Will Be $83,000. If A FIFO System Is Used, The Cost Used in Determining Cost Per

Business Environment and Concepts
units of work or 10,000 x 30%) is subtracted from the total work (46,800) to leave
43,800 units of the work that was done in the current period. (True)
2. A company starts the period with $13,000 assigned to beginning work-in-
process. During the period, an additional $70,000 is assigned to work in process.
If a weighted-average system is applied, the cost used in determining cost per unit
will be $83,000. If a FIFO system is used, the cost used in determining cost per
unit will be $70,000. (True or False?) ~
Answer - When a weighted-average system is utilized, all costs are included so that
1L
$83,000 is appropriate. For a FIFO system, only the current costs are included so the _
appropriate figure is $70,000. (True) B~
M
3. A company starts the year with no beginning inventory. During the year, the
company
spends $72,000 for production costs. The company starts 40,000 units of inventory
and completes 30,000. Of the remainder, 8,000 units are 50% complete. The
other 2,000 units were lost at the end of the process. If this loss was considered
abnormal, the company should immediately reduce net income by $4,000. (True
or False?)
Answer - Since the company has no beginning inventory, a weighted-average system
and a FIFO system will yield the same results. The company has a cost of $72,000
and equivalent units of 36,000 (30,000 units completed plus 8,000 units 50%
complete [4,000 equivalent units]plus 2,000 units 100% complete because they were
lost at the end of the process). The cost per unit is $2.00 ($72,000/36,000 units).
Since the loss of the units was abnormal, their cost ($4,000 or 2,000 units x $2.00) is
a period cost charged immediately to net income as a loss. (True)
4. Activity-based costing is a method by which manufacturing costs are
assigned in a particularly accurate fashion. (True or False?)
Answer - Activity-based costing is primarily used in assigning all overhead costs
and not just production costs incurred during the manufacturing process. However,
it is viewed as a more accurate method of assigning costs than other, more
traditional, approaches. (False)
5. Activity-based costing is associated with applying overhead based on the use
of a mathematical direct labor output formula. (True or False?)
Answer - Activity-based costing identifies every separate activity from inception to
completion of an output. Overhead is then assigned to each of these activities based
on the most logical cause and effect relationship, also known as a cost driver.
(False)
6. A company spends $100,000 to produce two products: AandZ. After
spending another $20,000, A will sell for $140,000. After spending another $
10,000, Z will sell for $90,000. Using the net realizable value method, $60,000 of the
joint cost should be assigned to A. fr-(True or False?)
4-
Answer - At the point that these two goods are separated, A has a net realizable
value of -i $120,000 (the final sales price of $140,000 less the $20,000 additional
production cost £ required). At the same point, Z has a net realizable value of
$80,000 (the final sales price of $90,000 less the $J0,000 additional production cost
required). The total of 'i. these two net realizable values is $200,000
($120,000 plus $80,000) with A making up \^ 60% of that total
($J20,000/$200,000). Thus, 60% of the $100,000 joint cost will be assignedtoA.
(True)
54-Cost Accounting :.--
Business Environment and Concepts

17, A company spends $200,000 to produce B and Y, each of which has an equal
sales value of $ 130,000. In this process, 1,000 pounds of a by-product (M) is also
created. M can be sold for $3 per pound after spending $1 per pound for processing.
None of the joint costs will be assigned to the by-product and its sales revenue will be
reported as miscellaneous income. The profit on product B will be $30,000. (True or
False?)
Answer - Since no part of the joint com is assigned to M, the $200,000 is assigned
evenly (based on sales value) to B and to Y. Each is assigned $100,000. If Bis soldfor
$] 30,000, the profit recognized on that product is $30,000. (True)
Coat Accounting - 55
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