CHAPTER 6 QUIZ AND ASSIGNMENT

An example of a process where all of the materials would be added at the beginning of the
process

 A baker where the wet ingredients for a cake are added one-at-a-time after the dry
ingredients have been thoroughly blended.
 None is correct.
 A bakery where the ingredients for bread are combined and left to rise.
 The second process of a snack factory where snack chips coming from the frying
process are cooled and dried for an hour, then bagged.

In a process cost system, the cost attributable to abnormal losses that occur due to
unexpected circumstances such as machine operator error should be assigned to:

 Cost of goods manufactured and ending work in process inventory in the ratio of units
worked on during the period to units remaining in work in process inventory.
 A separate loss account in order to highlight production inefficiencies
 Ending work in process inventory.
 Cost of good manufactured (transferred out)

What losses should not affect the recorded cost of inventories?

Standard losses
Abnormal losses
Normal losses
Seasonal losses

Which of the following is not an acceptable method for accounting for by-products in a joint
manufacturing process?

The value of by-products is included in an account called “By-products Inventory."

Costs before the split-off point are allocated to by-products.
In some instances, the revenue from selling by-products may be treated as “other income”
on the income statement.
The estimated sales value of the by-product reduces the cost of the main product.

If the amount of loss in a manufacturing process is normal, it should be classified as a:

Joint cost.
Period cost.
Product cost.
Deferred charge.
In a process cost system, how is the unit cost affected in a production cost report when
materials are added in a department subsequent to the first department and the added
materials result in additional units?

It causes a decrease in the preceding department's unit cost that necessitates an

adjustment of the transferred-in unit cost.
It causes an increase in the preceding department's unit cost that necessitates an
adjustment of the transferred-in unit cost.
It causes a decrease in the preceding department's unit cost but does not necessitate an
adjustment of the transferred-in unit cost.
It causes an increase in the preceding department's unit cost but does not necessitate an
adjustment of the transferred-in unit cost.

Normal losses that occur in the manufacturing process are properly classified as:

Product costs.
Period costs.
Deferred charges.
Extraordinary items.

Joint costs are commonly allocated based upon relative:

Prime costs.
Conversion costs.
Marketing costs.
Sales value.

Which of the following is most likely to be accounted for as a by-product?

Cream resulting from processing raw milk at a dairy.

Sawdust resulting from processing lumber at a lumber mill.
Heating oil resulting from processing crude oil at a refinery.
Ground beef resulting from processing beef at a meat packer.

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:

Processed during the period and units completed during the period.
Completed from beginning inventory, started and completed during the month, and units
in ending inventory.
Completed during the period and units in ending inventory.
Started during the period and units transferred out during the period

Budde Chemicals produces two industrial chemical compounds, X15 and Z24, from the same
process, which last year cost $600,000. Budde produced 10,000 gallons of X15, which sells
for $40 per gallon and 40,000 gallons of Z24, which sells for $20 per gallon. Using the
relative sales method, how much of the joint cost should be allocated to X15?
$200,000
$150,000
$120,000
$400,000
SOLUTION
product Sales Sales per ULTIMATE PERCENT Assignment of
volume X unit SALES OF SALES joint costs
VOLUME
X15 10,000 $40 per 400,000 33.33% 200,000
gal gallon
Z24 40,000 $20 per 800,000 66.67% 400,000
gal gallon
Total 60,000 1,200,000 $600,000
gal

Assignment of joint costs

X15-> $600,000 X 400,000/ 1,200,000 = 200,000
Z24-> $600,000 X 800,000/ 1,200,000 = 400,000

Information concerning Department A of Ali Company for the month of June is as follows:

Materials
Costs
Units
Work in process, beginning of
20,000 $14,550
month

Started in June 85,000 $66,300

Units completed 90,000  

Work in process, end of month 15,000

All materials are added at the beginning of the process. Using the average cost method, the
cost (rounded to two places) per equivalent unit for materials for June is:

$0.78
$0.74
$0.90
$0.77

Solution
Units completed during June
90,000
Units in process, June 30 with all materials
15,000
Equivalent production for materials
105,000

Materials cost:
Work in process, beginning of June $14,550
Added during June 66,300
Total materials cost $80,850

$80,850 / 105,000 units = cost per equivalent unit

$ .77

Blanche Corporation adds materials at the end of the process in the injection department,
which is the second of two stages of its production cycle. Information concerning the
materials used in the forming department in April follows:

Materials
 
Units Costs

Work in process at March 1 30,000 $ 60,000

Units transferred from previous department

125,000 $360,000
during March

Units completed and transferred to next

department
120,000
  during March

Using the average cost method, what is the materials cost of the work in process at March
31 (rounded to nearest dollar)?

$0
$126,000
$108,000
$120,000
Explanation: Since
materials are added at the end of the
process, there would be no material cost in ending
work in proces
Braun Company produces two chemical compounds, Herzog and Lomax from a joint process.
Joint costs to produce 500 gallons of Herzog and 300 gallons of Lomax were $80,000. A by-
product, Horst, results from the joint process and has a market value of $1,000. Assuming
Braun accounts for the by-product as a reduction in the costs assigned to the products, what
are the joint costs assigned to Herzog?

$39,500
$50,000
$49,375
$40,000
Solution
joint cost $80,000
Less: market value of by- 1,000
product
Total 79,000
Portion allocable to Herzog 62.50%
(500 /[500+300]]
joint costs assigned to 49,375
Herzog

During June, Birch Bay Company's Department B equivalent unit product costs computed
under the FIFO method were as follows:

Materials $2

Conversion $3

Transferred-in $5

Materials are introduced at the end of the process in Department B. There were 4,000 units
(70 % complete as to conversion costs) in work in process at June 30. The total costs
assigned to the June 30 work in process inventory should be:

$24,800.
$28,400.
$20,000.
$35,200.
Solution:
Transferred-in costs: 4,000 units x $5 =
$20,000
Conversion costs: 4,000 units x 70% complete x $3
8,400
$28,400
Stanley Company adds materials at the beginning of the process in Department M. Data
concerning the materials used in the March production follows:

Units

Work in process at March 1 16,000

Started during March 38,000
Completed and transferred to department during March
next
37,000
Normal spoilage incurred  2,000
Work in process at March 31 15,000
Using the average cost method, the equivalent units for the materials unit cost calculation
are:

52,000.
37,000.
38,000.
56,000.
Solution
Units completed and transferred 37,000
Ending work in process with all materials 15,000
52,000

The following information is available for the month of August from the First department of
the Twigg Corporation:
Units

Work in process, August 1 (60% complete) 50,000

Started in August 190,000

Work in process, August 30 (40% complete) 80,000

Materials are added in the beginning of the process in the First department. Using the
average cost method, what are the equivalent units of production for the month of August
for conversion?

240,000
192,000
208,000
240,000

Solution
Units

Work in process, August 1 (60% complete) 50,000

Started in August 190,000

Total

240,000
Work in process, August 30 (40% complete)
Finished and transferred

80,000
160,000
conversion
Finished and transferred 160,000
Ending units inventory 40% complete x 80,000 32,000
Equivalent units of production 192,000

The following information is available for the month of October from the First department of
the Vaughn Corporation:

Units

Work in process, October 1 (40% complete) 7,500

Started in October 32,000

Transferred to Second Department in

October 33,000

Work in process, October 31 (80%

complete)

6,500
Materials are added in the beginning of the process in the First department. Using the
average cost method, what are the equivalent units of production for the month of October
for materials?

38,500
36,000
43,000
39,500
Solution
Unit output for materials
Finished and transferred 33,000
Ending units inventory 6,500
Equivalent units of production 39,500

The following information is available for the month of August from the Second department
of the Twigg Corporation:
Units

Work in process, August 1 (60% complete) 50,000

Transferred from First Department in August 190,000

Work in process, August 30 (40% complete) 80,000

Materials are added at the end of the process in the Second department. Using the average
cost method, what are the equivalent units of production for materials for the month of
August?

192,000
160,000
208,000
240,000

Solution
Units

Work in process, August 1 (60% complete) 50,000

Started in August 190,000

Total 240,000
Work in process, August 30 (40% complete) 80,000

Finished and transferred 160,000

Unit output for materials

Finished and transferred 160,000
Ending units inventory 0
Equivalent units of production 160,000

CPG Company manufactures chemicals. Chemical agent PL62 is refined in the Refining
department and, after it is transferred to the Mixing department, a reactive agent is added
to it. In January, 6,000 gallons of PL62 having a cost of $30,000 were transferred from the
refining to the Mixing department where 4,000 gallons of the reactive agent were added.
When calculating the inventory costs in the Mixing department, what will the cost per unit
relating to gallons transferred in from the Refining department be?

$5.00
$7.50
$3.00
$3.33

Adjusted unit cost= Cost of goods transferred/ total gallons

= $30,000 / [ 6,000 gallons + 4,000 gallons] = $3.00

Quiz chapter 6
Under which of the following conditions will the first-in, first-out method of process costing
produce the same cost of goods manufactured amount as the average cost method?

When there is no beginning inventory

When beginning and ending inventories are each 50 percent complete
When there is no ending inventory
When goods produced are homogeneous in nature

The following losses affect the recorded cost of inventories, except:

Seasonal losses
Abnormal losses
Standard losses
Normal losses
Normal losses that occur in the manufacturing process are properly classified as:

Product costs.
Deferred charges.
 Period costs.
Extraordinary items.

Which of the following statements best describes a by-product?

A product that usually produces a small amount of revenue when compared to the main
product revenue.
A product created along with the main product whose sales value does not cover the cost
of its production.
A product that has a greater value than the main product.
A product with a value that can easily and accurately be determined.

An example of a process where all of the materials would be added at the end of the process
would be:

None of the above.

A bakery where the ingredients for bread are combined and left to rise.
The second process of a snack factory where snack chips coming from the frying process
are cooled and dried for an hour, then bagged.
A baker where the wet ingredients for a cake are added one-at-a-time after the dry
ingredients have been thoroughly blended.

If two or more products share a common process before they are separated, the joint costs
should be allocated in a manner that:

Assigns a proportionate amount of the total cost to each product equitably.

Minimizes variations in a unit of production cost.
Maximizes total earnings.
Does not introduce an element of estimation into the process of accumulating costs for
each product.

Which of the following is NOT true of joint costs?

These is allocated to the products made and will be used in decision-making

They are incurred after the point where the joint products split off from each other.
Management can use differential analysis to decide whether to process a joint product
further.
They involve a common raw material or manufacturing process.

Which of the following is not an acceptable method for accounting for by-products in a joint
manufacturing process?

The value of by-products is included in an account called “By-products Inventory."

Costs before the split-off point are allocated to by-products.
The estimated sales value of the by-product reduces the cost of the main product.
In some instances, the revenue from selling by-products may be treated as “other income”
on the income statement.
--------------
What losses should not affect the recorded cost of inventories?
Abnormal losses
Normal losses
 Standard losses
Seasonal losses

Each of the following is a method by which to allocate joint costs except:

Relative sales value.

Relative advertising costs.
Relative weight, volume, or linear measure.
Chemical or engineering analysis

Plemmon Company adds materials at the beginning of the process in the forming
department, which is the first of two stages of its production cycle. Information concerning
the materials used in the forming department in April follows:

Units Materials Costs

Work in process at April 1 15,000 $ 8,000

Units started during April 60,000 $ 38,500

Units completed and 65,000

transferred to next
department during April

Using the average cost method, what is the materials cost of the work in process at April 30
(rounded to nearest dollar)?
$6,200
$6,417
$7,154
$7,750

Solution

Work in process at April 1 15,000

Units started during April 60,000

Total 75,000
Finished units 65,000
Ending units 10,000

UNIT OUTPUT FOR MONTH

Finished units 65,000
Ending inventory 10,000
Equivalent units of 75,000
production
UNIT COST
MATERIALS $0.62
[8,000+38500] / 75,000

ENDING UNITS 6,200

MATERIALS
[10,000 x 0.62]
The following information is available for the month of April from the Second department of
the Armque Corporation:

Units

Work in process, April 1 (50% complete) 90,000

Transferred from First Department in April Solution

250,000

Transferred out of Second Department in

UNIT290,000
OUTPUT FOR MONTH
April Finished units 290,000

Work in process, April 30 (40% complete) Ending 50,000

inventory 0
Equivalent units of 290,000
production
Materials are added at the end of the
process in the Second department. Using the average cost method, what are the equivalent
units of production for materials for the month of April?
290,000
280,000
340,000
304,000

Klug Industries adds materials at the beginning of the process in the molding department,
which is the first of two stages of its production cycle. Information concerning the materials
used in the molding department in August follows:

Units Materials Costs

Work in process at 8,000 $11,550

August 1

Units started during 20,000

August $72,450

Units completed and

transferred to next 21,000
department during
August
Using the FIFO method, what is the materials cost of the work in process at August 31
(rounded to nearest
dollar)? SOLUTION
Work in process at August 1 8,000
$28,000
$29,400 Units started during August 20,000
$29,639
$25,358 Total 28,000
Finished units 21,000
Ending units 7,000

UNIT OUTPUT FOR MONTH

Started and finished 13,000
Ending units 7,000
Equivalent units of 20,000
production
UNIT COST
MATERIALS $3.6225
72,450/ 20,000

ENDING UNITS $25,358

MATERIALS
[7,000 x $3.6225]

Regina Manufacturing uses the FIFO method of process costing. The production report for
the Curing Department, where the materials are added at the beginning of the period, for
September was as follows:

In process, beginning of the period

3,000 units
Stage of completion

30 %
Transferred to stockroom during period

12,000 units
In process, end of the period

6,000 units
Stage of completion

40 %
Transferred-in

$5
Work in process, October 1 (40% complete) 6,500

Started in October 32,000

Transferred to Second Department in

October 31,000

Work in process, October 31 (70%

complete)

7,500
Materials are added in the beginning of the process in the First department. Using the
average cost method, what are the equivalent units of production for the month of October
for conversion?
Solution
39,500 Unit output for conversion costs
34,300 Finished and transferred 31,000
36,250 Ending units inventory
38,200 [7,500 x 70%] 5,250
Equivalent units of production 36,250

Budde Chemicals produces two industrial chemical compounds, X15 and Z24, from the same
process, which last year cost $800,000. Budde produced 10,000 gallons of X15, which sells
for $40 per gallon and 40,000 gallons of Z24, which sells for $10 per gallon. Using the
relative sales method, how much of the joint cost should be allocated to X15?
$400,000
$150,000
$200,000
$120,000

SOLUTION
product Sales Sales per ULTIMATE PERCENT Assignment of
volume X unit SALES OF SALES joint costs
VOLUME
X15 10,000 $40 per 400,000 50% 400,000
gal gallon
Z24 40,000 $10 per 400,000 50% 400,000
gal gallon
Total 60,000 800,000 $400,000
gal

Assignment of joint costs

X15-> $800,000 X 400,000/800,000 = 400,000
Z24-> $800,000 X400,000/ 800,000 = 400,000
Materials are added at the end of the process in a company's curing department, the second
stage of the production cycle. The following information is available for the month of July:
 Units

Work in process, JULY 1 (50% complete) 50,000

Transferred from previous department 200,000

Transferred to the next department 195,000

Work in process, April 30 (40% complete) 50,000

Lost in production 10,000

Work in process, July 31 (60% complete as to 45,000

conversion costs)

Under the cost accounting system, the costs incurred on the lost units are absorbed by the
remaining good units. Using the average cost method, what are the equivalent units for the
materials unit cost calculation?
Solution
235,000 Unit output for MATERIALS
210,000 Finished and transferred 195,000
250,000 Ending units inventory
195,000 0
Equivalent units of production 195,000
Van Pelt Company uses the average cost method of process costing. The production report
for the Mixing department follows:

In process, beginning of period 1,000 units

800 units - materials 50% complete; conversion costs 40% complete
200 units - materials 25% complete; conversion costs 15% complete

Placed in process during period 5,000 units

Transferred to packing department 4,800 units

In process, end of period 1,200 units

700 units - materials 75% complete; conversion costs 50% complete
500 units - materials 25% complete; conversion costs 25% complete

Compute the equivalent units for materials.

5,400
5,650
Correct!
5,450
5,275
Solution
Unit output for MATERIALS
Finished and transferred 4,800
Ending units inventory
700 units - materials 75% complete 525
500 units - materials 25% complete 125
Equivalent Units for production 5,450