1

PROCESS COSTING- W.A. & FIFO

1. Chicago Processing Co. uses the average costing method and reported a beginning
inventory of 5,000 units that were 20% complete with respect to materials in one
department. During the month, 11,000 units were started; 8,000 units were finished;
ending inventory amounted to 8,000 units that were 60% complete with respect to
materials. Total materials cost during the period for work in process should be
spread over:
A. 7,200 units
B. 16,000 units
C. 11,200 units
D. 13,200 units
E. 12,800 units

SUPPORTING CALCULATION: 8,000 + .60(8,000) = 12,800 units

2. Beginning work in process was 60% complete as to conversion costs, and ending
work in process was 45% complete as to conversion costs. The dollar amount of the
conversion cost included in ending work in process (using the average cost method)
is determined by multiplying the average unit conversion costs by what percentage
of the total units in ending work in process?
A. 60%
B. 55%
C. 45%
D. 522%
E. 100%

Answer: C
3. Goode Manufacturing has three producing departments in its factory. The ending
inventory in the Milling Department consisted of 3,000 units. These units were 60%
complete with respect to labor and factory overhead. Materials are applied at the
end of the milling process. Unit costs for the complete process in the Milling
Department are: materials, P1; labor, P2; and factory overhead, P3. The appropriate
unit cost for each unit in the ending inventory is:
A. P2
B. P5
C. P3
D. P6
E. P4

SUPPORTING CALCULATION: 60% (P2 + P3) = P3

4. Gyro Products transferred 10,000 units to one department. An additional 3,000 units
of materials were added in the department. At the end of the month, 7,000 units
were transferred to the next department. There was no beginning inventory. The
costs for units transferred in would be effectively allocated over:
A. 17,000 units
B. 3,000 units
C. 10,000 units
D. 7,000 units
E. 13,000 units

SUPPORTING CALCULATION: 7,000 units transferred out + 6,000 units in ending

inventory = 13,000 units

5. Read, Inc. instituted a new process in October. During October, 10,000 units were
started in Department A. Of the units started, 7,000 were transferred to Department
B, and 3,000 remained in work in process at October 31. The work in process at
October 31 was 100% complete as to material costs and 50% complete as to
conversion costs. Materials costs of P27,000 and conversion costs of P39,950 were
charged to Department A in October. What were the total costs transferred to
Department B?
A. P46,900
B. P53,600
C. P51,800
D. P57,120
E. none of the above

SUPPORTING CALCULATION:
 2

Materials unit cost = P27,000 ) (7,000 + 3,000) = P2.70

Conversion unit cost = P39,950 ) [7,000 + 50%(3,000)] = P4.70
Costs transferred = 7,000(P2.70 + P4.70) = P51,800

C 6. Dover Corporation's production cycle starts in the Mixing Department. The following
information is available for April:

Units
Work in process, April 1 (50% complete)........................................... 40,000
Started in April................................................................................... 240,000
Work in process, April 30 (60% complete)......................................... 25,000

Materials are added at the beginning of the process in the Mixing Department. Using
the average cost method, what are the equivalent units of production for the month
of April?

Materials Conversion
A. 255,000 255,000
B. 270,000 280,000
C. 280,000 270,000
D. 305,000 275,000
E. 240,000 250,000

SUPPORTING CALCULATION:

Materials = 40,000 + 240,000 = 280,000

Conversion = (280,000 - 25,000) + .6(25,000) = 270,000

B 7. Information concerning Department A of Neeley Company for June is as follows:

Materials
Units Costs
Beginning work in process.............................................. 17,000 P12,800
Started in June................................................................ 82,000 69,700
Units completed.............................................................. 85,000
Ending work in process................................................... 14,000

All materials are added at the beginning of the process. Using the average cost
method, the cost per equivalent unit for materials is:
A. P0.825
B. P0.833
C. P0.85
D. P0.97
E. P1.01

SUPPORTING CALCULATION: (P12,800 + P69,700) ) (85,000 + 14,000) = P.833

B 8. Kennedy Company adds materials in the beginning of the process in the Forming
Department, which is the first of two stages of its production cycle. Information
concerning the materials used in the Forming Department in October is as follows:

Materials
Units Costs
Work in process, October 1............................................. 6,000 P 3,000
Units started................................................................... 50,000 25,560
Units completed and transferred out.............................. 44,000

Using the average cost method, what was the materials cost of work in process at
October 31?
A. P3,000
B. P6,120
C. P3,060
D. P5,520
E. P6,000

SUPPORTING CALCULATION:

(P3,000 + P25,560) ) (44,000 + 12,000) = P.51

P.51 x 12,000 = P6,120
 3

A 9. Connor Company computed the flow of physical units completed for

Department M for the month of March as follows:

Units completed:
From work in process on March 1................................................... 15,000
From March production................................................................... 45,000
Total.......................................................................................... 60,000

Materials are added at the beginning of the process. The 12,000 units of work in
process at March 31 were 80% complete as to conversion costs. The work in process
at March 1 was 60% complete as to conversion costs. Using the fifo method, the
equivalent units for March conversion costs were:
A. 60,600
B. 55,200
C. 57,000
D. 54,600
E. 63,600

SUPPORTING CALCULATION: (15,000 x .4) + 45,000 + (12,000 x .8) = 60,600

D 10. The Hilo Company computed the physical flow of units for Department A for the
month of April as follows:

Units completed:
From work in process on April 1...................................................... 10,000
From April production..................................................................... 30,000
Total.......................................................................................... 40,000

Materials are added at the beginning of the process. Units of work in process at April
30 were 8,000. The work in process at April 1 was 80% complete as to conversion
costs, and the work in process at April 30 was 60% complete as to conversion costs.
What are the equivalent units of production for the month of April using the fifo
method?

Materials Conversion Costs

A. 48,000 48,000
B. 40,000 47,600
C. 36,800 38,000
D. 38,000 36,800
E. 48,000 44,800

SUPPORTING CALCULATION:

Materials = 30,000 + 8,000 = 38,000

Conversion = (10,000 x .2) + 30,000 + (8,000 x .6) = 36,800

E 11. Department A is the first stage of Mann Company's production cycle. The following
information is available for conversion costs for the month of April:

................................................................................................... Units
Beginning work in process (60% complete)......................................... 20,000
Started in April.................................................................................... 340,000
Completed in April and transferred to Department B.......................... 320,000
Ending work in process (40% complete).............................................. 40,000

Using the fifo method, the equivalent units for the conversion cost calculation are:
A. 336,000
B. 360,000
C. 328,000
D. 320,000
E. 324,000

SUPPORTING CALCULATION:

(20,000 x .4) + 300,000 + (40,000 x .4) = 324,000

SCRAP & SPOILAGE

E 12. All of the following accounts would be acceptable ones to credit at the time scrap is
sold except:
A. Scrap Sales
B. Cost of Goods Sold
 4

C. Factory Overhead Control

D. Work in Process
E. all of the above would be acceptable

C 13. Scrap includes all of the following except:

A. the trimmings remaining after processing materials
B. defective materials that cannot be used or returned to the vendor
C. partially or fully completed units that are in some way defective
D. broken parts resulting from employee or machine failures
E. all of the above

A 14. When spoilage occurs because of some action taken by the customer, the
unrecoverable cost of the spoilage should be charged to:
A. Work in Process
B. Spoiled Goods Inventory
C. Factory Overhead Control
D. Applied Factory Overhead
E. none of the above

C 15. When spoilage occurs because of some internal failure, the unrecoverable cost
should be charged to:
A. Work in Process
B. Spoiled Goods Inventory
C. Factory Overhead Control
D. Applied Factory Overhead
E. none of the above

A 16. When rework occurs because of some action taken by the customer, the cost of
the rework should be charged to:
A. Work in Process
B. Spoiled Goods Inventory
C. Factory Overhead Control
D. Applied Factory Overhead
E. none of the above

C 17. When rework occurs because of some internal failure, the cost of the rework
should be charged to:
A. Work in Process
B. Spoiled Goods Inventory
C. Factory Overhead Control
D. Applied Factory Overhead
E. none of the above

C 18. Spoilage occurs as a result of an internal failure in a process cost system.

Using average costing, the number of equivalent units that production costs should
be charged to would be based upon:
A. spoiled units
B. units transferred out and spoiled units
C. units transferred out, spoiled units, and units in ending inventory
D. units transferred out and units in ending inventory
E. none of the above

D 19. Spoilage occurs as a result of normal production shrinkage in a process cost

system. Using average costing, the number of equivalent units that production
costs should be charged to would be based upon:
A. spoiled units
B. units transferred out and spoiled units
C. units transferred out, spoiled units, and units in ending inventory
D. units transferred out and units in ending inventory
E. none of the above

C 20. In a process cost system, the cost of spoilage due to an internal production failure
should be recorded as:
A. dr. Work in Process; cr. Finished Goods
B. dr. Work in Process; cr. Factory Overhead Control
C. dr. Factory Overhead Control; cr. Work in Process
D. dr. Materials; cr. Factory Overhead
E. dr. Finished Goods; cr. Work in Process

B 21. Gyro Products transferred 10,000 units to one department. An additional 3,000
units of materials were added in the department. At the end of the month, 7,000
units were transferred to finished goods; while 4,000 units remained in work in
 5

process inventory. There was no beginning inventory, and lost units were a result of
normal production shrinkage. The production costs for the period in this
department would be effectively allocated over:
A. 12,000 units
B. 11,000 units
C. 10,000 units
D. 7,000 units
E. 13,000 units

SUPPORTING CALCULATION: 7,000 + 4,000 = 11,000

B 22. In manufacturing its products for the month of March, Leo Co. incurred normal
production shrinkage of P10,000 and spoilage due to internal failure of P12,000.
How much spoilage cost should Leo charge to Factory Overhead Control for the
month of March?
A. P22,000
B. P12,000
C. P10,000
D. P0
E. none of the above

C 23. Willis, Inc. instituted a new process in October. During October, 10,000 units were
started in Department A. Of the units started, 1,000 were lost in the process due to
normal production shrinkage, 7,000 were transferred to Department B, and 2,000
remained in work in process at October 31. The work in process at October 31 was
100% complete as to materials costs and 50% complete as to conversion costs.
Materials costs of P27,000 and conversion costs of P40,000 were charged to
Department A in October. What were the total costs transferred to Department B?
A. P46,900
B. P53,600
C. P56,000
D. P57,120
E. none of the above

SUPPORTING CALCULATION:

Materials: P27,000 ) (7,000 + 2,000) = P3

Conversion: P40,000 ) (7,000 + 1,000) = P5
Transferred costs: 7,000 x P8 = P56,000

D 24. A company that manufactures baseballs begins operations on January 1. Each

baseball requires three elements: a hard plastic core, several yards of twine that are
wrapped around the plastic core, and a piece of leather to cover the baseball. The
plastic core is started down a conveyor belt and is automatically wrapped with the
twine to the approximate size of the baseball, at which time the leather cover is
sewn to the wrapped twine. Finished baseballs are inspected, and the ones that are
defective due to internal production failure are pulled out. Defective baseballs
cannot be economically salvaged and are destroyed. Cost and production reports
for the first week of operations are:

Raw material cost.................................................................................. P 840

Conversion cost...................................................................................... 315
...................................................................................................... P 1,155

During the week, 2,100 baseballs were completed; 2,000 passed inspection. There
was no ending work in process. The cost of the spoilage charged to Factory
Overhead is:
A. P33
B. P22
C. P1,100
D. P55
E. none of the above

SUPPORTING CALCULATION:

Materials: P840 ) (2,000 + 100) = P.40

Conversion: P315 ) (2,000 + 100) = P.15
Spoilage: 100 x P.55 = P55

A 25. In a process cost system, the cost of rework usually is debited to:
A. Factory Overhead Control
 6

B. Applied Factory Overhead

C. Spoiled Goods Inventory
D. Work in Process
E. none of the above

D 26. If spoilage occurs as a result of an internal failure in a process cost system, using fifo
costing, the number of equivalent units that production costs should be charged to
would be based upon:
A. spoiled units
B. units transferred out and spoiled units
C. units transferred out, beginning inventory, and units in ending inventory
D. units transferred out, spoiled units, units in ending inventory, and units in
beginning inventory
E. none of the above
 7

C 27. If spoilage occurs as a result of normal production shrinkage in a process cost

system, using fifo costing, the number of equivalent units that production costs
should be charged to would be based on:
A. spoiled units
B. units transferred out and spoiled units
C. units transferred out, beginning inventory, and units in ending inventory
D. units transferred out, spoiled units, units in ending inventory, and units in
beginning inventory
E. none of the above

B 28. Primo Products transferred 15,000 units to one department. An additional 5,000
units were in beginning inventory in the department. At the end of the month,
12,000 units were transferred to the next department, 6,000 units remained in
work in process, 40% complete as to conversion costs and the remaining units
were lost at the 75% stage of conversion. Beginning inventory was 60%
complete as to conversion costs and lost units were the result of internal failure.
The equivalent units of conversion cost using fifo costing is:
A. 14,400
B. 12,900
C. 13,900
D. 13,400
E. none of the above

SUPPORTING CALCULATION:

Equivalent units in beginning inventory (40% x 5,000)........................ 2,000

Equivalent units started and completed during period
(12,000 - 5,000)............................................................................. 7,000
Equivalent units in ending inventory (40% x 6,000)............................. 2,400
Equivalent units of spoilage (75% x 2,000).......................................... 1,500
Total equivalent units........................................................................... 12,900

A 29. Primo Products transferred 15,000 units to one department. An additional 5,000
units were added in the department. At the end of the month, 12,000 units were
transferred to the next department, 6,000 units remained in work in process, 40%
complete as to conversion costs and the remaining units were lost at the 75%
stage of conversion. Beginning inventory was 60% complete as to conversion
costs, and lost units were the result of normal production shrinkage. The
equivalent units of conversion cost using fifo is:
A. 11,400
B. 14,400
C. 12,900
D. 13,400
E. none of the above

SUPPORTING CALCULATION:

Equivalent units in beginning inventory (40% x 5,000)........................ 2,000

Equivalent units started and completed during period
(12,000 - 5,000)............................................................................. 7,000
Equivalent units in ending inventory (40% x 6,000)............................. 2,400
Total equivalent units........................................................................... 11,400
 8

COSTING BY-PRODUCTS AND JOINT PRODUCTS

D 30. The Hovart Corporation manufactures two products out of a joint process-Compod
and Ultrasene. The joint (common) costs incurred are P250,000 for a standard
production run that generates 120,000 gallons of Compod and 80,000 gallons of
Ultrasene. Compod sells for P2.00 per gallon, while Ultrasene sells for P3.25 per
gallon. If there are no additional processing costs incurred after the split-off point,
the amount of joint cost of each production run allocated to Compod by the
quantitative unit method is:
A. P100,000
B. P120,000
C. P130,000
D. P150,000
E. some amount other than those given above

SUPPORTING CALCULATION:

120,000
_ $250,000 = $150,000
120,000 + 80,000

A 31. Ace Company produced 20,000 units of Clubs, 15,000 units of Diamonds, and
10,000 units of Hearts. If the company uses the average unit cost method of
allocating joint production costs, which were P120,000 for the period, the joint
costs allocated to Diamonds would be:
A. P40,000
B. P20,000
C. P80,000
D. P45,000
E. none of the above

SUPPORTING CALCULATION:

15,000
_ $120,000 = $40,000
20,000 + 15,000 + 10,000

C 32. A company uses the weighted average method to assign joint products. Weight
factors used to assign joint costs to its three joint products were: Product A, 4
points; Product B, 7 points; and Product C, 8 points. Units produced were:
Product A, 10,000; Product B, 5,000; and Product C, 3,125. The amount of the
joint costs of P100,000 that would be allocated to Product C are:
A. P42,105
B. P17,241
C. P25,000
D. P30,000
E. none of the above

D 33. Tobin Company manufactures products S and T from a joint process. The market
value at split-off was P50,000 for 6,000 units of Product S and P50,000 for 2,000
units of Product T. Assuming that the portion of the total joint cost properly
allocated to Product S using the market value method was P30,000, the total joint
cost was:

8
 9

A. P40,000
B. P42,500
C. P45,000
D. P60,000
E. P75,000

SUPPORTING CALCULATION:

$50,000
= .5
$50,000 + $50,000

$30,000
= $60,000
.5

D 34. Alphabet Company manufactures Products A and B from a joint process that also
yields a by-product, X. Alphabet accounts for the revenues from its by-product
sales as a deduction from the cost of goods sold of its main products. Additional
information is as follows:

A B X Total
Units produced.................... 15,000 9,000 6,000 30,000
Joint costs............................ P264,000
Market value at split-off....... P290,000 P150,000 P 10,000 P450,000

Assuming that joint product costs are allocated using the market value at the
split-off approach, the joint cost allocated to Product B would be:
A. P136,540
B. P79,200
C. P88,000
D. P86,591
E. P99,000

SUPPORTING CALCULATION:

$150,000
_ ($264,000 • $10,000) = $86,591
$290,000 + $150,000

D 35. Idaho Corporation manufactures liquid chemicals A and B from a joint process.
Joint costs are allocated on the basis of relative market value at split-off. It costs
P4,560 to process 500 gallons of Product A and 1,000 gallons of Product B to the
split-off point. The market value at split-off is P10 per gallon for Product A and

9
 10

P14 for Product B. Product B requires an additional process beyond split-off at a

cost of P2 per gallon before it can be sold. What is Idaho's cost to produce 1,000
gallons of Product B?
A. P5,040
B. P4,360
C. P4,860
D. P5,360
E. P3,360

36.
Determination of Ending Inventory; Hypothetical Market Value Method. Macho Inc.
manufactures two beveragesCRed Eye and Tornado. The production process is such that
both beverages are jointly processed in the Basic Blending Department. At the end of the
basic blending process, Red Eye is sold at P10 per gallon, but Tornado must be processed at
a further cost of P7 per gallon before it can be sold at P15 per gallon. In June, the total joint
cost amounted to P96,000, while 5,000 gallons of Red Eye and 12,500 gallons of Tornado
were produced. There were no beginning inventories. At the end of June, there were 1,500
gallons of Red Eye and 2,000 gallons of Tornado on hand.

Required: Calculate the ending inventory costs for Red Eye and Tornado, using the
hypothetical market value method.
SOLUTION
Ending
Inventory Unit Costs Total
Product (Units) (per Schedule) Costs
Red Eye................................................................... 1,500 P 6.40 P 9,600
Tornado................................................................... 2,000 12.12 24,240
Ending inventory............................................... P 33,840

Ultimate Ultimate Processing)

Market Value Units Market Costs After)
Product per Unit Produced Value Split-Off )
Red Eye............................................... P10 5,000 P 50,000 0 )
Tornado............................................... 15 12,500 187,500 P87,5001 )
P 237,500 P87,500 )
( Total
( Hypothetical Joint Cost Production
( Market Value Allocation2 Cost Unit Cost
( P 50,000 P32,000 P 32,000 P 6.40
( 100,000 64,000 151,500 12.12
( P 150,000 P96,000 P 183,500
1
12,500 units x P7 = P87,500
2
P96,000/P150,000 = 64%, percentage to allocate joint cost

COST OF QUALITY

A 37. The quality costs that are associated with materials and products that fail to meet
quality standards and result in manufacturing losses are known as:
A. internal failure costs
B. external failure costs
C. prevention costs
D. appraisal costs
E. none of the above

10
 11

D 38. The quality costs that are associated with designing, implementing, and
maintaining the quality system are known as:
A. appraisal costs
B. internal failure costs
C. external failure costs
D. prevention costs
E. none of the above

C 39. The quality costs that are incurred to ensure that materials and products meet
quality standards are known as:
A. external failure costs
B. prevention costs
C. appraisal costs
D. internal failure costs
E. none of the above

B 40. The quality costs that are incurred because inferior quality products are shipped
to customers are known as:
A. internal failure costs
B. external failure costs
C. prevention costs
D. appraisal costs
E. none of the above

D 41. All of the following are characteristics of total quality management except:
A. the company's objective for all business activity is to serve its customers
B. top management provides an active leadership role in quality improvement
C. all employees are actively involved in quality improvement
D. the company maintains a loosely defined system of identifying quality
problems so as not to stifle employee creativity
E. the company provides continuous training as well as recognition for
achievement

A 42. The best approach to quality improvement is to concentrate on:

A. prevention
B. detection
C. appraisal
D. increased production
E. none of the above

C 43. A mathematical technique used to monitor production quality and reduce product
variability is:
A. the method of least squares
B. the statistical scattergraph method
C. statistical process control
D. linear programming
E. none of the above

D 44. Appraisal costs include all of the following except:

A. inspecting and testing materials
B. inspecting products during and after production
C. obtaining information from customers about product satisfaction
D. designing quality into the product and the production process
E. all of the above

11
 12

B 45. Internal failure costs include all of the following except:

A. the cost of the scrap
B. the cost of warranty repairs and replacements
C. rework
D. downtime due to machine failures
E. all of the above

THEORY OF CONSTRAINTS

C 46. A specialized version of direct costing for short-run optimization is :

A. learning theory
B. absorption costing
C. the theory of constraints
D. variable costing
E. none of the above

D 47. The theory of constraints uses which of the following basic measures :
A. throughput
B. operating expense
C. assets
D. all of the above
E. none of the above

B 48. The practice of improving a reported volume or idle capacity variance by

producing more than is currently needed is viewed by the theory of constraints as
:
A. a benefit with no cost increase
B. a cost increase with no benefit
C. both a cost increase and a benefit
D. worthwhile from a cost/benefit perspective
E. none of the above

E 49. The theory of constraints is a short-run optimization technique that views which
of the following as relatively constant :
A. resources
B. technology
C. product lines
D. demand
E. all of the above

A 50. The theory of constraints is primarily useful for :

A. short-run decisions
B. medium range decisions
C. long-run decisions
D. both short-run and long-run decisions
E. medium range to long-run decisions

12