Learning Objective: 8

AACSB: Analytic

Test Bank, Chapter 8 187

 70. Predetermined manufacturing overhead rates are used in all of the following costing systems
except
A) job costing.
B) process costing.
C) operations costing.
D) merchandise costing.

Answer: D Difficulty: Simple Learning Objective: 8

AACSB: Analytic

Part B: Computational Questions

71. The Blue Corporation started and completed 4,800 units during February. Blue started the month
with 700 units in process (40% complete) and ended the month with 400 units in process (40%
complete). How many units were transferred to the Finished Goods Inventory during February?
A) 5,500.
B) 5,380.
C) 5,100.
D) 4,400.
E) 4,100.
F) Some other answer _______________.

Answer: A Difficulty: Moderate Learning Objective: 2

Response: 4,800 + 700- 400 = 5,100

AACSB: Analytic

72. The ALG Manufacturing Company has gathered the following information for the month of
September:

 6,000 units in the beginning Work-in-Process Inventory (75% complete as to materials,

1/3 complete with respect to the conversion costs)
 60,000 units were started into production
 50,000 units were completed and transferred to the next department
 The ending Work-in-Process Inventory is complete as to materials but only 3/8 complete
with respect to conversion costs.

What are the equivalent units of production (EUP) for materials in the month of September
assuming ALG uses weighted-average process costing?
A) 52,000
B) 64,500
C) 66,000
D) 61,500
E) Some other answer _______________.

Answer: C Difficulty: Moderate Learning Objective: 2

188 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 Response: 50,000 + 16,000 = 66,000
AACSB: Analytic

73. The ALG Manufacturing Company has gathered the following information for the month of
September:

 6,000 units in the beginning Work-in-Process Inventory (75% complete as to materials, 1/3
complete with respect to the conversion costs)
 60,000 units were started into production
 50,000 units were completed and transferred to the next department
 he ending Work-in-Process Inventory is complete as to materials but only 3/8 complete with
respect to conversion costs.

What are the equivalent units of production (EUP) for the conversion costs in the month of
September assuming ALG uses weighted-average process costing?
A) 64,500
B) 56,000
C) 61,500
D) 54,000
E) Some other answer _______________.

Answer: B Difficulty: Moderate Learning Objective: 2

Response: 50,000 + 16,000x 3/8 = 56,000

AACSB: Analytic

74. ABC Company has a beginning Work-in-Process Inventory of 25,000 units (40% complete).
During the period, 110,000 units were started and the ending Work-in-Process Inventory
consisted of 20,000 units (80%). What are the equivalent units for conversion costs using
weighted-average process costing?
A) 110,000
B) 115,000
C) 121,000
D) 131,000
E) some other answer _______________.

Answer: D Difficulty: Simple Learning Objective: 2

Response: Started and completed (115,000) + Ending inventory (.80 x 20,000) = 131,000
AACSB: Analytic

75. The Wisco Company has a process cost system. All materials are placed in process when the
process is first begun. At the beginning of September, there were no units of product in process.
During September 50,000 units were started; 5,000 of these were still in process at the end of
September and were 3/5 finished. The equivalent units of material in September were
A) 40,000

Test Bank, Chapter 8 189

 B) 45,000
C) 48,000
D) 50,000
E) Some other answer _______________.

Answer: D Difficulty: Simple Learning Objective: 2

Response: 50,000
AACSB: Analytic

76. The Wisco Company has a process cost system. All materials are placed in process when the
process is first begun. At the beginning of September, there were no units of product in process.
During September 50,000 units were started; 5,000 of these were still in process at the end of
September and were 3/5 finished. The equivalent units for the conversion costs in September
were
A) 40,000
B) 45,000
C) 48,000
D) 50,000
E) Some other answer _______________.

Answer: C Difficulty: Simple Learning Objective: 2

Response: 45,000 + 5,000(.60) = 48,000

AACSB: Analytic

77. Department B had a beginning inventory of 400 units, 1/4 completed; an ending inventory of 300
units, 2/3 completed, and received 900 units during the period from Department A. What was the
equivalent unit production of Department B, assuming weighted-average process costing?
A) 800 units.
B) 900 units.
C) 1,100 units.
D) 1,200 units.
E) 1,400 units.

Answer: D Difficulty: Simple Learning Objective: 2

Response: 1,000 + (300 x 2/3) = 1,200

AACSB: Analytic

78. Sussex Corporation's production cycle starts in the Mixing Department. The following
information is available for April:

Units
Work-in-process, April 30 (60% complete) 25,000
Total units in process during April 280,000
Work-in-process, April 1 (25% complete) 40,000

Materials are added at the beginning of the process in the Mixing Department. What are the

190 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 equivalent units of production for the month of April, assuming Sussex uses the weighted average
method?
Materials Conversion Costs
A) 240,000 260,000
B) 255,000 235,000
C) 280,000 270,000
D) 315,000 285,000
E) 320,000 295,000

Answer: C Difficulty: Complex Learning Objective: 2

Response: Materials: 255,000 (started and completed) + 25,000 (ending inventory) = 280,000
Conversion costs: 255,000 + 25,000(.60) = 270,000
AACSB: Analytic

79. Department A had no Work-in-Process at the beginning of the period, 1,000 units were completed
during the period, 200 units were 50% completed at the end of the period, and the following
manufacturing costs were debited to the departmental Work-in-Process account during the period

Direct materials (1,200 at $10) $12,000

Direct labor 5,500
Factory overhead 4,400

Assuming that all direct materials are placed in process at the beginning of production and
Department A uses weighted-average process costing, what is the total cost of the departmental
Work-in-Process Inventory at the end of the period?
A) $3,650
B) $2,900
C) $2,000
D) $1,825
E) Some other answer _______________.

Answer: B Difficulty: Complex Learning Objective: 3

Response:
Materials: $12,000/1,200 = $10.00 per unit
Conversion costs: ($5,500 + 4,400)/1,100 = $9.00
Ending inventory: 200($10.00) + 100($9.00) = $2,900
AACSB: Analytic

80. Read, Inc. instituted a new process in October 2008. During October, 10,000 units were started in
Department A. Of the units started, 8,000 were transferred to Department B, and 2,000 remained in
Work-in-Process at October 31, 2008. The Work-in-Process at October 31, 2008, was 100%
complete as to material costs and 50% complete as to conversion costs. Material costs of $27,000
and conversion costs of $36,000 were charged to Department A in October. What were the total
costs transferred to Department B assuming Department A uses weighted-average process costing?
A) $46,900
B) $53,600
C) $56,000
D) $57,120

Test Bank, Chapter 8 191

 E) Some other answer _______________.

Answer: B Difficulty: Complex Learning Objective: 3

Response:
[($27,000/10,000) x 8,000] + [($36,000/9,000) x 8,000] = $21,600 + 32,000 = $53,600
AACSB: Analytic

81. The Viva Company had 20,000 units in process on December 31, 2008 which was 80% complete
as to materials but only 40% complete as to conversion costs. The company's records show
40,000 units were transferred to the Finished Goods Inventory during January 2009. On January
31, 2009, 15,000 units were on hand which were 30% complete as to conversion costs and 60%
complete as to materials. What are the equivalent units of production for the conversion costs in
January, assuming Viva uses first-in, first-out (FIFO)?
A) 34,000
B) 35,000
C) 36,500
D) 41,500
E) some other answer _______________.

Answer: C Difficulty: Moderate Learning Objective: 3

Response:
Beginning inventory (20,000 x .60) + started and completed (20,000) + ending inventory (15,000
x .30) = 36,500
AACSB: Analytic

82. RST Company incurred $126,000 in material costs during July. Additionally, the 12,000 units in
the Work-in-Process Inventory on July 01 had materials assigned to them of $32,000, even
though they were only 5% complete as to materials. No additional units were started during July,
and there were no incomplete units on hand on July 31. What is the material cost per unit for
July, assuming RST uses weighted-average process costing?
A) $10.50
B) $11.59
C) $13.17
D) $15.49
E) some other answer _______________.

Answer: C Difficulty: Simple Learning Objective: 3

Response: ($126,000 + 32,000)/12,000 = $13.17

AACSB: Analytic

192 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 83. Beattie Company completed and transferred out 2,300 units in May 2008. There were 200 units
in the Work-in-Process Inventory on May 31, 2008, 30% complete as to conversion costs and
100% complete as to materials. The month's charges for conversion costs and material costs were
$9,440 and $6,250, respectively. There was no beginning inventory on May 01, 2008. What is
the cost of the work transferred-out during May?
A) $ 8,510
B) $14,950
C) $15,690
D) $16,250
E) some other answer _______________.

Answer: B Difficulty: Complex Learning Objective: 3

Response:
Started and completed units = 2,300
EUP (mat'l) = 2,300 + 200 = 2,500; EUP (conversion costs) = 2,300 + 60 = 2,360
Unit cost (mat'l) = $6,250/2,500 = $2.50; EUP (CC) = $9,440/2,360 = $4.00
2,300 ($2.50 + 4.00) = $14,950
AACSB: Analytic

84. Sussex Corporation's production cycle starts in the Mixing Department. The following
information is available for April:

Units
Work-in-process, April 30 (60% complete) 25,000
Total units in process during April 280,000
Work-in-process, April 1 (25% complete) 40,000

Materials are added at the beginning of the process in the Mixing Department. What are the
equivalent units of production for the month of April, assuming Sussex uses first-in, first-out
(FIFO), process costing.

Materials Conversion Costs

A) 240,000 235,000
B) 240,000 260,000
C) 280,000 270,000
D) 315,000 285,000
E) 320,000 295,000

Answer: B Difficulty: Simple Learning Objective: 5

Response:
Materials = 215,000 + 25,000 = 240,000
Conversion costs = 40,000(.75) + 215,000 + 25,000(.60) = 260,000
AACSB: Analytic

Test Bank, Chapter 8 193

Use the following to answer questions 85-90:

The WISCO Company uses a weighted-average process costing system. The following data are
available:

Beginning inventory -0-

Units started in production 20,000
Units finished during period 16,000
Units in process at end of the period
(complete as to materials; 1/4 complete as to labor and overhead) 4,000
Cost of materials used $35,200
Labor and overhead costs $37,400

85. Equivalent units of production for material are

A) 16,000.
B) 17,000.
C) 19,000.
D) 20,000.
E) Some other answer ______.

Answer: D Difficulty: Simple Learning Objective: 2

Response: 16,000 + 4,000 = 20,000

AACSB: Analytic

86. Equivalent units of production for labor and overhead are

A) 16,000.
B) 17,000.
C) 19,000.
D) 20,000.
E) Some other answer _________.

Answer: B Difficulty: Simple Learning Objective: 2

Response: 16,000 + 4,000(.25) = 17,000

AACSB: Analytic

87. Unit cost of material is

A) $2.20.
B) $2.07.
C) $1.85.
D) $1.76.
E) Some other answer _________.

Answer: D Difficulty: Simple Learning Objective: 3

Response: $35,200/20,000 = $1.76

194 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 AACSB: Analytic

88.Unit cost of labor and overhead is

A) $2.34.
B) $2.20.
C) $1.97.
D) $1.87.
E) Some other answer __________.

Answer: B Difficulty: Simple Learning Objective: 3

Response:
$37,400/17,000 = $2.20
AACSB: Analytic

89. Total cost of the 16,000 units finished is

A) $63,360.
B) $67,320.
C) $72,640.
D) $65,120.
E) Some other answer __________.

Answer: A Difficulty: Moderate Learning Objective: 3

Response: 16,000 x (1.76 + 2.20) = $63,360

AACSB: Analytic

90. Total cost of the 4,000 units of the ending inventory

A) $15,840.
B) $14,520.
C) $ 9,240.
D) $ 8,910.
E) Some other answer ________.

Answer: C Difficulty: Moderate Learning Objective: 3

Response: 4,000(1.76) + 1,000(2.20) = $9,240

AACSB: Analytic

Use the following information to answer questions 91 - 94

The Finishing Department had 5,000 incomplete units in its beginning Work-in-Process Inventory
which were 100% complete as to materials and 30% complete as to conversion costs. 15,000
units were received from the previous department. The ending Work-in-Process Inventory
consisted of 2,000 units which were 50% complete as to materials and 30% complete as to
conversion costs. The Finishing Department uses first-in, first-out (FIFO) process costing.

Test Bank, Chapter 8 195

 91. How many units were transferred-out during the period?
A) 12,000
B) 13,000
C) 18,000
D) 20,000
E) some other answer _______________.

Answer: C Difficulty: Simple Learning Objective: 5

Response: 5,000 + 15,000 - 2,000 = 18,000

AACSB: Analytic

92. The How many units were started and completed during the period?
A) 12,000
B) 13,000
C) 18,000
D) 20,000
E) some other answer _______________.

Answer: B Difficulty: Simple Learning Objective: 5

Response: 15,000 - 2,000 = 13,000

AACSB: Analytic

93. What are the equivalent units of production for materials during the period?
A) 12,000
B) 13,000
C) 14,000
D) 15,000
E) some other answer _______________.

Answer: C Difficulty: Moderate Learning Objective: 5

Response:
Beginning inventory (0) + started and completed (13,000) + ending inventory (1,000) = 14,000
AACSB: Analytic

94. What are the equivalent units of production for the conversion costs during the period?
A) 14,500
B) 15,100
C) 16,500
D) 17,100
E) some other answer _______________.

Answer: D Difficulty: Moderate Learning Objective: 5

Response: 5,000(.70) + 13,000 + 2,000(.30) = 17,100

AACSB: Analytic

196 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

Use the following to answer questions 95-101:

The debits to Work-in-Process for Department #2 for the month of April of the current year, together with
information concerning production, are presented below. All direct materials come from Department #1.
The units completed include the 1,200 in process at the beginning of the period. Department #2 uses FIFO
costing.

WORK-IN-PROCESS – DEPARTMENT #2
1,200 units, ¼ completed $1,200 Product X, 6,200 units ????
From Dept. 1, 6,000 units 3,600
Direct Labor 8,000
Factory OH 4,800

1,000 units, ½ complete ????

95. What are the total costs to be accounted for on the production cost report for Department #2 for
the period?
A) $16,400
B) $17,600
C) $11,600
D) $12,660
E) some other answer _______________.

Answer: B Difficulty: Simple Learning Objective: 4

Response:
$1,200 + 3,600 + 8,000 + 4,800 = $17,600
AACSB: Analytic

96. Determine the equivalent units of production for conversion costs.

A) 500
B) 5,500
C) 5,900
D) 6,400
E) 6,900

Answer: D Difficulty: Moderate Learning Objective: 5

Response: 1,200(.75) + 5,000 + 1,000(.50) = 6,400

AACSB: Analytic

97. The conversion costs per equivalent units is

A) $1.00
B) $1.50
C) $2.00
D) $2.55
E) Some other answer _______________.

Answer: C Difficulty: Moderate Learning Objective: 5

Test Bank, Chapter 8 197

 Response: ($8,000 + 4,800)/6,400 = $2.00
AACSB: Analytic

98. The unit cost of Product X started in the prior period and completed in the current period is
A) $2.00
B) $2.50
C) $2.55
D) $3.45
E) Some other answer _______________.

Answer: B Difficulty: Complex Learning Objective: 5

Response: [$1,200 + (900)(2.00)]/1,200 = $2.50

AACSB: Analytic

99. The unit cost of Product X started and completed in the current period is
A) $2.00
B) $2.50
C) $2.55
D) $2.60
E) Some other answer _______________.

Answer: D Difficulty: Complex Learning Objective: 5

Response: ($3,600/6,000) + $2.00 = $2.60

AACSB: Analytic

100. The cost of goods transferred to finished goods is

A) $17,660
B) $16,000
C) $13,000
D) $12,800
E) Some other answer _______________.

Answer: B Difficulty: Complex Learning Objective: 5

Response: [$1,200 + 900(2.00)] + [5,000 x ($2.60)] = $16,000

AACSB: Analytic

101. The cost of the ending Work-in-Process Inventory is

A) $2,600
B) $1,600
C) $ 600
D) $1,000
E) Some other answer _______________.

Answer: B Difficulty: Moderate Learning Objective: 5

Response:

198 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 1,000($.60) + 500($2.00) = $1,600
AACSB: Analytic

Use the following to answer questions 102-105:

Use the following information for the FGH Manufacturing Company's material costs

Equivalent units transferred-out 20,000

Equivalent units produced during 2007 using FIFO 33,000
Equivalent units in the beginning Work-in-Process Inventory 7,000
Material costs in the beginning Work-in-Process Inventory $20,000
Current period costs for materials $80,000

102. Which costing method has the lowest material cost per unit?
A) First-in, first-out (FIFO)
B) Weighted-average
C) Both methods have the same unit cost

Answer: A Difficulty: Complex Learning Objective: 6

Response:
FIFO = $80,000/33,000 = $2.424
WA = ($80,000 + $20,000)/33,000 - 7,000) = $3.846
AACSB: Analytic

103. If FGH sold 20,000 units during the current period and used weighted-average costing, would its
net income be higher or lower than if it used FIFO? Would its ending Work-in-Process Inventory
be higher or lower if FGH used weighted-average instead of FIFO?

Net Income Ending Inventory

A) Higher Lower
B) Higher Higher
C) Lower Lower
D) Lower Higher

Answer: A Difficulty: Complex Learning Objective: 6

Response: Weighted-average assigns more material costs to the ending inventory and thus, less
to cost of goods sold.
AACSB: Analytic

104. How many units were started and completed during the current period?
A) 13,000
B) 20,000
C) 26,000
D) 27,000
E) some other answer _______________.

Answer: A Difficulty: Moderate Learning Objective: 6

Response: 20,000 - 7,000 = 13,000

Test Bank, Chapter 8 199

 AACSB: Analytic

105. If weighted-average costing is used, how many equivalent units of materials are in the ending
Work-in-Process Inventory?
A) 7,000
B) 13,000
C) 20,000
D) 26,000
E) some other answer _______________

Answer: B Difficulty: Moderate Learning Objective: 6

Response: 33,000 - 20,000 = 13,000

AACSB: Analytic

Part C: Professional Examination Questions

106. Which one of the following alternatives correctly classifies the business application to the
appropriate costing system (CMA adapted, 12/96)?

Job Costing System Process Costing System

A) Microcomputer manufacturer Construction Company
B) Wallpaper manufacturer Oil Refinery
C) Aircraft assembly Public Accounting Firm
D) Paint Manufacturer Retail Banking
E) Print Shop Beverage Drink Manufacturer

Answer: E Difficulty: Simple Learning Objective: 1

AACSB: Analytic

107. In process 2, material G is added when a batch is 60% complete. Ending work-in-process units,
which are 50% complete, would be included in the computation of equivalent units for: (CPA
adapted, 5/90)

Conversion Costs Material G

A) Yes No
B) No Yes
C) No No
D) Yes Yes

Answer: A Difficulty: Simple Learning Objective: 1

AACSB: Analytic

108. A process costing system was used for a department that began operations in January 2008.
Approximately the same number of physical units, at the same degree of completion, were in
work-in-process at the end of both January and February. Monthly conversion costs are allocated
between ending work-in-process and units completed. Compared to the FIFO method, would the

200 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 weighted average method use the same or a greater number of equivalent units to calculate the
monthly allocations? (CPA adapted, 5/91)

Equivalent units for weighted average compared to FIFO

January February
A) Same Same
B) Greater Same
C) Greater Same
D) Same Greater

Answer: D Difficulty: Simple Learning Objective: 6

AACSB: Analytic

109. In a process costing system, the application of factory overhead usually would be recorded as an
increase in: (CPA adapted, 5/92)
A) Finished goods inventory control
B) Factory overhead control
C) Cost of goods sold
D) Work-in-process inventory control
Answer: D Difficulty: Simple Learning Objective: 2
AACSB: Analytic

110. Yarn Co.'s inventories in process were at the following stages of completion at April 30, 2007:

No. of Units Percent Complete

100 90
50 80
200 10

Equivalent units of production amounted to: (CPA adapted, 5/92)

A) 150
B) 180
C) 330
D) 350

Answer: A Difficulty: Moderate Learning Objective: 2

Response: (100*.9) + (50*.8) + (200*.1) = 150

AACSB: Analytic

111. The following information pertains to Lap Co.'s Palo Division for the month of April:

Number of Units Cost of Material

Beginning Work-in-Process 15,000 $ 5,500
Started in April 40,000 $18,000
Units completed 42,500
Ending Work-in-Process (50% complete) 12,500

Test Bank, Chapter 8 201

 All materials are added at the beginning of the process. Using the weighted-average method, the
cost per equivalent unit of materials is: (CPA adapted, 5/94)
A) $0.59
B) $0.55
C) $0.45
D) $0.43
E) $0.48

Answer: E Difficulty: Moderate Learning Objective: 3

Response: ($5,500 + 18,000)/(48,780) = $0.48
AACSB: Analytic

112. In computing the current period's manufacturing cost per equivalent unit, the FIFO method of
process costing considers: (CPA adapted, 11/92)
A) only current period costs.
B) current period costs plus cost of beginning work-in-process inventory
C) current period costs less cost of beginning work-in-process inventory
D) current period costs plus the cost of ending work-in-process inventory

Answer: A Difficulty: Simple Learning Objective: 5

AACSB: Analytic

Use the following to answer questions 113-118:

Kimbeth Manufacturing uses process costing to control costs in the manufacture of Dust Sensors for the
mining industry. The following information pertains to operations for November 2008. (adapted from
June 1995 CMA Exam)

Units
Work-in-Process Inventory, November 01, 2008 16,000
Started in production during November 100,000
Work-in-Process Inventory, November 30, 2008 24,000

The beginning inventory was 60% complete as to materials and 20% complete as to conversion costs. The
ending inventory was 90% complete as to materials and 40% complete as to conversion costs.

Costs pertaining to November are as follows:

Beginning inventory: direct materials, $54,560; direct labor, $20,320; manufacturing overhead, $15,240
Costs incurred during the month: direct materials, $468,000; direct labor, $182,880; manufacturing
overhead, $391,160

113. What is the equivalent unit cost for materials assuming Kimbeth uses first-in, first-out (FIFO)
process costing?
A) $4.12
B) $4.50
C) $4.60

202 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 D) $4.80
E) $5.46

Answer: B Difficulty: Moderate Learning Objective: 6

Response: $468,000/[(16,000 x .40) + 76,000 + (24,000 x .90)] = $4.50

AACSB: Analytic

114. What is the equivalent unit cost for the conversion costs assuming Kimbeth uses first-in, first-out
(FIFO) process costing?
A) $5.65
B) $5.83
C) $6.00
D) $6.20
E) $6.62

Answer: B Difficulty: Moderate Learning Objective: 6

Response: ($182,880 + 391,160)/[(16,000 x .80) + 76,000 + (24,000 x .40)] = $5.83

AACSB: Analytic

115. What are the total costs in the ending Work-in-Process Inventory assuming Kimbeth uses first-in,
first-out (FIFO) process costing?
A) $153,168
B) $154,800
C) $155,328
D) $156,960
E) $159,648

Answer: A Difficulty: Complex Learning Objective: 6

Response: [21,600 ($4.50)] + [9,600 ($5.83)] = $153,168

AACSB: Analytic

116. What is the equivalent unit cost for materials assuming Kimbeth uses weighted-average process
costing?
A) $4.12
B) $4.50
C) $4.60
D) $4.80
E) $5.46

Answer: C Difficulty: Moderate Learning Objective: 6

Response: ($54,560 + 468,000)/[92,000 + (24,000 x .90)] = $4.60

AACSB: Analytic

Test Bank, Chapter 8 203

 117. What is the equivalent unit cost for the conversion costs assuming Kimbeth uses weighted-
average process costing?
A) $5.65
B) $5.83
C) $6.00
D) $6.20
E) $6.62

Answer: C Difficulty: Moderate Learning Objective: 6

Response: ($20,320 + 15,240 + 182,880 + 391,160)/[92,000 + (24,000 x .40)] = $6.00

AACSB: Analytic

118. What are the total costs in the ending Work-in-Process Inventory assuming Kimbeth uses
weighted-average process costing?
A) $ 86,400
B) $153,960
C) $154,800
D) $155,328
E) $156,960

Answer: E Difficulty: Complex Learning Objective: 6

Response: [21,600 ($4.60)] + [9,600 ($6.00)] = $156,960

AACSB: Analytic

Essay Questions

121. The St. Vincent Manufacturing Company produces a single product in a single processing
department. The material is added when 25% of the conversion costs have been added.

The Work-in-Process Inventory account on April 30th appeared as follows:

Work-in-Process
Balance $1,382
Material 5,325
Labor 10,863
Overhead 15,012

During the month, the company finished and transferred 72,000 units out of the Work-in-Process
Inventory. 9,000 units were in process at the beginning of the month and were 40% complete.
8,000 units were in process at the end of the month, and were 70% complete. The company uses
first-in, first-out (FIFO) process costing.

Required:
(A) Compute the equivalent units of production (EUP) for materials and conversion costs in
April.
(B) Compute the unit conversion costs and unit material costs for April.

204 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 (C) Compute the total cost transferred out of the Work-in-Process Inventory during the month of
April.
(D) Compute the cost of the ending inventory for April.
Answer:

A) Materials Conversion Costs

Beginning inventory -0- 5,400
Started and completed 63,000 63,000
Ending inventory 8,000 5,600
71,000 74,000

B) Materials = $5,325/71,000 = $.075; Conversion costs = ($10,863 + 15,012)/74,000 = $.35

C) Beginning inventory $ 1,382

Conversion costs to complete (6,400 x $.35) 2,240 $ 3,622
Started and completed [63,000 x (.075 + .35)] 26,775
$30,387

D) Materials (8,000 x $.075) $ 600

Conversion costs (5,600 x $.35) 1,960
$ 2,560

AACSB: Analytic

122. The Clarke Chemical Company produces a special kind of body oil that is widely used by
professional sports trainers. The oil is produced in three processes: Refining, Blending, and
Mixing. Raw oil materials are introduced at the beginning of the refining process. A "mountain-
air scent" material is added in the blending process when processing is 50% completed.

The following Work-in-Process account for the Refining Department is available for the month of
July 2008. The July 1 Work-in-Process Inventory contains $1,500 in material costs.

Work-in-Process: Refining

Beg. Balance (5,000 gal., 80% complete) $6,500

Materials (30,000 gal.) 12,300 ? Costs transferred to Blending
Direct Labor 14,500 Department ( units)
Overhead 21,750

End. Balance (6,000 gal., 2/3 complete) ?

The following Work-in-Process account for the Blending Department is available for the month
of July 2008. The July 1 Work-in-Process inventory contains $5,920 in material costs, and
$1.56/unit in costs transferred in from the Refining Department.

Work-in-Process: Blending

Test Bank, Chapter 8 205

 Beg. Balance (8,000 gal, 30% complete) $22,850 ? Costs transferred to Mixing Dept.
Costs transferred in from Refining Dept. ?
Materials 20,810
Direct Labor (725 hours) 5,748
Overhead 11,600

End. Balance (4,000 gal., 40% complete)

The Clarke Chemical Company uses first-in, first-out (FIFO) costing for the Refining Department
and weighted-average costing for the Blending Department.

Required:
Part 1: Refining Department
(A) Compute the equivalent units of production.
(B) Compute the material cost per unit and the conversion cost per unit.
(C) Prepare the "total cost accounted for" section of the July 2008 Production Report.
(D) Compute the July 31 Work-in-Process Inventory balance.

Part 2: Blending Department

(E) Compute the equivalent units of production.
(F) Assume that the costs transferred from the Refining Department to the Blending Department
were $48,200. Compute the unit costs in the Blending Department for the month of July. (HINT:
There are three!!)
(G) Compute the costs transferred out for July 2008.
(H) Compute the July 31 Work-in-Process Inventory balance.

Answer:
Conversion
Materials Costs
A) Beginning inventory -0- 1,000
Started and completed 24,000 24,000
Ending inventory 6,000 4,000
30,000 29,000

B) Materials = $12,300/30,000 = $.41; Conversion costs = ($14,500 + 21,750)/29,000 = $1.25

C) Beginning WIP inventory $6,500

Conversion costs to complete (1,000 x $1.25) 1,250 $ 7,750

Started and completed [24,000 x (.41 + 1.25)] 39,840

Total transferred out $47,590

Ending WIP inventory (6,000 x $.41) + (4,000 x $1.25) $ 7,460

Total costs accounted for $55,050

D) Materials (6,000 x $.41) $ 2,460

Conversion costs (4,000 x $1.25) 5,000
$ 7,460

206 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 (E) Trans-in Materials Conversion costs
Started and completed 33,000 33,000 33,000
Ending inventory 4,000 -0- 1,600
37,000 33,000 34,600

(F) Transferred-in: [($1.56 x 8,000) + 48,200]/37,000 = $1.64

Materials: ($5,920 + 20,810)/33,000 = $.81
Conversion costs: [($22,850 – 5,920 – 12,480) + 5,748 + 11,600]/34,600 = $.63

(G) 33,000 ($1.64 + .81 + .63) = $101,640

(H) Transferred-in: 4,000 x $1.64 $6,560

Conversion costs: 1,600 x $.63 1,008
$7,568

AACSB: Analytic

123. Brady Products manufactures a silicone paste wax that goes through three processing
departments: cracking, blending, and packing. All raw materials are introduced at the start of
work in the cracking department, with conversion costs being incurred uniformly in each
department. The Work-in-Process T-account for the cracking department for July is:

Work-in-Process Inventory (Cracking Department)

Balance, July 1 (35,000 lbs., 4/5 done) $ 63,700

Direct Materials (280,000 lbs.) 397,600
Conversion Costs 189,700
Balance, July 31 (45,000 lbs., 2/3 done) ?
Costs transferred to Blending Dept. ?

The beginning balance inventory consists of $43,400 in materials cost. Brady uses the weighted-
average method to account for its operations.

Required:
(A) Define the term "equivalent units of production."
(B) Is cost accumulation easier under a process costing system or a job-order costing system?
Why or why not?
(C) Prepare a production report for the cracking department for July.
Answer:
(A) Equivalent units of are the number of complete physical units in which units in inventories
are equal in terms of work done to date. In other words, equivalent units of production represent
the actual work done during period.

(B) Job costing requires more recordkeeping (e.g., detailed subsidiary ledgers for each individual
job) while process costing requires more estimates (e.g., degree of completion, cost flow
assumption, and equivalent units of production).

Test Bank, Chapter 8 207

 C) Conversion
Materials costs
Started and completed 270,000 270,000
Ending inventory 45,000 30,000
315,000 300,000

Materials per unit = ($43,400 + 397,600)/315,000 = $1.40

Conversion costs per unit = ($20,300 + 189,700)/300,000 = $.70

Transferred out: 270,000 ($1.40 + .70) = $567,000

Ending inventory:
Materials: 45,000 ($1.40) $63,000
Conversion costs 30,000 ($.70) 21,000
$84,000

AACSB: Analytic

124. Leisure-Time (LT) Sports manufactures and distributes two types of tennis rackets: Ace Master
(AM) and Smash Supreme (SS). Both types of rackets go through Operations 1 and 3. SS also goes
through Operation 2, which adds a layer of graphite for additional strength. All material is added at
the beginning of their respective operations.

The following information relates to a work order from Discount Warehouse, Inc. for 30,000
units of AM (Work order #286) and 8,000 units of SS (Work order #354).

Work order #286 Work order #354

Direct materials:
Operation 1 $120,000 $ 80,000
Operation 2 --- 20,000
Operation 3 45,000 30,000
Conversion costs:
Operation 1 30,000 15,000
Operation 2 --- 25,000
Operation 3 14,793 14,896

Required:
Assume that there are 3,000 units of AM and 2,000 units of SS in Operation 3 at the end of the
reporting period 45% and 65% complete respectively. Compute the ending inventory for
Operation #3.
Answer:

Job #286 Job #354

Materials $165,000/30,000 = $5.50 $130,000/8,000 = $16.25

208 Lanen, Anderson, Maher Fundamentals of Cost Accounting, 2e

 Equivalent units of
Production 27,000 + 3,000(.45) = 28,350 6,000 + 2,000(.65) = 7,300

Conversion costs
Per unit (30,000+14,793)/28,350 = $1.58 (15,000+25,000+14,896)/7,300 = $7.52

Cost of ending
Inventory (3,000 x $5.50) + (1,350 x $1.58) = $18,633
(2,000 x 16.25) + (1,300 x $7.52) = $42,276
AACSB: Analytic

125. Gregg Industries uses three operations in sequence to manufacture an assortment of flower
baskets. In each operation, the same procedures, time, and costs are used to perform that
operation, regardless of the basket style being produced. During March, a batch of 500 baskets of
style D and a batch of 800 baskets of style F were put through the first operation. All materials for
a batch are introduced at the beginning of the operation for that batch. The costs shown below
were incurred in March for the first operation:

Direct labor $4,450

Manufacturing overhead $3,600
Direct materials:
Style D $1,200
Style F $2,400

There were no inventories at the beginning of the month; 400 units of Style D and 600 units of
Style F were transferred to the next operation. The ending inventories were 30% and 60%
complete for Styles D and F, respectively.

Required: What is the total cost of the ending inventory in process for operation #1?
Answer:
D___ F____
Equivalent units of production:
Started and completed 400 600
Ending inventory 30 120
430 720

Unit costs:
Materials – D $1,200/500 = $2.40
Materials – F $2,400/800 = $3.00
Conversion costs ($3,600 + 4,450)/(430 + 720) = $7.00

Ending inventory:

D: 100($2.40) + 30 ($7.00) = $ 450

F: 200($3.00) + 120($7.00) = $1,440
$1,890

AACSB: Analytic

Test Bank, Chapter 8 209