ALDERSGATE COLLEGE

COST ACCOUNTING 2
SCHOOL OF BUSINESS AND ACCOUNTANCY
MODULE 1: PROCESS COSTING: NATURE AND OPERATIONS

Learning Activity

A. Multiple Choice: Theory

C 1. In process cost system, costs are assigned only:

a. to one work in process inventory account.

b. to work in process and finished goods inventories.
c. to work in process, finished goods, and cost of goods sold.
d. to work in process inventory accounts.

D 2.Indicate which of the following statement is not correct.

a. Both a job order and a process cost system track the same three manufacturing cost
elements - direct materials, direct labor, and manufacturing overhead.
b. In a job order cost system, only one work in process is used, while in process cost
system, multiple work in process inventory accounts are used.
c. Manufacturing costs are accumulated the same way in a job order and in a process cost
system.
d. Manufacturing costs are assigned the same way in a job order and in a process cost
system.

B 3. In making the journal entry to record raw material costs:

a. the debit is to Finished Goods Inventory

b. the debit is often to two or more work in process inventory accounts
c. the credit is generally to two or more work in process accounts
d. the credit is to Finished Goods Inventory

B 4. The analysis of the activity in a department or cost center for a period is called a:

a. Quantity report
b. Cost of production report
c. Cost of goods manufactured
d. Equivalent production

B 5. A cost of production report:

a. is an external report
b. shows costs charged to department and costs accounted for
c. shows equivalent units of production but not physical flow of units
d. contains six sections

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6. The restatement of incomplete units in terms of completed units is called:
C
a. Quantities produced
b. Total production
c. Equivalent production
d. Approximate production

A 7. Purchased materials are added in the second department of a three- department process;
this increases the number of units produced in the second department and would
always:

a. Change the direct labor cost percentage in the ending work in process inventory.
b. Cause no adjustment to the unit cost transferred in from the first department.
c. Increase total unit costs.
d. Decrease total ending work in process in inventory.

D 8. Purchased materials are added in the second department of a three- department process;
this does not increase the number of units produced in the second department and
would:

a. Not change the peso amount transferred to the next department.

b. Decrease total work in process inventory.
c. Increase the factory overhead portion of the ending work in process inventory.
d. Increase total unit cost.

A 9. An equivalent unit of material or conversion cost is equal to:

a. The manufacturing costs necessary to complete one unit of production.

b. A unit of work in process inventory.
c. The manufacturing costs necessary to start a unit of production into work in process.
d. Fifty percent of manufacturing costs of a unit of finished goods inventory.

B 10. Which statement is correct?

a. Units started in process (or received from preceding departments) plus units added to
production will always equal to units transferred out plus units completed and still in hand
plus ending units in process.
b. Units added in subsequent departments will affect the transferred in equivalent unit cost
in the costs to be accounted for section.
c. The stage of completion of ending work in process is most often based upon the actual
physical state of completion of each unit in ending work in process.
d. The Cost Accounted For section of the cost of production report shows which costs were
accumulated by the department.

D
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11. An item that does not appear on a cost of production report is:

a. beginning work in process inventory

b. cumulative costs through the end of departmental production
c. ending work in process inventory
d. ending finished goods inventory
MULTIPLE CHOICES- COMPUTATIONAL
B. Multiple Choice: Computation

D 1. Department 1 had put 95,000 units into process during the period and had ending units in
process of 21,000 units.

What is the number of units transferred to finished goods inventory, if Department 2's
ending units in process are 12,000?

a. 104,000
b. 83,000
c. 74,000
d. 62,000

A 2. Red Company had 6,000 units in process at the beginning of the month in Department 1.
During the month an additional 14,000 units were placed into process.

If Red Company had 4,200 units in process at the end of the month, what is the number
of units transferred to department 2, assuming all units completed in Department 1 are
transferred to Department 2?

a. 15,800
b. 18,200
c. 20,000
d. 24,200

A 3. The cost of materials put into production in a department during the month totaled
P188,400. By the end of the month, these materials had been used for 32,000 units, of
which 29,000 were completed and transferred out and 3,000 were in process. Eighty
percent of materials were added to the units in process.

What is the equivalent unit production for materials?

a. 31,400
b. 32,000
c. 29,600
d. 31,000

A 4. Using the data in Number 3, what is the cost per equivalent unit for materials?

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a. P6.00
b. P5.89
c. P6.50
d. P6.36

Items 5 to 7 are based on the following data for the Finishing Department of the Lovely
Company in January:

Beginning inventory -0-

Units transferred in during month 4,70
0
Units transferred to Finished Goods during 4,30
month 0
Ending work in process (25% complete as 40
to labor) 0
Labor costs incurred for month P14,080

A 5. What is the equivalent production for labor during the month?

a. 4,400
b. 4,600
c. 4,700
d. 4,300

A 6. What is the labor cost per equivalent unit?

a. P3.20
b. P3.06
c. P3.00
d. P3.27

A 7. What is the labor cost in the ending work in process?

a. P320
b. P306
c. P1,280
d. P960

Items 8 to 11 are based on the following data for the Grinding Department of the West
Company in November:

Beginning inventory -0-

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Units placed in production during month 73,00
0
Units transferred to next department during month 67,00
0
Ending work in process (1/3 complete as to
overhead)
Overhead costs incurred for month P282,900

A 8. What is the number of units in the ending work in process?

a. 6,000
b. 4,000
c. 5,000
d. 7,000

A 9. What is the equivalent production for overhead during the month?

a. 69,000
b. 73,000
c. 71,000
d. 67,000

A 10. What is the overhead cost in the units transferred out?

a. P4.10
b. P3.86
c. P3.98
d. P4.22

B 11. What is the overhead cost in the ending inventory of work in process?

a. P 8,200
b. P24,600
c. P 7,720
d. P 7,960

Use the following data in answering items 12 to 15:

During the month, 3,900 units of product were started into production in a department,
of which 3,700 were completed. Of the 3,700 completed units, 80 are still oil hand in
the department and have not been physically transferred to the next department.
There are also units still in process; they are estimated to be 65 percent complete as
to labor and overhead. Labor for the month was P27, 193.

A 12. What is the labor cost applicable to the units transferred to the next department?

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a. P25,702
b. P27,193
c. P27,502
d. P20,705

A 13. What is the labor cost applicable to the units completed and still on hand?

a. P 568
b. PI, 420
c. PI, 240
d. P5, 680

A 14. What is the number of uncompleted units on hand?

a. 200
b. 300
c. 400
d. 500

A 15. What is the labor cost applicable to the uncompleted units on hand?

a. P923
b. P9,230
c. P1,420
d. P142

Questions 16 and 17 relate to Spring Company which bottles mineral water. The
water is filtered in Department 1 and then flows through to Department 2 where it is
bottled. The company's only direct material cost occurs in the bottling stage. The
quantity schedules of Spring Company are as follows:

Department 1
Units started in process 110,00
0
Units transferred to Department 2 80,00
0
Units in process, end 30,00
0
Department 2
Units received from Department 1 80,00
0
Units transferred to finished goods inventory 61,40
0
Units in process 18,60

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0

Ending units in process in both departments are 72% complete as to conversion costs.

A 16. Direct materials equivalent units of production far Department 1 are:

a. 0
b. 80,000 units
c. 101,600 units
d. 110,000 units

C 17. Department 2 would have how many equivalent units of product on. on the basis of a
conversion cost computation?

a. 61,400 units
b. 68,929 units
c. 74,792 units
d. 80,000 units

A 18. Below is the quantity schedule for Department of Tuason Company:

Units to be accounted for:

Units received from Department 1 37,00
0
Units accounted for:
Units transferred to finished goods 28,00
0
Units in process, end (35% complete as to
conversion cost)
9,000
Cost data:
Cost from preceding department P24,05
0
Conversion costs added this period 18,69
0

What is the cost of units in process, end?

a. P5, 850
b. P7, 740
c. PI, 890
d. P6, 540

A 19. The production data for Department 2 are as follows:

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Units received from preceding department 55,000
Units added to production 5,000
Units finished and transferred out 48,000
Ending units in process (direct materials, 100%, conversion costs,
70% complete) 12,000
Costs from preceding department P24,750
Costs added by department:
Materials P7,2
00
Conversion costs 53,5
80

What is the total unit cost?

a. P1.4825
b. P1.52
c. P1.07
d. P1.450

A 20. The RC Corporation manufactures toy cars. In Department 1, the body of the toy car is
formed out of plastic. In Department 2 four rubber wheels are placed on each car at the
end of the process. Below is the activity of Department 2 for May:

Units transferred in 15,000

Cost transferred in P13,500
Costs incurred by Department 2
Direct materials P.02 each rubber wheel
Conversion costs P14,210
Units in process, end 3,000 (2/3 complete as to
conversion costs, no direct
materials
What is the total cost of completed units transferred out to Department 2?

a. P21, 935
b. P23, 940
c. P21, 915
d. P23, 220

D 21. Below are data pertaining to Department 2 of Magdalo Company that uses a process
cost system:

Units received from Department 1 500,000

Units added to production 100,000
Units transferred to finished goods 530,000
Ending units in process 10% are 30% complete

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40% are 60% complete
15% are 75% complete
35% are 85% complete
Costs transferred in P300,000
Cost added by department
Direct materials P559,350
Conversion costs P606,480

Direct materials are added at the 62% stage of production and conversion costs are
added evenly throughout the process. No beginning work in process inventory exists.

What is the cost of ending work in process inventory?

a. P119,630
b. P 84,630
c. P191.630
d. P126,630

A 22. Production data taken from the Costs to be Accounted For section of the Cost Schedule
of Oakwook Company with two production departments is as follows:

Department Department
1 2
Unit cost:
Direct materials P4.2 P-
9
Direct labor 2.93 3.19
Overhead 1.17 1.20

Equivalent
production:
Direct labor 20,000
Overhead 20,000

If Department 1 transferred 32,000 units to Department 2, what is the total cost to be

accounted for?

a. P356,280
b. P255,600
c. P419,716
d. P 87,800
C 23. Department 3 of the Peninsula Company has the following pieces of data included in its
cost of production report:

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Quantities:

Units transferred in from Department 2 54,000

Units added to production 24,330

Units in process, end ?

Total Cost Unit Cost

Costs to be accounted for:

Costs from preceding department P391,500 P7.25

Costs added by department:
Direct materials P80,000 P1.23
Conversion costs P150,000 P2.50

Cost accounted for:

Transferred to finished goods P509,221

Additional data:
Ending units in process in Department 3 are 100% complete as to direct
materials and 45% complete as to conversion costs.

What is the amount of total costs accounted for?

a. P556,321
b. P601,321
c. P656,321
d. P701.321

A 24. National Electronics manufactures microchips in large quantities. Each microchip

undergoes assembly and testing. The total assembly costs during January 2008 is as
follows:

Direct materials used P 720,000

Conversion costs 760,000

Total manufacturing costs P1,480,00

0

Assume there was no beginning inventory on January 1, 2008. During January, 10,000
microchips were placed into production and all 10,000 were fully completed at the end of
the month.
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What is the unit cost of an assembled microchip in January?

a. P148
b. P158
c. P150
d. P145

A 25. Using the data in Number 24, assume that during February 10,000 microchips are
placed into production. Further assume the same total assembly costs for January are
also incurred in February, but only 9,000 microchips are fully completed at the end of the
month. All direct materials have been added to the remaining 1,000 microchips.

However, on average, these remaining 1,000 microchips are only 50% complete as to
conversion costs.

What are the unit costs for direct materials and conversion costs for February?

Direct Conversion
Materials Costs
a. P72 P80
b. P70 P80
c. P72 P80
d. P70 P85

A 26. Viagra Chemicals has a Mixing Department and a Refining Department. Its process
costing system in the Mixing Department has two direct materials cost categories
(Chemical P and Chemical Q) and one conversion costs pool. The following data pertain
to the Mixing Department for July, 2008:

Units Work in process, July 1 0

:
Units started 50,000
Completed and transferred out 35,000

Cost Chemical P P250,00

s: 0
Chemical Q 70,000
Conversion costs 135,00
0

Chemical P is introduced at the start of operations in the Mixing Department, and

Chemical Q is added when the product is three- fourths completed in the Mixing

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Department. Conversion costs are added evenly during the process. The ending work in
process in the Mixing Department is two-thirds complete.

What is the cost of goods completed and transferred to the Refining Department during
July?

a. P350,000
b. P400,000
c. P300,000
d. P450.000

A 27. Using the data in Number 26, what is the cost of work in process as of July 31, 2008?

a. P105,000
b. P120,000
c. P115,000
d. P150,000

Posttest

Problem 1: Quantity Schedule

Problem 10-1:
The JAG Manufacturing Company has five processing departments. An examination of its cost
of production report reveals the following incomplete data:

Departments

1 2 3 4 5
Quantities
Units started in process 10,00
0
Units received from - 4,00 3,000 2,40 2,10
preceding dept. 0 0 0
Units transferred to next 4,00 3,000 2,400 2,10 -
dept. 0 0
Units transferred to - - - - 1,60
finished goods 0
Ending units in process 6,000 1,00 600 300 500
0

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Required: Complete the quantity schedule by replacing the letters with the correct unit amount.
Assume that the process is sequential (i.e. the output of Department 1 is the input of
Department 2, etc.) and that no beginning work in process inventory exists.

Problem 2: Equivalent Units of

Production Problem 10-2:
The JGG Toy Company manufactures a wide variety of plastic toys. All direct materials are
added at the beginning of Department A, Department A, B, and C add direct labor and
overhead evenly throughout the process. January's quantity schedules are:

Departme
nt
A B C

Units to account for:

Started in process 25,00
0

Received from preceding department 15,000 12,000

Units accounted for:

Transferred to next department 15,00 12,000
0
Transferred to finished goods 9,000
Ending units in process 10,00 3,000 3,000

(75% (50% (50%

complete) complete) complete)

Total 25,000 15,000 12,000

Required: Determine the equivalent units of production for both direct materials and conversion
costs for each department.

Problem 3: Equivalent Units of Production

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Tanny Company produces a finished product requiring direct materials to be added at uneven
intervals during production. Direct materials are added only in Department A. The schedule of
when direct materials are added in Department A is as follows:

Stage of Percentage of
Production Direct Materials
Percentage Added
Completed
10 20%
40 30
75 30
90 20

Conversion costs are added evenly throughout the process. Following are the August data for
Department A:

Beginning units in process

Units started in process
Ending units in process (25% were
35% complete, 30% were 55%
complete, 25% were 80% complete, 10,0
and 20% were 95% complete) 00

Required: Compute equivalent units of production for Department A for both direct materials
and conversion costs for the month of August.

Problem 4: Cost of Production Report

Data for Department 2 for the month of July, 2008 follows:

Beginning units in process -0-

Units transferred in 13,00
0
Costs transferred in P16,12
0
Ending units in process (45% complete as to conversion 2,000
costs)
Direct materials P2,86
0

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Conversion costs 9,996

Materials added in Department 2 did not increase the number of units.

Required: Prepare a cost of production report for Department 2.

Problem 5: Cost of Production Report

The AMG Plastic Co. has two processing departments. All direct materials are added in
Department 1 at the beginning of the process. Conversion costs are incurred evenly throughout
both processes. Data for January, 2008 are shown below:

Department 1 Department
2
Units started in process 75,000
Units transferred to next department 60,000
Units transferred to finished goods 55,000
inventory
Ending units in process 15,000 5,00
(60% 0 (80%
complete) complete)
Costs added by department:
Direct materials P300,00
0
Direct labor 172,500 P162.250
Manufacturing overhead (applied) 86,250 81,125

No beginning work-in-process inventory exists.

Required: Prepare a cost of production report for both departments.

Problem 6: Cost of Production Report

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The Camay Soap Corporation requires three processing departments to produce its soap. All
direct materials are introduced into production at the beginning of Department 1. Departments 1
through 3 add conversion costs evenly throughout the process.

A cost accountant obtained the following information for December 2008:

Department 1 Department 2 Departmen

t3
Units started in process 150,000
Units transferred to the next department 125,000 115,000
Units transferred to finished goods 112,000
Ending units in process - % of
completion for
Conversion costs 40% 10% 90%
Costs added by department:
Direct materials P21,000
Direct labor 8,100 P11,600 P8,029
Factory overhead (applied) 16,200 23,200 16,058

Required: Prepare a cost of production report for each department.

Problem 7: Cost of Production Report

The October data for CPA Company are shown below:

Department 1 Department
2
Units started in process 25,000
Units received from previous 15,000
department
Units transferred to finished goods 7,000
inventory
Units completed but not transferred 1,000
Ending units in process 10,000 7,000
(80% (75%
direct conversion
materials, costs)
65%
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conversion
costs)
Costs added by department:
Direct materials P12,650
Direct labor 13,545 P9,805
Manufacturing overhead (applied) 5,160 6,625

Required:
a. Prepare a separate cost of production report for Departments 1 and 2.
b. If finished goods inventory had a beginning balance of P25,000 and an ending balance
of P3,300, what amount was charged to cost of goods sold?

Problem 8: Equivalent Production and Computation of Cost

The Nature Medicine Co. manufactures an all purpose tablet. Four direct materials are put into
production in Department A. Department B places the units received from Department A into
quick-dissolving tablets. Raw materials (all direct) are placed into production in Department A as
follows:

Raw materials 101 (aspirin): Beginning of process

Raw materials 102 (caffeine): When units are 40% complete
Raw materials 103 (decongestant): When units are 60% complete
Raw materials 104 (muscle relaxer): When units are 95% complete

July Data, Department A:

Units started in process 300,00

0
Units transferred out 250,00
0
Ending units in process (30% are 45% complete, 35% are
50% complete, 15% are 65% complete, 20% are 98% 50,00
complete) 0
Cost incurred:
Direct materials:
101 6,000.00
102 3,000.00
103 9,362.50
104 13,000.00
Conversion 117,763.50

Required:
1. Compute the units of equivalent production for materials and conversion costs.

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2. Compute the cost of ending work in process inventory.
Problem 9: Cost of Production Report and Journal Entries to Record Production Cost
Problem 10-9:
The department production report of Peninsula' Company for August is summarized below:

Assembl Finishin
y g
Departme Departm
nt ent
Quantity:

Started in Production-Current 2,00 -0-

Month 0
Transferred in From Prior - 1,860
Department 0-
Transferred out to Next 1,86 -0-
Department 0
Transferred out to Finished - 1,800
goods 0-

State of Completion of Ending

WIP
Materials Complete 40%
Labor 75 10%
%
Overhead 75% 40%

Costs allocated to the departments are presented below:

Materials Labor Overhead

Assembly Department P30,000 P29,670 P18,830
Finishing Department 68,000 13,671 7,825

Required:
1. Prepare a cost of production report for each department. Round total costs to the nearest
peso.
2. Prepare journal entries to record the allocation of costs to production.
3. Prepare journal entries to record the transfer of goods from the Assembly Department to
the Finishing Department.
4. Prepare journal entries to record the completion of goods and the transfer to Finished
Goods.

Problem 10: Cost of Production Report and Journal Entries.

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The departmental heads of Glorieta Factories, Inc., have submitted the monthly production
reports for June, 2008. These reports have been summarized as follows:

Trimming Assembly Finishing

Department Department Departme
nt
Quantity:

Started in Process 6,000 -0- -0-

Transferred in -0- 5,400 5,000
Transferred out 5,400 5,400 4,80
0
Work in Process - End 600 400 20
0

Stage of Completion of Work in

Process - End:
Materials Complete 95% 80
%
Labor 60% 75% 90
%
Overhead 60% 85% 80
%

Costs are allocated as follows:

Materials Labor Overhead

Trimming Department P33,60 P18,50 P9,217
0 0
Assembly Department 14,84 14,84 7,120
0 0
Finishing Department 6,40 10,32 4,960
0 0

Required:
1. Prepare the cost of production report. Round total costs to the nearest peso.
2. Prepare journal entries to record the following:
a. To charge materials, labor, and overhead to production.
b. To record the transfer of goods from the Trimming Department to the Assembly
Department.
c. To record the transfer of goods from the Assembly Department to the Finishing
Department.
d. To record the completion of goods and their transfer to Finished Goods.
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