CHAPTER 20
PROCESS COST SYSTEMS
DISCUSSION QUESTIONS
1. a. An assembly-type industry using mass production methods, such as TV assembly, would
use the process cost system because the products are somewhat standard and lose their
identities as individual items. In such industries, it is neither practical nor necessary to
identify output by jobs.
b. A job order cost system would be used by a building contractor to accumulate the costs
for each individual building because the costs can be identified with each job without
great difficulty.
c. A job order cost system is best suited for an automobile repair shop because costs can
be reasonably identified with each job.
d. A process cost system would be best suited for a paper manufacturer because the
processes are continuous and the products are homogeneous.
e. A job order cost system is best suited for a custom jewelry manufacturer because most of
the production consists of job orders, and costs can be reasonably identified with each job.
2. Since all goods produced in a process cost system are identical units, it is not necessary to
classify production costs into job orders.
3. In a process cost system, the direct labor and factory overhead applied are debited to the
work in process accounts of the individual production departments in which they occur. The
reason is that all products produced by the department are similar. Thus, there is no need to
charge these costs to individual jobs. For the process manufacturer, the direct materials and
the conversion costs are charged to the department and divided by the completed production
of the department to determine a cost per unit.
4. The cost per equivalent unit is frequently determined separately for direct materials and
conversion costs because these two costs are frequently added at different rates in the
production process. For example, materials may be incurred entirely at the beginning of the
process, while conversion costs are typically incurred evenly throughout the process.
5. The cost per equivalent unit is used to allocate direct materials and conversion costs between
completed and partially completed units.
6. The transferred-in cost from Blending to Filling includes the materials costs, direct labor, and
applied factory overhead incurred to complete units in Blending.
7. The most important purpose of the cost of production report is to assist in the control of
costs. This is accomplished by holding each department head responsible for the costs
incurred in the department.
8. Cost of production reports can provide detailed data about the process. The reports can
provide information on the department by individual cost elements. This can enable
management to investigate problems and opportunities.
20-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER Process Cost
DISCUSSION QUESTIONS (Continued)
9. Yield is a measure of the materials usage efficiency of a process manufacturer. It is
determined by dividing the output volume of product by the input volume of product.
For example, if 950 tons of aluminum were rolled from 1,000 tons of ingot, then the yield
would be said to be 95%. Five percent of the ingot was scrapped during the rolling process.
10. Just-in-time processing emphasizes combining process functions into manufacturing cells,
involving employees in process improvement efforts, eliminating wasteful activities, and
reducing the amount of work in process inventory required to fulfill production targets.
20-2
, CHAPTER Process Cost
PRACTICE EXERCISES
PE 20–1A
Shipbuilding Job order
Gasoline refining Process
Flour mill Process
Movie studio Job order
Plastic manufacturing Process
Home construction Job order
PE 20–1B
Steel manufacturing Process
Business consulting Job order
Web designer Job order
Computer chip manufacturing Process
Candy making Process
Designer clothes manufacturing Job order
PE 20–2A
37,400 ounces started and completed (40,400 ounces completed – 3,000
ounces beginning WIP), or (38,000 ounces started – 600 ounces ending WIP)
PE 20–2B
7,500 tons started and completed (7,900 tons completed – 400 tons beginning
WIP), or (8,500 tons started – 1,000 tons ending WIP)
20-3
, CHAPTER Process Cost
PE 20–
Perce
Total Materials Equivalent
Whole Added In Units for
Units Period Materials
Inventory in process, beginning of period……………… 3,000 0% 0
Started and completed during the period……………… 37,400* 100% 37,400
Transferred out of Filling (completed)………………… 40,400 37,400
Inventory in process, end of period……………………… 600 100% 600
Total units to be assigned costs………………………… 41,000 38,000
* 40,400 – 3,000
PE 20–3B
Percent
Total Materials Equivalent
Whole Added In Units for
Units Period Materials
Inventory in process, beginning of period……………… 400 0% 0
Started and completed during the period……………… 7,500* 100% 7,500
Transferred out of Rolling (completed)………………… 7,900 7,500
Inventory in process, end of period……………………… 1,000 100% 1,000
Total units to be assigned costs………………………… 8,900 8,500
* 7,900 – 400
20-4
PROCESS COST SYSTEMS
DISCUSSION QUESTIONS
1. a. An assembly-type industry using mass production methods, such as TV assembly, would
use the process cost system because the products are somewhat standard and lose their
identities as individual items. In such industries, it is neither practical nor necessary to
identify output by jobs.
b. A job order cost system would be used by a building contractor to accumulate the costs
for each individual building because the costs can be identified with each job without
great difficulty.
c. A job order cost system is best suited for an automobile repair shop because costs can
be reasonably identified with each job.
d. A process cost system would be best suited for a paper manufacturer because the
processes are continuous and the products are homogeneous.
e. A job order cost system is best suited for a custom jewelry manufacturer because most of
the production consists of job orders, and costs can be reasonably identified with each job.
2. Since all goods produced in a process cost system are identical units, it is not necessary to
classify production costs into job orders.
3. In a process cost system, the direct labor and factory overhead applied are debited to the
work in process accounts of the individual production departments in which they occur. The
reason is that all products produced by the department are similar. Thus, there is no need to
charge these costs to individual jobs. For the process manufacturer, the direct materials and
the conversion costs are charged to the department and divided by the completed production
of the department to determine a cost per unit.
4. The cost per equivalent unit is frequently determined separately for direct materials and
conversion costs because these two costs are frequently added at different rates in the
production process. For example, materials may be incurred entirely at the beginning of the
process, while conversion costs are typically incurred evenly throughout the process.
5. The cost per equivalent unit is used to allocate direct materials and conversion costs between
completed and partially completed units.
6. The transferred-in cost from Blending to Filling includes the materials costs, direct labor, and
applied factory overhead incurred to complete units in Blending.
7. The most important purpose of the cost of production report is to assist in the control of
costs. This is accomplished by holding each department head responsible for the costs
incurred in the department.
8. Cost of production reports can provide detailed data about the process. The reports can
provide information on the department by individual cost elements. This can enable
management to investigate problems and opportunities.
20-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER Process Cost
DISCUSSION QUESTIONS (Continued)
9. Yield is a measure of the materials usage efficiency of a process manufacturer. It is
determined by dividing the output volume of product by the input volume of product.
For example, if 950 tons of aluminum were rolled from 1,000 tons of ingot, then the yield
would be said to be 95%. Five percent of the ingot was scrapped during the rolling process.
10. Just-in-time processing emphasizes combining process functions into manufacturing cells,
involving employees in process improvement efforts, eliminating wasteful activities, and
reducing the amount of work in process inventory required to fulfill production targets.
20-2
, CHAPTER Process Cost
PRACTICE EXERCISES
PE 20–1A
Shipbuilding Job order
Gasoline refining Process
Flour mill Process
Movie studio Job order
Plastic manufacturing Process
Home construction Job order
PE 20–1B
Steel manufacturing Process
Business consulting Job order
Web designer Job order
Computer chip manufacturing Process
Candy making Process
Designer clothes manufacturing Job order
PE 20–2A
37,400 ounces started and completed (40,400 ounces completed – 3,000
ounces beginning WIP), or (38,000 ounces started – 600 ounces ending WIP)
PE 20–2B
7,500 tons started and completed (7,900 tons completed – 400 tons beginning
WIP), or (8,500 tons started – 1,000 tons ending WIP)
20-3
, CHAPTER Process Cost
PE 20–
Perce
Total Materials Equivalent
Whole Added In Units for
Units Period Materials
Inventory in process, beginning of period……………… 3,000 0% 0
Started and completed during the period……………… 37,400* 100% 37,400
Transferred out of Filling (completed)………………… 40,400 37,400
Inventory in process, end of period……………………… 600 100% 600
Total units to be assigned costs………………………… 41,000 38,000
* 40,400 – 3,000
PE 20–3B
Percent
Total Materials Equivalent
Whole Added In Units for
Units Period Materials
Inventory in process, beginning of period……………… 400 0% 0
Started and completed during the period……………… 7,500* 100% 7,500
Transferred out of Rolling (completed)………………… 7,900 7,500
Inventory in process, end of period……………………… 1,000 100% 1,000
Total units to be assigned costs………………………… 8,900 8,500
* 7,900 – 400
20-4
