CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN/LIM/VALIX/K. DELA CRUZ/MARASIGAN

PROCESS COSTING

Part I: Theory of Accounts

1. Which of the following statements is TRUE?

A. If loss is continuous and normal, lost units are not included in the quantity schedule of the cost of
production report.
B. Unit material cost is computed by taking total material costs charged to the department for the
period and dividing by the physical units in the process during the period.
C. The EUP computed under the weighted average costing may be equal to the EUP arrived at using
FIFO costing.
D. In a process cost system, abnormal lost units if discrete are only extended to the whole unit
column but not to the EUP column.

2. Which of the following statements is TRUE?

A. A continuous loss occurs evenly throughout the production process therefore all spoilage is
accounted for using the method of total neglect.
B. Normal spoilage units resulting from a continuous process result in a lower unit cost for the good
units produced.
C. JKL Company has a production process in which the inspection point is at 70 percent of
conversion. The units in process beginning for July were 75 percent not converted and units in
process at the end were 80 percent incomplete. Normal spoilage costs would be assigned to
beginning, ending and units started and completed using FIFO costing.
D. Equivalent units are computed to assign costs to partially completed units.

3. Which of the following statements is TRUE?

A. The equivalent units of production of the units in process beginning completed in the current
period is subtracted from weighted average EUP to derive FIFO EUP.
B. Equivalent units of production is an approach to put partially completed and wholly completed
units on a comparable basis.
C. When the cost of good units are increased and lost units are not included in an equivalent unit
schedule, these units are considered normal and discrete.
D. The weighted average method separates beginning inventory and current production to compute
cost per unit of production.

4. Which of the following statements is FALSE?

A. Abnormal spoilage is always accounted for on an equivalent unit basis.
B. A discrete loss is assumed to occur at a specific point in the production process.
C. The FIFO method of process costing will produce the same cost of goods transferred out amount
as the weighted average method when beginning and ending work in process inventories are each
50 percent complete.
D. If normal spoilage is detected at an inspection point within the process rather than at the end, the
cost of that spoilage may be included in the cost of the units completed and in the cost of the
units in process at the end.

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Part II: Problem Solving

Problem 1. ABC Company employs a Weighted Average process costing system in the assembly
department and FIFO process costing system in the finishing department concerning its only product
which undergoes production in the assembly department and finishing department. The following data for
the year ended December 31, 2022 are provided:
ASSEMBLY DEPARTMENT
Units Cost
January 1, 2022 100,000 units – 40% completed as to Cost of Direct material – P3M
conversion cost Cost of Direct labor – P5M
Cost of Factory Overhead – P2M
December 31, 2022 150,000 units – 80% completed as to ?
conversion cost
Units started during the year 400,000 units DM cost added during 2020 – P12M
DL cost added during 2020 – P15M
FOH cost added during 2020 – P13M
FINISHING DEPARTMENT
Units Cost
January 1, 2022 50,000 units – 70% incomplete Cost of Transferred in – P10M
conversion cost Cost of Direct material – P6M
Cost of Direct labor – P1M
Cost of Factory Overhead – P3M
December 31, 2022 30,000 units – 10% incomplete as to ?
conversion cost
Units started during the year DM cost added during 2020 – P30M
DL cost added during 2020 – P40M
FOH cost added during 2020 – P10M

Additional information for the year:

a. It is the company’s policy to add conversion cost evenly throughout the period in the two
departments.
b. It is the company’s policy to add all direct materials in the assembly department at the start of the
process while all direct materials in the finishing department are added at the end of the process.
c. There is no spoilage in both departments.

1. In the assembly department, what is the cost of goods manufactured or cost assigned to units
completed for the year ended December 31, 2022?
a. 36,564,500 b. 26,117,500 c. 36,451,200 d. 35,523,800

2. In the assembly department, what is the cost assigned to December 31, 2022 work-in-process
inventory?
a. 13,436,400 b. 11,236,600 c. 13,548,800 d. 14,476,200

3. In the finishing department, what is the cost of goods manufactured or cost assigned to units
completed for the year ended December 31, 2022?
a. 129,895,950 b. 125,716,750 c. 131,285,400 d. 128,452,100

4. In the finishing department, what is the cost assigned to December 31, 2022 work-in-process
inventory?
a. 6,668,130 b. 6,276,330 c. 6,401,800 d. 9,235,100

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Problem 2. During July 2022, the PLATING Dept. of XYZ Manufacturing Inc., had an opening work-in-
process with 80% completed units and an ending work-in-process with 50% completed units in terms of
conversion. All materials are added at the start of processing; units are inspected at the end of processing.
Normal loss should not exceed 2% of the units started during the period. Related data for the month
follow:

Units Materials Conversion Cost

WIP- March 1 12,000 P32,100 P 5,720
Units started 150,000 300,000 317,680
Units transferred-out 142,000
Lost Units 4,000

Compute for the following:

1. Total cost of the units transferred-out under FIFO

A. 601,750
B. 589,150
C. 601,700
D. 589,100

2. Total cost of the units transferred-out under Average costing

A. 601,750
B. 589,750
C. 601,550
D. 589,300

Problem 3. ABC Manufacturing Company produces a product that passes through two processes;
GRINDING AND POLISHING. During July, the POLISHING Department received 750,000 units from
the GRINDING Department at a unit cost of P1.20. All materials needed are added at the start of
processing. Units in the POLISHING Department are inspected when they are 80% converted. It has
been the experience of the company that ½ of 1% of the units started/received were lost during
processing.

The following information summarized the transaction of the POLISHING Department for the month of
July:

Beg. WIP Inventory- 100,000 units (10% to complete) Materials- P12,500; Conversion- P20,500;
Transferred-In –P24,500.
Ending WIP Inventory- 60,000 units (10% to complete)
Lost Units- 5,000
Cost Added during the month: Materials- P600,000; Conversion Cost- P828,300

The company uses weighted average and first-in-first-out method in the GRINDING and POLISHING
Department, respectively.

1. Compute the total cost transferred to the Finished Goods Inventory

A. 2,144,455
B. 2,190,955
C. 2,201,955
D. 2,197,455

2. Compute the total cost of the ending WIP inventory in the POLISHING Department
A. 180,245
B. 108,245
C. 176,107
D. 181,090
-end of material-
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