Chapter 17 - T/F

Job-costing systems separate costs into cost categories according to when costs are introduced into the process of manufacture.

The principal difference between process costing and job costing is that in job costing an averaging process is used to compute the unit costs of products or services.

If manufacturing labor costs are added to the process at a different time compared to other conversion costs, an additional cost category—direct manufacturing labor costs—would be needed to assign these costs to products.

Estimating the degree of completion for the calculation of equivalent units is usually easier for conversion costs than it is for direct materials.

If two different direct materials—such as the circuit board and microphone—are added to the process at different times, a company will need two different direct-materials categories to assign direct materials cost.

Conversion costs include direct materials and direct labor but excludes all other manufacturing and non-manufacturing costs.

Job-costing and process-costing are mutually exclusive, hence a hybrid costing system that combines elements of both job and process costing cannot be used.

When a company has no opening or ending inventory during the month, the cost per unit is calculated by dividing the total costs incurred in the period by the total units produced during the period

Underestimating the degree of completion of ending work in process leads to increase in operating income.

The last step in a process-costing system is to compute cost per equivalent unit.

The equivalent unit concept is a means by which a process costing system can compare partially completed work done in each of the various process categories to obtain a total measure of work done.

The accuracy of the completion estimate of conversion costs depends on the care, skill, and experience of the estimator and also the nature of the conversion process.

In a process-costing system, there is always a separate Work-in-Process account for each different process.

A production cost worksheet is used to summarize total costs to account for, compute cost per equivalent unit, and assign total costs to units completed and to units in ending work-in-process.

When calculating the equivalent units, we should only focus on dollar amounts of inventory.

The accounting entry to record the conversion cost of the Assembly Department is:

Work in Process-Assembly Department
Accounts Payable Control

The weighted-average process costing method does not distinguish between units started in the previous period but completed during the current period and units started and completed during the current period.

Activity -based costing plays a more significant role in job costing as compared to process costing as companies using process costing have homogeneous products.

In the weighted-average costing method, the costs of direct materials in beginning inventory are NOT included in the cost per unit calculation since direct materials are almost always added at the start of the production process.

Partially completed units in ending work in process are 100 percent complete with regard to their direct materials costs if the direct materials are introduced at the beginning of the process.

The weighted-average cost is the total of all costs entering the Work-in-Process account (whether they are from beginning work-in-process or from work started during the current period) divided by total equivalent units of work done to date.

Weighted-average cost per equivalent unit is obtained by dividing the sum of costs for beginning work in process plus costs for work done in the current period by total equivalent units of work done to date.

The cost of units completed can differ materially between the weighted average and the FIFO methods of process costing.

As changes in unit costs and inventory levels across periods decrease, the difference in the costs of units completed under the weighted-average and FIFO methods also decreases.

A distinctive feature of the FIFO process costing method is that the work done on beginning inventory before the current period is kept separate from work done in the current period.

In a period of rising prices, the weighted-average method will result in higher tax payments.

In calculating cost per equivalent unit, the FIFO method of process costing merges the work and the costs of the beginning inventory with the work and the costs done during the current period.

The first-in, first-out process-costing method assumes that the earliest equivalent units in work in process are completed first.

In a period of falling prices, the lower cost of goods sold under the FIFO method leads to higher operating income and higher tax payments.

The weighted average method of process costing assigns the cost of equivalent units worked on during the current period first to complete beginning inventory, next to start and complete new units, and finally to units in ending work-in-process inventory.

The weighted-average method merges unit costs from different accounting periods, obscuring period-to-period comparisons.

The journal entry for transfer from Department B to finished goods is:

Work in Process—Department B
Finished Goods Control

In a series of interdepartmental transfers, each department is regarded as separate and distinct for accounting purposes.

When calculating the costs to be transferred using the FIFO method, we should not include costs assigned in the previous period to units that were in process at the beginning of the current period but are now included in the units transferred.

Transferred-in costs are always 100 percent complete at the beginning of the process in the new department.

Transferred-in costs are costs incurred in previous departments that are carried forward as the product's cost when it moves to a subsequent process in the production cycle.

An operation is a standardized method or technique performed repetitively, often on different materials, resulting in different finished goods.

In hybrid-costing systems, managers use process costing to account for the conversion costs and job costing for the material and customizable components.

A hybrid-costing system is a variant of process-costing that allows it to incorporate benefits of standard costing and activity-based costing.

An operation-costing system is a hybrid-costing system applied to batches of similar, but NOT identical, products.

From an accounting standpoint, favorable cost variances are debit entries, while unfavorable ones are credits.

Under standard costing the cost per equivalent-unit calculation is more difficult than in either weighted average or FIFO.

Both, the standard-costing method and FIFO, assumes that the earliest equivalent units in beginning work in process are completed first.

Standard costing is NOT possible in a firm that uses process costing.

Process-costing systems using standard costs record standard direct material costs in Direct Materials Control and standard conversion costs in Conversion Costs Control.

In companies that produce masses of identical or similar units of output and consequently use process-costing systems, it is relatively easy to set standards and use a standard cost as the cost per equivalent unit.