Question

Robert Wilkins has prepared the following list of statements about process cost accounting. Identify each statement as true or false. 1. Process cost systems are used to apply costs to similar products that are mass-produced in a continuous fashion. 2. A process cost system is used when each finished unit is indistinguishable from another. 3. Companies that produce soft drinks, movies, and computer chips would all use process cost accounting. 4. In a process cost system, costs are tracked by individual jobs. 5. Job order costing and process costing track different manufacturing cost elements. 6. Both job order costing and process costing account for direct materials, direct labor, and manufacturing overhead. 7. Costs flow through the accounts in the same basic way for both job order costing and process costing. 8. In a process cost system, only one work in process account is used. 9. In a process cost system, costs are summarized in a job cost sheet. 10. In a process cost system, the unit cost is total manufacturing costs for the period divided by the equivalent units produced during the period.

Answer 1

1. That statement is true

The main goal of process costing is to  assign the cost of production to a group of homogeneous product rather than putting it individually. This costing process is very effective for similar products on large quantity, but very inefficient if the company produce different variety of products.

2. That statement is true

The cost of production tend to be unique for different product variation. Since we intend to apply costs to similar products that are mass-produced in a continuous fashion, using process cost accounting to products that are not  indistinguishable from another could create a huge error in predicting the total cost of production.

3.  That statement is false

Like stated above, product cost accounting is only effective for companies that produce  indistinguishable products.  Soft drinks, movies, and computer chips are products that are completely different from one another. Using product cost accounting  for these products would be inefficient.

4. That statement is false

In a process cost system, costs are tracked as a whole. For example, let's say you mass produces 708.000 bottles of root beer in a month.  (the amount is too much to be counted individually)

Rather than counting the cost to manufacture the physical bottle individually, process cost systems just use the cost of manufacturing the bottles as a whole.

5. That statement is False

When we manufacture a product, it consists of several elements that make up the whole product.

For example, when producing a bottle of beer, the cost made up of several elements such as the bottle, the fluid, the labels and the cap,

process costing only track cost for one single element. (such as the cost to produce only the bottle)

6. That statement is True

The different between the two of them only on the elements that they are tracking. Job order costing counts all elements of the product. Job order costing on the other hand only count one single element of the product.

7. That statement is true

Regardless of your choice to use either job order costing or process cost system, the materials that used for the productions are completely the same. This mean that that cost would flow through the accounts in the same basic way.

8. That statement is false

You would use several works in process account. But, you need to distinguish the cost of producing each elements of the products separately. Separating such cost would help the management teams to identify the elements that cause the most burden for the company. They need this information so they can find source of materials that can cut down the cost.

9. That statement is false

The job cost sheet consist of several different factors that influence the cost of production, such as  salaries and factory overhead. Process cost system only want to know the cost for one single element of the product, It does not need other information.

10. That statement is true

After adding up all the cost for each elements of the product, this system require you to divde it all to the total units that produced during the period. This would provide the management team with the information regarding the estimated cost of producing one single product. It would help them determining the selling price.