Chapter 21 Accounting

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Chapter 21 Accounting

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<ul><li><p>CHAPTER 21 </p><p>PROCESS COST ACCOUNTING </p><p>SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMY Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT </p><p>True-False Statements 1. 1 K 9. 4 K 17. 6 K 25. 7 K sg33. 3 C2. 1 K 10. 4 K 18. 6 C 26. 8 K sg34. 4 K 3. 1 C 11. 4 K 19. 6 K 27. 8 K sg35. 5 K 4. 2 C 12. 5 C 20. 6 K 28. 8 K sg36. 6 K 5. 2 K 13. 5 K 21. 6 C 29. 9 K sg37. 9 K 6. 2 K 14. 5 K 22. 6 K a30. 10 K 7. 2 K 15. 5 K 23. 7 K sg31. 1 K 8. 4 C 16. 5 AP 24. 7 K sg32. 2 K </p><p>Multiple Choice Questions 38. 1 C 59. 5 AP 80. 6 AP 101. 6 C 123. 9 C39. 1 C 60. 5 AP 81. 6 AP 102. 6 AP 124. 9 C 40. 1 K 61. 5 K 82. 6 AP 103. 6 AP 125. 9 C 41. 1 K 62. 5 AP 83. 6 AP 104. 6 AP 126. 9 K 42. 1 K 63. 5 AP 84. 6 AP 105. 6 AP 127. 9 K 43. 2 C 64. 5 AP 85. 6 AP 106. 6 AP a128. 10 K 44. 2 K 65. 5 C 86. 6 AP 107. 6 AP a129. 10 K 45. 2 C 66. 5 AP 87. 6 AP 108. 6 AP st130. 1 K 46. 2 K 67. 5 AP 88. 6 AP 110. 6 AP sg131. 2 K 47. 2 K 68. 5 AP 89. 6 AP 111. 6 AP st132. 2 K 48. 2 C 69. 5 AP 90. 6 C 112. 6 AP sg133. 5 K 49. 2 K 70. 5 AP 91. 6 C 113. 6 AP sg134. 5 K 50. 4 C 71. 5 AP 92. 6 AP 114. 7 K st135. 5 K 51. 4 C 72. 5 AP 93. 6 K 115. 7 K sg136. 6 AP 52. 4 C 73. 5 AP 94. 6 AP 116. 7 K st137. 6 K 53. 4 C 74. 5 AP 95. 6 AP 117. 8 C sg138. 6 C 54. 4 K 75. 5 AP 96. 6 AP 118. 8 C sg139. 6 AP 55. 4 C 76. 6 AP 97. 6 AP 119. 8 K st140. 6 K 56. 5 AP 77. 6 AP 98. 6 AP 120. 8 C sg141. 7 K 57. 5 AP 78. 6 AP 99. 6 AP 121. 8 C sg142. 8 K 58. 5 AP 79. 6 AP 100. 6 AP 122. 9 C </p><p>Brief Exercises 143. 5 AP 145. 5 AP 147. 6 AP 149. 6 AP 151. 6 AP144. 5 AP 146. 6 AP 148. 6 AP 150. 6 AP 152. 6 AP </p><p>sg This question also appears in the Study Guide. st This question also appears in a self-test at the student companion website. a This topic is dealt with in an Appendix to the chapter. </p></li><li><p>Test Bank for Accounting Principles, Eighth Edition </p><p>21 - 2 </p><p>SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOMS TAXONOMY Exercises </p><p>153. 4 AP 158. 5 AP 163. 5,6 AP 168. 6 AP 173. 7 AP154. 4 AP 159. 5 AP 164. 5,6 AP 169. 6 AP 155. 4 AP 160. 5,6 AP 165. 5,6 AP 170. 7 AP 156. 4 AP 161. 5,6 AN 166. 5,6 AP 171. 7 AP 157. 4 AP 162. 5,6 AP 167. 6 AP 172. 7 AP </p><p>Completion Statements 174. 1 K 177. 4 K 180. 6 AP 183. 8 K a186. 10 K175. 2 K 178. 5 K 181. 6 K 184. 9 K 176. 2 K 179. 6 K 182. 7 K 185. 9 K </p><p>SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Item Type </p><p>Study Objective 1 1. TF 3. TF 38. MC 40. MC 42. MC 174. C 2. TF 31. TF 39. MC 41. MC 130. MC </p><p>Study Objective 2 4. TF 7. TF 44. MC 47. MC 131. MC 176. C 5. TF 32. TF 45. MC 48. MC 132. MC 6. TF 43. MC 46. MC 49. MC 175. C </p><p>Study Objective 3 33. TF </p><p>Study Objective 4 8. TF 11. TF 51. MC 54. MC 153. Ex 156. Ex 9. TF 34. TF 52. MC 55. MC 154. Ex 157. Ex </p><p>10. TF 50. MC 53. MC 133. MC 155. Ex 177. C Study Objective 5 </p><p>12. TF 56. MC 62. MC 68. MC 74. MC 145. BE 163. Ex 13. TF 57. MC 63. MC 69. MC 75. MC 158. Ex 164. Ex 14. TF 58. MC 64. MC 70. MC 134. MC 159. Ex 165. Ex 15. TF 59. MC 65. MC 71. MC 135. MC 160. Ex 166. Ex 16. TF 60. MC 66. MC 72. MC 143. BE 161. Ex 178. C 35. TF 61. MC 67. MC 73. MC 144. BE 162. Ex </p><p>Study Objective 6 17. TF 79. MC 89. MC 99. MC 109. MC 146. BE 163. Ex 18. TF 80. MC 90. MC 100. MC 110. MC 147. BE 164. Ex 19. TF 81. MC 91. MC 101. MC 111. MC 148. BE 165. Ex 20. TF 82. MC 92. MC 102. MC 112. MC 149. BE 166. Ex 21. TF 83. MC 93. MC 103. MC 113. MC 150. BE 167. Ex 22. TF 84. MC 94. MC 104. MC 136. MC 151. BE 168. Ex 36. TF 85. MC 95. MC 105. MC 137. MC 152. BE 169. Ex 76. MC 86. MC 96. MC 106. MC 138. MC 160. Ex 179. C 77. MC 87. MC 97. MC 107. MC 139. MC 161. Ex 180. C 78. MC 88. MC 98. MC 108. MC 140. MC 162. Ex 181. C </p></li><li><p>Process Cost Accounting </p><p>21 - 3</p><p>Study Objective 7 23. TF 25. TF 115. MC 141. MC 171. Ex 173. Ex 24. TF 114. MC 116. MC 170. Ex 172. Ex 182. C </p><p>Study Objective 8 26. TF 28. TF 118. MC 120. MC 142. MC 27. TF 117. MC 119. MC 121. MC 183. C </p><p>Study Objective 9 29. TF 122. MC 124. MC 126. MC 184. C 37. TF 123. MC 125. MC 127. MC 185. C </p><p>Study Objective a10 a30. TF a128. MC a129. MC a186. C </p><p>Note: TF = True-False BE = Brief Exercise C = Completion MC = Multiple Choice Ex = Exercise </p><p>The chapter also contains one set of ten Matching questions and four Short-Answer Essay questions. </p><p>CHAPTER STUDY OBJECTIVES 1. Understand who uses process cost systems. Process cost systems are used by </p><p>companies that mass-produce similar products in a continuous fashion. Once production begins, it continues until the finished product emerges. Each unit of finished product is indistinguishable from every other unit. </p><p> 2. Explain the similarities and differences between job order cost and process cost </p><p>systems. Job order cost systems are similar to process cost systems in three ways: (1) Both systems track the same cost elementsdirect materials, direct labor, and manufacturing overhead. (2) Costs are accumulated in the same accountsRaw Materials Inventory, Factory Labor, and Manufacturing Overhead. (3) Accumulated costs are assigned to the same accountsWork in Process, Finished Goods Inventory, and Cost of Goods Sold. However, the method of assigning costs differs significantly. </p><p> There are four main differences between the two cost systems: (1) A process cost system uses separate accounts for each production process department or manufacturing process, rather than only one work in process account used in a job order cost system. (2) In a process cost system, costs are summarized in a production cost report for each department. In a job cost system, costs are charged to individual jobs and summarized in a job cost sheet. (3) Costs are totaled at the end of a time period in a process cost system, but at the completion of a job in a job cost system. (4) In a process cost system, unit cost is calculated as: Total manufacturing costs for the period Units produced during the period. In a job cost system, unit cost is: Total cost per job Units produced. </p><p> 3. Explain the flow of costs in a process cost system. Manufacturing costs for raw </p><p>materials, labor, and overhead are assigned to work in process accounts for various departments or manufacturing processes. The costs of units completed are transferred from one department to another as those units move through the manufacturing process. The costs of completed work are transferred to Finished Goods Inventory. When inventory is sold, costs are transferred to Cost of Goods Sold. </p></li><li><p>Test Bank for Accounting Principles, Eighth Edition </p><p>21 - 4 </p><p> 4. Make the journal entries to assign manufacturing costs in a process cost system. Entries to assign the costs of raw materials, labor, and overhead consist of a credit to Raw Materials Inventory, Factory Labor, and Manufacturing Overhead, and a debit to Work in Process for each department. Entries to record the cost of good transferred to another department are a credit to Work in Process for the department whose work is finished and a debit to the department to which the goods are transferred. The entry to record units completed and transferred to the warehouse is a credit for the department whose work is finished and a debit to Finished Goods Inventory. The entry to record the sale of goods is a credit to Finished Goods Inventory and a debit to Cost of Goods Sold. </p><p> 5. Compute equivalent units. Equivalent units of production measure work done during a </p><p>period, expressed in fully completed units. This concept is used to determine the cost per unit of completed product. Equivalent units are the sum of the units completed and transferred out plus equivalent units of ending work in process. </p><p> 6. Explain the four steps necessary to prepare a production cost report. The four steps to </p><p>complete a production cost report are: (1) Compute the physical unit flowthat is, the total units to be accounted for. (2) Compute the equivalent units of production. (3) Compute the unit production costs, expressed in terms of equivalent units of production. (4) Prepare a cost reconciliation schedule, which shows that the total costs accounted for equal the total costs to be accounted for. </p><p> 7. Prepare a production cost report. The production cost report contains both quantity and </p><p>cost data for a production department. There are four sections in the report: (1) number of physical units, (2) equivalent units determination, (3) unit costs, and (4) cost reconciliation schedule. </p><p> 8. Explain just-in-time (JIT) processing. JIT is a manufacturing technique dedicated to </p><p>producing the right products at the right time as needed. One of the principal accounting effects is that a Raw and In-Process Inventory account replaces both the raw materials and work in process inventory accounts. </p><p> 9. Explain activity-based costing (ABC). ABC is a method of product costing that focuses on </p><p>the activities performed to produce products. It assigns the cost of the activities to products by using cost drivers that measure the activities performed. The primary objective of ABC is accurate and meaningful product costs. </p><p> a10. Apply activity-based costing to specific company data. In applying ABC, it is necessary </p><p>to compute the overhead rate for each activity by dividing total expected overhead by the total expected usage of the cost driver. The overhead cost for each activity is then assigned to products on the basis of each products use of the cost driver. </p></li><li><p>Process Cost Accounting </p><p>21 - 5</p><p>TRUE-FALSE STATEMENTS 1. Process cost accounting focuses on the process involved in mass-producing products that </p><p>are very similar in nature. 2. Process cost systems are used to apply costs to a specific job, such as the manufacturing </p><p>of a specialized machine. 3. A company that produces motion pictures would likely use a process cost system. 4. In a process cost system, costs are tracked through a series of connected manufacturing </p><p>processes or departments, rather than by individual jobs. 5. In a process cost system, total costs are determined at the end of a month or year. 6. Separate work in process accounts are maintained for each production department or </p><p>manufacturing process in a process cost system. 7. In a process cost system, materials, labor and overhead are only added in the first </p><p>production department. 8. The assignment of the three manufacturing cost elements to Work in Process in a process </p><p>cost system is the same as in a job order cost system. 9. Fewer materials requisitions are generally required in a process cost system than in a job </p><p>order cost system. 10. In a process cost system, all labor costs incurred within a producing department are a cost </p><p>of processing the raw materials. 11. A primary driver of overhead costs in continuous manufacturing operations is machine </p><p>time used. 12. Equivalent units of production are used to determine the cost per unit of completed </p><p>products. 13. Equivalent units of production measure the work done during a period, expressed in fully </p><p>completed units. 14. Equivalent units of production is the sum of units completed and transferred out plus </p><p>equivalent units of beginning work in process. 15. The weighted-average method of computing equivalent units is the most widely used </p><p>method in practice. 16. There are no units in process at the beginning of the period, 1,000 units in process at the </p><p>end of the period that are 40% complete, and 10,000 units transferred out during the period. Based on this information, there were 9,600 equivalent units of production during the period. </p><p> 17. The first step performed in preparing a production cost report is computing the equivalent </p><p>units of production. </p></li><li><p>Test Bank for Accounting Principles, Eighth Edition </p><p>21 - 6 </p><p> 18. Equivalent units of production must be calculated before the unit production costs can be computed. </p><p> 19. The physical units in a department are another name for the equivalent units of </p><p>production. 20. Unit material cost is computed by taking total material costs charged to the department for </p><p>the period and dividing by the physical units in the process during the period. 21. When equivalent units of production are different for materials and conversion costs, unit </p><p>costs are computed for materials, conversion, and total manufacturing. 22. The total manufacturing cost per unit is used in costing the units completed and </p><p>transferred during the period. 23. A production cost report is an internal document for management that shows production </p><p>quantity and cost data for a particular job. 24. Production cost reports provide a basis for evaluating the productivity of a department. 25. Companies often use a combination of a process cost and a job order cost system, called </p><p>operations costing. 26. Large inventories of raw materials must be maintained in a just-in-time system. 27. Just-in-time strives to eliminate inventories by using a pull approach. 28. Rework costs typically increase in just-in-time processing. 29. Activity-based costing (ABC) can be used only with process cost systems. a30. ABC eliminates arbitrary assignments of overhead. Additional True-False Questions 31. In continuous process manufacturing, generally once the production begins, it continues </p><p>until the finished product emerges. 32. One similarity of process cost accounting with job order cost accounting is that both </p><p>determine total manufacturing costs after each job. 33. The flow of costs in a process costing system requires that materials be added in one </p><p>department, labor added in another department and manufacturing overhead in a third department. </p><p> 34. When finished goods are sold, the entry to record the cost of goods sold is a debit to </p><p>Finished Goods Inventory and a credit to Cost of Goods Sold. 35. When there is no beginning work in process and materials are entered at the beginning of </p><p>the process, equivalent units of materials are the same as the units started into production. </p></li><li><p>Process Cost Accounting </p><p>21 - 7</p><p> 36. In order to compute the physical unit flow, a company must first compute unit production costs. </p><p> 37. In activity-based costing, the focus is on the activities performed to produce specific </p><p>products. Answers to True-False Statements </p><p>Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.1. T 7. F 13. T 19. F 25. T 31. T 37. T 2. F 8. F 14. F 20. F 26. F 32. F 3. F 9. T 15. T 21. T 27. T 33. F 4. T 10. T 16. F 22. T 28. F 34. F 5. T 11. T 17. F 23. F 29. F 35. T 6. T 12. T 18. T 24. T a30. F 36. F </p><p>MULTIPLE CHOICE QUESTIONS 38. A process cost accounting system is most appropriate when </p><p>a. a variety of different products are produced, each one requiring different types of materials, labor, and overhead. </p><p>b. the focus of attention is on a particular job or order. c. similar products are mass-produced. d. individual products are custom made to the specification of customers. </p><p> 39. A characteristic of products that are mass-produced in a continuous fashion is that </p><p>a. the produ...</p></li></ul>

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