Principles of Accounting III The Phuc Dinh (Mike)

The Phuc Dinh (Mike)

Date: Sep 27th

Class: ACCT 203

Professor David Duback

Chapter 20 Discussion Questions

(Questions: 1, 2, 3, 4, 6, 8, 10, 11, and 12 page 824)

Question 1: What is the main factor for a company in choosing between the job order costing and process
costing systems? Give two likely applications of each system.

Answer: The main deciding factor in choosing between a job order costing system or a process costing
system is the type of product or service. Job costing is suitable for industries in which products are
manufactured as per requirement of the customer while process costing is suitable for industries where
identical items are made on mass scale.

The likely applications of job order are construction companies and financial consulting companies

The likely applications of process order are beverage industries and food industries

Question 2: The focus in a job order costing system is the job or batch. Identify the main focus in process
costing.

Answer: In process costing, manufacturing cost accumulates from one process to another. The main focus
in process costing is each process in the production department.

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Principles of Accounting III The Phuc Dinh (Mike)

Question 3: Can services be delivered by means of process operations? Support your answer with an
example

Answer: Yes, services can be delivered by processes. For example, in food delivery service, the process is

1. Picking the food from the restaurant or store.

2. Transporting the food to the destination.
3. Delivering them to the recipient.

Question 4: Are the journal entries that match cost flows to product flows in process costing primarily the
same or much different than those in job order costing? Explain.

Answer: The journal entries to match cost flows with product flows are primarily the same for both process
costing and job order costing. In process costing, the materials flow into production and direct labor is
applied to the product. The factory overhead is measured and applied to each production department. This
similarly compares to each job in job order costing.

Question 6: Explain in simple terms the notion of equivalent units of production (EUP). Why is it
necessary to use EUP in process costing?

Answer: The computation of equivalent units of production focuses on converting partially completed units
to a measure in terms of completed units. We need to use EUP because some units of the production
process are partially completed at the end of the accounting period, and we desire some measure of the
stage of completion. The stage of completed units is typically different for direct materials, direct labor,
and factory overhead.

Question 8: Why is it possible for direct labor in process operations to include the labor of employees who
do not work directly on products or services?

Answer: A process cost accounting system treats labor that is used entirely within one production
department as direct labor. For example, a worker who is appointed for maintaining the equipment, is not
directly related with production or services. However, labor cost will include his salary because his services
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Principles of Accounting III The Phuc Dinh (Mike)

are needed for running the equipment which is used for production. With that said, direct labor in process
includes the labor of employees who do not work directly on products or services. The key is that the cost
object is the process and not the job.

Question 10: At the end of a period, what balance should remain in the Factory Overhead account?

Answer: At the end of a period, the Factory Overhead account should have a zero balance. This is because
any balance in Factory Overhead is closed to Cost of Goods Sold as part of the end-of-period adjustments.

Question 11: Is it possible to have under- or overapplied overhead costs in a process costing system?
Explain.

Answer: Yes, it is possible to have either underapplied or overapplied overhead in a process cost
accounting system. Since the overhead allocation rate is based on predictions of overhead and other
variables such as direct labor, the predicted amounts are not likely to be exactly equal to the actual amounts
incurred.

Question 12: Explain why equivalent units of production for both direct labor and overhead can be the
same as, and why they can be different from, equivalent units for direct materials.

Answer: Equivalent units for direct materials differ from that for direct labor and overhead because direct
materials and direct labor are added at different stages in the production process.

Equivalent units are the same when direct materials, direct labor, and factory overhead are added at the
same stages of the production process. Also, equivalent units for both direct labor and overhead are the
same when overhead costs are applied based on direct labor.

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