Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 18: Q1TI (page 966)

Match each costing system characteristic to job order costing, process costing, or both.

1. Used by companies that manufacture identical items through a series of uniform production steps or processes

2. Transfers costs from Work-in-Process Inventory to Finished Goods Inventory to Cost of Goods Sold

3. Used by companies that manufacture unique products or provide specialized services

4. Has multiple Work-in-Process Inventory accounts

5. Tracks direct materials, direct labor, and manufacturing overhead costs

Short Answer

Expert verified

S.No.

Particulars

Classification

1.

Used by companies that manufacture identical items through a series of uniform production steps or processes

Process costing

2.

Transfers costs from Work-in-Process Inventory to Finished Goods Inventory to Cost of Goods Sold.

Both

3.

Used by companies that manufacture unique products or provide specialized services

Job order costing

4

Has multiple Work-in-Process Inventory accounts

Process costing

5

Tracks direct materials, direct labor, and manufacturing overhead costs

Both

Step by step solution

01

Costing system

The costing system explains the method to calculate the cost of manufacturing the products. The system provides two different methods to calculate the costing, i.e., the job order costing system and the process costing system.

02

Classification of costing system when the company manufactures identical items through a series of uniform production steps

Process costing system is used by the companies that manufacture similar products in large quantities by following a series of uniform manufacturing procedures. Hence, it is classified as the process costing system.

03

Classification of costing system when company transfers cost from work in process to finished goods inventory to cost of goods sold

In both costing systems, the company transfers the cost from the work in process account to the finished goods account and from the finished goods account to the cost of goods sold account. It is the normal flow of cost of manufacturing from one account to another.

04

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

The job order costing system is used by companies engaged in manufacturing the specialized product in small quantities on the order of the client or as per the specification of the customers. Hence, the company manufacturesunique productsthat provide specialized services using the job order costing system.

05

Classification of costing system when a company has multiple works in process accounts

In process costing only, the product is manufactured by passing through multiple numbers of processes. Hence, the company hasmultiple work-in-process accountsthat use a process costing system.

06

Classification of costing system when company manufacture track direct material, direct labor, and manufacturing overhead cost.

The company tracks the direct material cost, direct labor cost, and manufacturing overhead under both systems. It is so because both systemsare used to calculate the total cost of manufacturing the products. Hence, it is classified in both (process costing and the job order costing system),

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Ocean Worthy uses three processes to manufacture lifts for personal watercraft: forming a lift’s parts from galvanized steel, assembling the lift, and testing the completed lift. The lifts are transferred to Finished Goods Inventory before shipment to marinas across the country.

Ocean Worthy’s Testing Department requires no direct materials. Conversion costs are incurred evenly throughout the testing process. Other information follows for the month of August:

UNITS

Beginning work-in-process inventory

2,000 units

Transferred in from assembling department during the period

7,000 units

Completed during the period

4,000 units

Ending work in process inventory (40% complete for conversion work)

5,000 units

COSTS

Beginning work in process inventory (transferred in costs, \(93,400, conversion costs, \)18,100)

$111,500

Transferred in from the assembly department during the period

672,000

Conversion cost added during the period

54,000

The cost transferred into Finished Goods Inventory is the cost of the lifts transferred out of the Testing Department. Ocean Worthy uses weighted-average

process costing.

Requirements

1. Prepare a production cost report for the Testing Department.

2. What is the cost per unit for lifts completed and transferred out to Finished Goods Inventory? Why would management be interested in this cost?

Rick Pines and Joe Lopez are the plant managers for High Mountain Lumber’s particle board division. High Mountain Lumber has adopted a just-in-time management philosophy. Each plant combines wood chips with chemical adhesives to produce particle board to order, and all product is sold as soon as it is completed. Laura Green is High Mountain Lumber’s regional controller. All of High Mountain Lumber’s plants and divisions send Green their production and cost information. While reviewing the numbers of the two particle board plants, she is surprised to find that both plants estimate their ending Work-in-Process Inventories at 75% complete, which is higher than usual. Green calls Lopez, whom she has known for some time. He admits that to ensure their division would meet its profit goal and that both he and Pines would make their bonus (which is based on division profit), they agreed to inflate the percentage completion. Lopez explains, “Determining the percent complete always requires judgment.

Whatever the percent complete, we’ll finish the Work-in-Process Inventory first thing next year.”

Requirements

  1. How would inflating the percentage completion of ending Work-in-Process Inventory help Pines and Lopez get their bonus?
  2. The particle board division is the largest of High Mountain Lumber’s divisions. If Green does not correct the percentage completion of this year’s ending Work-in-Process Inventory, how will the misstatement affect High Mountain Lumber’s financial statements?
  3. Evaluate Lopez’s justification, including the effect, if any, on next year’s financial statements.
  4. Address the following: What is the ethical issue? What are the options? What are the potential consequences? What should Green do?

Color Explosion prepares and packages paint products. Color Explosion has two departments: Blending and Packaging. Direct materials are added at the beginning of the blending process (dyes) and at the end of the packaging process (cans). Conversion costs are added evenly throughout each process. The company uses the weighted- average method. Data from the month of May for the Blending Department are as follows:

Gallons

Beginning work-in-process inventory

0 gallons

Started in production

8,500 gallon

Completed and transferred out to packaging in may

6,500 gallon

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

2,000 gallon

Costs

Beginning work-in-process inventory

\(0

Costs added during May:

  • Direct materials

5,525

  • Direct labor

1,500

  • Manufacturing overhead allocated

2,547

Total costs added during May

\)9,572

Requirements

1. Compute the Blending Department’s equivalent units of production for direct

materials and for conversion costs.

2. Compute the total costs of the units (gallons)

a. completed and transferred out to the Packaging Department.

b. in the Blending Department ending Work-in-Process Inventory.

The Finishing Department reports the following data for the month:

Equivalent unit of production:

Transferred in

3,000

Direct materials

3,000

Conversion cost

2,250

Costs:

Beginning WIP

Added this month

Total

Transferred in

\(7,500

\)15,000

\(22,500

Direct materials

3,250

6,500

9,750

Conversion costs

6,125

13,000

19,125

Total

\)16,875

\(34,500

\)51,375

Calculate the cost per equivalent units of production for each input. The company

uses the weighted-average method.

Shea Winery in Pleasant Valley, New York, has two departments: Fermenting and Packaging. Direct materials are added at the beginning of the fermenting process (grapes) and at the end of the packaging process (bottles). Conversion costs are added evenly throughout each process. The company uses the weighted-average method. Data from the month of March for the Fermenting Department are as follows:

Gallons

Beginning work-in-process inventory

500 gallons

Started in production

8,600 gallon

Completed and transferred out to packaging in march

7,900 gallon

Ending work-in-process inventory (80% of the way through the blending process)

1,200 gallon

Costs

Beginning work-in-process inventory

  • Direct materials

\(540

  • Direct labor

195

  • Manufacturing overhead allocated

210

Cost added during march

  • Direct materials

9,288

  • Direct labor

3,305

  • Manufacturing overhead allocated

3,378

Total cost added during march

\)15,971

Requirements

1. Compute the Fermenting Department’s equivalent units of production for direct

materials and for conversion costs.

2. Compute the total costs of the units (gallons)

a. completed and transferred out to the Packaging Department.

b. in the Fermenting Department ending Work-in-Process Inventory.
See all solutions

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Read Explanation

Nature of Business

Read Explanation

Managerial Economics

Read Explanation

Organizational Communication

Read Explanation

Business Case Studies

Read Explanation

Business Development

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free