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Chapter 18: Q.18-1SE (page 1007)

Question: Identify each costing system characteristic as job order costing or process costing.

a. One Work-in-Process Inventory account

b. Production cost reports

c. Cost accumulated by process

d. Job cost sheets

e. Manufactures homogenous products through a series of uniform steps

f. Multiple Work-in-Process Inventory accounts

g. Costs transferred at end of period

h. Manufactures batches of unique products or provides specialized services

Short Answer

Expert verified

Answer

S.No.

Particulars

Costing System

a

One Work-in-process account

Job order costing system

b

Production cost report

Process costing system

c

Cost accumulated by process

Process costing system

d

Job cost sheet

Job order costing system

e

Manufactures homogenous products through a series of uniform steps

Process costing system

f

Multiple work-in-process inventory accounts

Process costing system

g

Cost transferred at end of period

Process costing system

h

Manufactures batches of unique products or provides specialized services

Job order costing system

Step by step solution

01

Classification of costing system when there is one WIP account

When there is one WIP account, company use job order costing system. It is so because job order costing system has only one WIP inventory account. On the other hand, process costing has WIP account for each process.

02

Classification of costing system when company prepare production cost report

The company preparing the production report uses the process costing system. It is so because the production cost report is prepared in process costing system. While in job order costing system, job cost record is prepared.

03

Classification of costing system when company accumulates the cost by process.

Process costing system is used when the company accumulates the cost by process. It is so because process costing involve series of process in manufacturing of products.

04

Classification of costing system when company prepares the job cost sheet

The company preparing the job cost sheets use the job order costing system. It is so because the job cost records for each job is prepared in the job order costing system. While in process costing system, production cost report is prepared.

05

Classification of costing system when company manufacture the homogeneous products through a series of uniform steps.

Process costing system is used when the company is engaged in manufacturing the homogeneous (similar) products by following a series of uniform steps or processes.

06

Classification of costing system when there is multiple WIP inventory account

Process costing system is used when the company is maintaining multiple WIP inventory account for each process or department, it is so because it means the manufacturing of product is conducted through a series of multiple process.

07

Classification of costing system when company transfer the cost at end of period

Process costing system is used in the companies, in which the cost is transferred at the end of the accounting period. While in job order costing system, cost is transferred when each job is completed.

08

Classification of costing system when company manufactures the batch of unique products or provides specialized services

Job order costing system is used. It is so because the companies that are engaged in manufacturing the unique products, products on batches or providing the specialized services uses the job order costing system.

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Most popular questions from this chapter

Happy Colors manufactures crayons in a three-step process: mixing, molding, and packaging. The Mixing Department combines the direct materials of paraffin wax and pigments. The heated mixture is pumped to the Molding Department, where it is poured into molds. After the molds cool, the crayons are removed from the molds and are transferred to the Packaging Department, where paper wrappers are added and the crayons are boxed.

In the Mixing Department, the direct materials are added at the beginning of the

process and the conversion costs are incurred evenly throughout the process. Work in process of the Mixing Department on April 1, 2018, consisted of 300 batches of crayons that were 30% of the way through the production process. The beginning balance in Work-in-Process Inventory—Mixing was \(27,800, which consisted of \)10,700 in direct materials costs and $17,100 in conversion costs. During April, 3,200 batches were started in production. The Mixing Department transferred 2,800 batches to the Molding Department in April, and 700 were still in process on April 30. This ending inventory was 80% of the way through the mixing process. Happy Colors uses FIFO process costing.

At April 30, before recording the transfer of costs from the Mixing Department

to the Molding Department, the Happy Colors general ledger included the following account:

Work-in-process inventory – Mixing

Balance, March 1

27,800

Direct materials

22,400

Direct labor

21,330

Manufacturing overhead

44,070

Requirements

1. Prepare a production cost report for the Mixing Department for April. Round

equivalent unit costs to four decimal places. Round all other costs to the nearest

dollar.

2. Journalize all transactions affecting the Mixing Department during April, including the entries that have already been posted. Assume the labor costs are accrued and not yet paid.

Miller Company sells several products. Sales reports show that the sales volume of its most popular product has increased the past three quarters while overall profits have decreased. How might production cost reports assist management in making decisions about this product?

Bert’s Exteriors produces exterior siding for homes. The Preparation Department begins with wood, which is chopped into small bits. At the end of the process, an adhesive is added. Then the wood/adhesive mixture goes on to the Compression Department, where the wood is compressed into sheets. Conversion costs are added evenly throughout the preparation process. January data for the Preparation Department are as follows:

UNITS

Beginning work-in-process inventory

0 sheets

Started in production

3,800 sheets

Completed and transferred out to compression in January

2,900 sheets

Ending work-in-process inventory (30% of the way through the preparation process)

900 sheets

COSTS

Beginning work-in-process inventory

$0

Costs added during January

Wood

2,888

Adhesive

1,914

Direct labor

987

Manufacturing overhead allocated

2,500

Total costs

8,289

Requirements

1. Prepare a production cost report for the Preparation Department for January. The company uses the weighted-average method. (Hint: Each direct material added at a different point in the production process requires its own equivalent units of production computation.)

2. Prepare the journal entry to record the cost of the sheets completed and transferred out to the Compression Department.

3. Post the journal entries to the Work-in-Process Inventory—Preparation T-account. What is the ending balance?

PepsiCo, Inc. is a global food and beverage company that manufactures brands such as Frito-Lay, Gatorade, Pepsi-Cola, Quaker, and Tropicana. One of the products PepsiCo, Inc. manufactures is Mountain Dew. The first process in manufacturing Mountain Dew consists of clarifying the water to remove impurities such as organic materials and bacteria. The clarification process involves mixing the water with aluminum sulfate (an indirect material) to remove the impurities.

Assume PepsiCo uses the weightedaverage method of process costing.

Requirements

1. During the month of June, the Clarification Department incurred the following costs in processing 100,000 liters:

Wages of workers operating the clarification equipment

$20,000

Manufacturing overhead allocated to clarification

24,000

Water

160,000

PepsiCo had no beginning Work-In-Process Inventory in the Clarification Department in June. Compute the June conversion costs in the Clarification Department.

2. Assume that water is added at the beginning of the clarification process and conversion costs are added evenly throughout the process. The Clarification Department completed and transferred out 60,000 liters during June. The 40,000 liters remaining in Clarification’s ending Work-in-Process Inventory were 100% complete for direct materials and 60% complete for conversion costs. Compute the equivalent units of production for direct materials and conversion costs for the Clarification Department.

3. Compute the cost per equivalent unit for direct materials and conversion costs for the Clarification Department.

The Finishing Department started the month with 500 units in process, received 2,000 units from the Assembly Department, and transferred 2,100 units to the finished goods storage area. All direct materials are added at the beginning of the process. The units in process at the end of the month are 45% complete concerning conversion costs. The department uses the weighted-average method. The Finishing Department incurred the following costs:

Beginning WIP

Added this month

Total

Transferred in

\(6,250

\)25,000

\(31,250

Direct materials

500

2,000

2,500

Conversion cost

1,250

5,590

6,840

Total

\)8,000

\(32,590

\)40,590

8. How many units are still in process at the end of the month?

9. Compute the equivalent units of production for the Finishing Department.

10. Determine the cost per equivalent unit for transfer, direct materials, and conversion costs.

11. Determine the cost to be transferred to Finished Goods Inventory.
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