Chapter 17 Process Costing
Objective 17.1
1) Costing systems that are used for the costing of like or similar units of products in mass production
are called:
A) inventory-costing systems
B) job-costing systems
C) process-costing systems
D) weighted-average costing systems
Answer: C
Diff: 1
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
2) Which of the following manufactured products would NOT use process costing?
A) 747 jet aircraft
B) 46-inch television sets
C) Construction of a commercial office building
D) Both A and C are correct.
Answer: D
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
3) Process costing should be used to assign costs to products when the:
A) units produced are similar
B) units produced are dissimilar
C) calculation of unit costs requires the averaging of unit costs over all units produced
D) Either A or C are correct.
Answer: D
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
4) Which one of the following statements is true?
A) In a job-costing system, individual jobs use different quantities of production resources.
B) In a process-costing system each unit uses approximately the same amount of resources.
C) An averaging process is used to calculate unit costs in a job-costing system.
D) Both A and B are correct.
Answer: D
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
1
Copyright © 2012 Pearson Education, Inc.
,5) Conversion costs:
A) include all the factors of production
B) include direct labor and overhead
C) in process costing are usually considered to be added evenly throughout the production process
D) Both B and C are correct.
Answer: D
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
6) An example of a business which would have no beginning or ending inventory but which could use
process costing to compute unit costs would be a:
A) clothing manufacturer
B) corporation whose sole business activity is processing the customer deposits of several banks
C) manufacturer of custom houses
D) manufacturer of large TVs
Answer: B
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
7) Which of the following statement(s) concerning conversion costs is correct?
A) Estimating the degree of completion of direct materials in a partially completed unit is usually easier
to calculate than estimating the degree of completion for conversion costs.
B) The calculation of equivalent units is relatively easy for the textile industry.
C) Estimates are usually not considered acceptable.
D) Both B and C are correct.
Answer: A
Diff: 2
Terms: process-costing system, equivalent units
Objective: 1
AACSB: Reflective thinking
8) Examples of industries that would use process costing include the soft-drink bottling and oil industry.
Answer: TRUE
Diff: 1
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
2
Copyright © 2012 Pearson Education, Inc.
,9) The principal difference between process costing and job costing is that in job costing an averaging
process is used to compute the unit costs of products or services.
Answer: FALSE
Explanation: The averaging process is used to calculate unit costs in process costing.
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
10) Process-costing systems separate costs into cost categories according to the timing of when costs are
introduced into the process.
Answer: TRUE
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
11) Estimating the degree of completion for the calculation of equivalent units is usually easier for
conversion costs than it is for direct materials.
Answer: FALSE
Explanation: Estimating the degree of completion is easier for the calculation of direct materials since
direct materials can be measured more easily than conversion costs.
Diff: 2
Terms: equivalent units
Objective: 1
AACSB: Reflective thinking
12) Job-order costing would be most likely used by a firm that produces homogeneous products.
Answer: FALSE
Explanation: Process costing would be most likely used by a firm that produces homogeneous products.
Diff: 1
Terms: process costing
Objective: 1
AACSB: Reflective thinking
13) When identical or similar units of products or services are mass produced, job-costing is used to
calculate an average production cost for all units produced.
Answer: FALSE
Explanation: When identical or similar units of products or services are mass produced, process costing
is used to calculate an average production cost for all units produced.
Diff: 1
Terms: process costing
Objective: 1
AACSB: Reflective thinking
3
Copyright © 2012 Pearson Education, Inc.
, 14) There are basically two distinct methods of calculating product costs.
Required:
Compare and contrast the two methods.
Answer: In job costing the job or product is a distinctly identifiable product or service. Each job
requires (or can require) vastly different amounts of input. Job costing is usually associated with
products that are unique or heterogeneous. Thus, each job requires different amounts of input, and they
can require vastly different amount of costs to finish. Job-costed products tend to be high cost per unit.
Thus the costs of each (unique) job are important for planning, pricing, and profitability.
In process costing, the jobs or products are similar (or homogeneous). Each job usually requires the
same inputs, and results in approximately the same costs per unit. The cost of a product or service is
obtained by assigning total costs to many identical or similar units. We assume each unit receives the
same amount of direct material costs, direct manufacturing labor costs, and indirect manufacturing costs.
Unit costs are then computed by dividing total costs by the number of units.
The principal difference between process costing and job costing is the extent of averaging used to
compute unit costs. As noted above in job costing, individual jobs use different quantities of production
resources; whereas in process costing, we assume that each job uses approximately the same amount of
resources.
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
15) Why do we need to accumulate and calculate unit costs in process costing (and also job costing)?
Answer: We need to accumulate unit costs to:
1. Budget (planning)
2. Price
3. Account for the costs
1. Budgeting To operate a successful business, we should prepare budgets, review the results, and
make decisions as to how well our business is doing. Our business has formulated plans for the future.
The resources we need for the future (materials, conversion costs, facilities, etc.) will depend on our
estimate of the resources we need to accomplish these goals. An important part of these estimates is the
unit costs of the products we plan to produce. These unit costs will tell us how many dollars we must
acquire to accomplish our plans.
2. Price In order to be a profitable business, we must sell our product at a price in excess of what it
costs us to produce the product. Essential for the pricing decision is the cost per unit. We will also learn
whether we can sell a product at a profit.
3. Accounting During the course of the accounting period, we will be accumulating costs. At the end
of the accounting period, we must allocate this pool of costs between the units that were transferred out
and the goods in ending inventory. Unit costs are essential for this purpose.
Diff: 1
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
4
Copyright © 2012 Pearson Education, Inc.
Objective 17.1
1) Costing systems that are used for the costing of like or similar units of products in mass production
are called:
A) inventory-costing systems
B) job-costing systems
C) process-costing systems
D) weighted-average costing systems
Answer: C
Diff: 1
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
2) Which of the following manufactured products would NOT use process costing?
A) 747 jet aircraft
B) 46-inch television sets
C) Construction of a commercial office building
D) Both A and C are correct.
Answer: D
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
3) Process costing should be used to assign costs to products when the:
A) units produced are similar
B) units produced are dissimilar
C) calculation of unit costs requires the averaging of unit costs over all units produced
D) Either A or C are correct.
Answer: D
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
4) Which one of the following statements is true?
A) In a job-costing system, individual jobs use different quantities of production resources.
B) In a process-costing system each unit uses approximately the same amount of resources.
C) An averaging process is used to calculate unit costs in a job-costing system.
D) Both A and B are correct.
Answer: D
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
1
Copyright © 2012 Pearson Education, Inc.
,5) Conversion costs:
A) include all the factors of production
B) include direct labor and overhead
C) in process costing are usually considered to be added evenly throughout the production process
D) Both B and C are correct.
Answer: D
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
6) An example of a business which would have no beginning or ending inventory but which could use
process costing to compute unit costs would be a:
A) clothing manufacturer
B) corporation whose sole business activity is processing the customer deposits of several banks
C) manufacturer of custom houses
D) manufacturer of large TVs
Answer: B
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
7) Which of the following statement(s) concerning conversion costs is correct?
A) Estimating the degree of completion of direct materials in a partially completed unit is usually easier
to calculate than estimating the degree of completion for conversion costs.
B) The calculation of equivalent units is relatively easy for the textile industry.
C) Estimates are usually not considered acceptable.
D) Both B and C are correct.
Answer: A
Diff: 2
Terms: process-costing system, equivalent units
Objective: 1
AACSB: Reflective thinking
8) Examples of industries that would use process costing include the soft-drink bottling and oil industry.
Answer: TRUE
Diff: 1
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
2
Copyright © 2012 Pearson Education, Inc.
,9) The principal difference between process costing and job costing is that in job costing an averaging
process is used to compute the unit costs of products or services.
Answer: FALSE
Explanation: The averaging process is used to calculate unit costs in process costing.
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
10) Process-costing systems separate costs into cost categories according to the timing of when costs are
introduced into the process.
Answer: TRUE
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
11) Estimating the degree of completion for the calculation of equivalent units is usually easier for
conversion costs than it is for direct materials.
Answer: FALSE
Explanation: Estimating the degree of completion is easier for the calculation of direct materials since
direct materials can be measured more easily than conversion costs.
Diff: 2
Terms: equivalent units
Objective: 1
AACSB: Reflective thinking
12) Job-order costing would be most likely used by a firm that produces homogeneous products.
Answer: FALSE
Explanation: Process costing would be most likely used by a firm that produces homogeneous products.
Diff: 1
Terms: process costing
Objective: 1
AACSB: Reflective thinking
13) When identical or similar units of products or services are mass produced, job-costing is used to
calculate an average production cost for all units produced.
Answer: FALSE
Explanation: When identical or similar units of products or services are mass produced, process costing
is used to calculate an average production cost for all units produced.
Diff: 1
Terms: process costing
Objective: 1
AACSB: Reflective thinking
3
Copyright © 2012 Pearson Education, Inc.
, 14) There are basically two distinct methods of calculating product costs.
Required:
Compare and contrast the two methods.
Answer: In job costing the job or product is a distinctly identifiable product or service. Each job
requires (or can require) vastly different amounts of input. Job costing is usually associated with
products that are unique or heterogeneous. Thus, each job requires different amounts of input, and they
can require vastly different amount of costs to finish. Job-costed products tend to be high cost per unit.
Thus the costs of each (unique) job are important for planning, pricing, and profitability.
In process costing, the jobs or products are similar (or homogeneous). Each job usually requires the
same inputs, and results in approximately the same costs per unit. The cost of a product or service is
obtained by assigning total costs to many identical or similar units. We assume each unit receives the
same amount of direct material costs, direct manufacturing labor costs, and indirect manufacturing costs.
Unit costs are then computed by dividing total costs by the number of units.
The principal difference between process costing and job costing is the extent of averaging used to
compute unit costs. As noted above in job costing, individual jobs use different quantities of production
resources; whereas in process costing, we assume that each job uses approximately the same amount of
resources.
Diff: 2
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
15) Why do we need to accumulate and calculate unit costs in process costing (and also job costing)?
Answer: We need to accumulate unit costs to:
1. Budget (planning)
2. Price
3. Account for the costs
1. Budgeting To operate a successful business, we should prepare budgets, review the results, and
make decisions as to how well our business is doing. Our business has formulated plans for the future.
The resources we need for the future (materials, conversion costs, facilities, etc.) will depend on our
estimate of the resources we need to accomplish these goals. An important part of these estimates is the
unit costs of the products we plan to produce. These unit costs will tell us how many dollars we must
acquire to accomplish our plans.
2. Price In order to be a profitable business, we must sell our product at a price in excess of what it
costs us to produce the product. Essential for the pricing decision is the cost per unit. We will also learn
whether we can sell a product at a profit.
3. Accounting During the course of the accounting period, we will be accumulating costs. At the end
of the accounting period, we must allocate this pool of costs between the units that were transferred out
and the goods in ending inventory. Unit costs are essential for this purpose.
Diff: 1
Terms: process-costing system
Objective: 1
AACSB: Reflective thinking
4
Copyright © 2012 Pearson Education, Inc.
