1. When should process costing techniques be used in assigning costs to products?

a. If the product is manufactured in the basis of each order received.

b. When production is only partially completed during the accounting period.
c. If the product is composed of mass-produced homogeneous units.
d. Whenever standard costing techniques should not be used.

Answer: (a) like products that are mass produced should be accounted for using process
costing techniques to assign costs to products. Costs are accumulated by department of cost
centers rather than by jobs, WIP is stated in terms of EUP, and unit costs are established on
a departmental basis. Process costing is an averaging process which calculates the average
costs of all units.

2. Which of the following is a characteristic of a process costing system?

a. Work-in-process inventory is restated in terms of completed units.
b. Costs are accumulated in order.
c. It is used by company manufacturing custom machinery.
d. Standard costs are not applicable.

Answer: (a) one characteristic of a process costing system is that WIP inventory is rested in
terms of completed units. All units are stated in terms of EUP so that average unit costs may
be calculated. For example, 100 units 50% complete equal 50 EUP.

3. From the industries listed below, which one is more likely to use process costing in accounting
for product costs?
a. Road builder.
b. Electrical contractor.
c. Newspaper publisher.
d. Automobile repair shop.

Answer: (c) process costing is used for continuous process manufacturing or relatively
homogenous units. Newspapers are published in long runs of identical items. Hence, process
costing is indicated.

4. An equivalent unit of material or conversion cost is equal to

a. The amount material or conversion cost necessary to complete one unit of production.
b. A unit of Work-in-process inventory.
c. The amount of material or conversion cost necessary to start a unit of production in
WIP.
d. 50% of the material or conversion cost of a unit of finished goods inventory (assuming a
linear production pattern)

Answer: (a) Equivalent units measure the amount of work performed in each production
phase in terms of fully processed units during a given period. Incomplete units are restated
 as the equivalent amount of completed units. The calculation is made separately for
material and conversion cost (direct labor and overhead).

5. The percentage of completion of the beginning work-in-process inventory should be considered

in the computation of the equivalent units of production for which of the following methods of
process costing?

FIFO WEIGHTED AVERAGE

a. Yes No
b. Yes Yes
c. No Yes
d. No No

Answer: (a) The FIFO method computes equivalent units by adding the number of units
completed and the EUP in EWIP, and then subtracting the EUP in BWIP. Note that
weighted average makes no distinction between work done and BWIP last period and
work done this period.

6. The units transferred in the first department to the second department should be included in
the computation of the equivalent units for the second department under which of the
following methods of process costing?

FIFO WEIGHTED AVERAGE

a. Yes Yes
b. Yes No
c. No Yes
d. No No

Answer: (a) The units transferred from the first to the second department should be
included in the computation of equivalent units for the second department regardless of the
cost flow assumption used. The transferred-in units are considered raw material added at
the beginning of the period.

7. In a given process costing system, the equivalent units of production are computed using the
weighted-average method. With respect to conversion costs. The percentage of completion for
the current period only is included in the calculation of the

Beginning WIP inventory Ending WIP inventory

a. No No
b. No Yes
c. Yes No
d. Yes Yes
 Answer: (b) The weighted-average process costing method considers only the degree of
completion of EWIP in the calculation of EUP. Since this method includes the cost incurred in
the prior period for units in BWIP, EUP are equal to units completed and transferred out
plus the EUP completed in EWIP

8. In a process costing 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?
a. The department’s unit cost is increased, which necessitates an adjustment of the
transferred-in unit cost.
b. The first department’s unit cost is decreased, which necessitated an adjustment of the
transferred-in unit cost.
c. The first department’s unit cost is increased, but it does not necessitates an adjustment
of the transferred-in unit cost.
d. The first department’s unit cost is decreased, but it does not necessitates an adjustment
of the transferred-in unit cost.

Answer: (b) In additional units are created in a process (e.g. by adding material in a
subsequent department), the number of equivalent unit increases and the unit cost
decreases since the total transferred-in cost remains constant. Thus, an adjustment to
the transferred-in unit cost is necessary.

PROBLEMS:

1. Cost and statistics for Department 2 of a company manufacturing a single product in three
department follows:
Work-in-process, October 1:
Cost in Department 1 ……………………………………………………….. P11,380
Cost in Department 2
Materials………………………………………………………………. None
Labor ……………………………………………………………………. P500
Factory Overhead …………………………………………………. 50

Cost in Department 2 in October:

Materials ………………………………………………………………………….. None
Labor ……………………………………………………………………………….. P13,000
Factory Overhead …………………………………………………………….. 450
Unit in process, October 1, 60% completed
As to conversion cost ……………………………………………………….. 500
Units received from Department 1 in October at P2.60 per unit …… 6,700
Units completed and transferred to Department 3 in October ……… 6,800
 Units in process, October 31, half completed
As to conversion cost …………………………………………………………. 400

Compute the conversion costs per equivalent unit (rounded to nearest centavo)

FIFO Average FIFO Average

a. P2.00 P2.00 c. P2.01 P2.00
b. 2.01 2.01 2.00 2.01

Answer: (c)

Quantity Schedule Actual Work Done EP – CC

In process, beginning …………… 500
Received from Prec. Dept. …… 6,700
7,200
Accounted for as follows – FIFO
In process, beg.. F&T ……………. 500 40% 200
Received, F&T (6800–500) …… 6,300 100% 6,300
In process, ending ………………… 400 50% 200
7,200 6,700
Accounted for as follows – Average
Finished and transferred ……… 6,800 100% 6,800
In process, ending ………………… 400 50% 200
7,200 7,000
Conversion Costs per Equivalent Unit:
FIFO (P13,000+P450) ÷ 6,700 ………………………………………. P2.01
Average: (P500+P50+P13000+P450) ÷ 7,000 ………………. P2.00

2. Collins Company, which, on April 1, had 6,000 units of WIP in Department B, the second and last
stage of its production cycle. The costs attached to these 6,000 units were P12,000 of costs
transferred in from Department A, P2,500 of material costs added in Department B, and P2,000
of conversion cost added in Department B. Materials are added at the beginning of the process
in Department B. Conversion was 50% complete on April 1. During April, 14,000 units were
transferred in from Department A at a cost of P27,000, and material cost of P3,500 and
conversion cost of P3,000 were added in Department B. On April 30, Department B had 5,000
units of WIP, 60% complete as to conversion cost. The cost attached to this 5,000 units were
P10,500 of cost transferred in from Department A, P1,800 of material cost added in Department
B, and P800 of conversion cost added in Department B.

Using the weighted average method, what were the equivalent units for the month of April?

Transferred-in Cost Materials Cost Conversion Cost

 a. 15,000 15,000 15,000
b. 19,000 19,000 20,000
c. 20,000 20,000 18,000
d. 25,000 25,000 20,000

Answer: (c)

Quantity Schedule: Actual Work Done EP-Mat. Work Done EP-CC

In process, beginning…………….. 6,000
Received from Prec. Dept. …….. 14,000
20,000
Accounted for as follows:
Finished and transferred ……… 15,000 100% 15,000 100% 15,000
In process, ending ……………….. 5,000 100% 5,000 60% 3,000
20,000 20,000 18,000
3. Ryan Pogi Inc. is a company manufacturing a product known as “COLOREE’’ which undergoes a
uniform process prior to its completion. Ryan Pogi Inc. employs weighted average process
costing system for this product. For the year ended December 31, 2016, the following data are
provided by the company:
a. The work-in-process inventory on January 1, 2016 is 10,000 units which are 80%
incomplete as regards to conversion cost while the work-in-process inventory on
December 31, 2016 is 60% complete as regards to conversion cost.
b. The total units started during the year amounted to 90,000 units while the total units
manufactured during the year amounted to 70,000 units.
c. There is no spoilage during the period.
d. It is the company’s policy to apply direct labor and factory overhead evenly throughout
the period while 2/5 of direct materials are added at the start of the process while the
remaining direct materials are added at the end of the process.
e. The cost of January 1, 2016 work-in-process inventory consists of P100,000-direct
material, P200,000-direct labor and P300,000 factory overhead.
f. The total manufacturing cost for the year consisted of P2M-direct material, P5M-direct
labor and P3M-factory overhead.
What is the cost per equivalent unit of production of direct materials and conversion cost,
respectively?

a. 25.6 and 96.59

b. 24.39 and 90.91
c. 21 and 85
d. 23.86 and 103.66

Answer: (a)
 Weighted Average:
Beginning Inventory 15,000 20% CC
Started 90,000
(Ending Inventory) (30,000) 60% CC
Normal Spoilage 0
Actual Spoilage 0
Started & Transferred 70,000

Equivalent Units Produced (EUP) Direct Material Cost Conversion

Complete & Transferred 70,000 70,000
Ending Inventory 2/5 12,000 18,000
EUP 82,000 88,000

Cost per EUP Direct Material Conversion Cost

Beginning 100,000 500,000
Total Manufacturing Cost 2,000,000 8,000,000
Total Cost 2,100,000 8,500,000
÷ EUP 82,000 88,000
Cost per EUP 25.61 96.59 = 122.2

Ending Inventory unit × cost

Direct Material 12,000 × 25.61 = 307, 320
Conversion Cost 18,000 × 96.59 = 1,738,620
2,045,940
Finished Goods
Competed and Transferred 70,000 × 122.2 = 8,554,000

4. Spirit Inc. employs First-In-First-Out process costing system in accounting for its product. For the
year ended, December 31, 2016, the following data are provided:

a. The 30,000 work-in-process inventory on January 1, 2016 is 40% complete as regards to

conversion cost while the 20,000 work-in-process inventory on December 21, 2016 is
90% incomplete as regards to conversion cost.
b. The total units during the year amounted to 60,000 units. There is no spoilage during
the period.
c. It is the company’s policy to apply direct labor and factory overhead uniformly
throughout the period while ¾ of direct materials are added at the start of the process
while the remaining direct materials are added at the end of the process.
d. The cost of January 1, 2016 work-in-process inventory consist of 200,000-direct
material, 300,000-direct labor and 500,000-factory overhead.
e. The total manufacturing cost for the year consisted of P1M-direct material, P3M-direct
labor and P4M-factory overhead.
What is the cost per equivalent unit of production of Direct Material and Conversion Cost,
respectively?
a. 19.2 and 130
b. 16 and 116.67
c. 14.81 and 89.74
d. 11.76 and 100

Answer: (b)
FIFO:
Beginning Inventory 30,000 40% CC
Started 60,000
(Ending Inventory) (20,000) 10% CC
Normal Spoilage 0
Actual Spoilage 0
Complete & Transferred 70,000
Started & Transferred 40,000

Equivalent Units Produced (EUP) Direct Material Cost Conversion

Complete & Transferred 70,000 70,000
Ending Inventory ¾ 15,000 2,000
Beginning Inventory ¾ (22,500) (12,000)
EUP 62,500 60,000

Cost per EUP Direct Material Conversion Cost

Total Manufacturing Cost 1,000,000 7,000,000
÷ EUP 62,500 60,000
Cost per EUP 16 116.67 = 132.67

Ending Inventory unit × cost

Direct Material 15,000 × 16 = 240,000
Conversion Cost 2,000 × 116.67 = 233,340
473,340
Finished Goods
Competed and Transferred 40,000 × 132.67 = 5,306,800