CHAPTER 7

END OF CHAPTER QUESTIONS

By: Ocampo Ricamela Von R.

1. On what basis The process costing system separates costs into categories
based on their nature and how they are incurred during
does process
production. This typically includes direct materials, direct
costing system labor, and manufacturing overhead. Direct materials are the
separate costs into raw materials directly used in production, direct labor is the

categories? wages of workers directly involved, and manufacturing

overhead covers other production costs like rent and
utilities. These categories help in accurately tracking
production expenses and determining product costs for
decision-making.

2. Under what The weighted average and FIFO methods of process costing

conditions will will yield different levels of operating income when there are

weighted average and fluctuations in costs and inventory levels. FIFO tends to
result in higher reported operating income compared to
FIFO method of
weighted average when costs are increasing over time, as it
process costing yield
assigns higher costs to ending inventory and lower costs to
different levels of
units completed.
operating income?

3. How are the Work done on partially completed units in beginning work-in-

weighted average and process inventory represents prior-period work. Two

FIFO method of approaches used for dealing with prior period output and
prior period costs found in beginning work in process are:
process costing applied
to transfer-in costs? a. weighted average method: combines beginning
inventory cost (prior period work) with cost from
current period
b. First-in, First-out (FIFO) method: separates beginning
inventory costs (prior period work) from cost of
current period work.

4. When do you A hybrid costing system is useful when a production facility

handles groups of products in batches and charges the cost
consider operating- of materials to those batches (as is the case in a job costing
environment), while also accumulating labor and overhead
costing or hybrid
costs at the departmental or work center level and allocating
costing system a these costs at the individual unit level.
better approach in
product costing

5. What are the · Cost Control: It provides a benchmark against which actual
costs can be compared, enabling managers to identify and
benefits of using
rectify any significant deviations.
standard costing
· Performance Evaluation: By comparing actual costs with
method of process standard costs, managers can evaluate the performance of
costing? different departments, processes, or products.

· Cost Prediction: Standard costing allows for the prediction

of future costs based on established standards

· Inventory Valuation: Standard costing provides a consistent

basis for valuing inventory, which is crucial for financial
reporting and determining the cost of goods sold

· Motivation and Incentives: Establishing standards can

motivate employees to meet or exceed them, as they provide
clear targets to strive for.

· Simplified Record-Keeping: Standard costing simplifies

record-keeping by providing predetermined costs for
materials, labor, and overhead.

6.Identify the main The main difference between journal entries in process
costing and job costing is that in process costing, costs are
difference between
accumulated per production process stage and journal
journal entries in entries transfer costs between these stages, while in job
job costing and costing, costs are accumulated for individual jobs or projects

process costing and journal entries allocate costs directly to specific jobs
rather than production stages

7.What is the Normal spoilage is the expected and inherent loss that
occurs under normal operating conditions and is included in
distinction between
the cost of production, while abnormal spoilage is the
normal and unexpected loss due to non-routine factors and is treated as
abnormal spoilage? a period cost.

8. How does Regular inspections at different stages of production enable

inspection at early detection of defects or issues in the manufacturing
process. Early detection of abnormal conditions allows for
various stages of
immediate corrective actions to be taken to prevent further
completion affect spoilage and minimize the impact on production and for
the amount of continuous improvement efforts driven by inspection

normal and findings help optimize production processes, enhance

product quality, and minimize waste.
abnormal spoilage.

9. How do managers Managers use information about scrap to analyze costs,

identify root causes, drive process improvements, enhance
use information
quality control, optimize inventory management, evaluate
about scrap?
performance, and allocate costs accurately. This enables
them to make informed decisions to reduce waste, improve
efficiency, and enhance overall operational performance.

10. Why is there a need Accounting for spoilage and rework costs is crucial for

to account for spoilage understanding the true cost of production, managing

and rework cost? expenses effectively, and maintaining product quality. It

enables businesses to identify areas for improvement,
control wastage, and make informed decisions regarding
pricing and resource allocation. By tracking these costs,
companies can enhance operational efficiency, reduce waste,
and stay competitive in the market.

end.