EA
17-1
CHAPTER 17
PROCESS COSTING
17-1 Give three examples of industries that use process-costing systems.
Industries using process costing in their manufacturing area include chemical processing, oil
refining, pharmaceuticals, plastics, brick and tile manufacturing, semiconductor chips,
beverages, and breakfast cereals.
17-2 In process costing, why are costs often divided into two main classifications?
Process costing systems separate costs into cost categories according to the timing of when costs
are introduced into the process. Often, only two cost classifications, direct materials and
conversion costs, are necessary. Direct materials are frequently added at one point in time, often
the start or the end of the process. All conversion costs are added at about the same time, but in
a pattern different from direct materials costs.Conversion costs are often added throughout the
process, which can of any length of time, lasting from seconds to several months.
17-3 Explain equivalent units. Why are equivalent-unit calculations necessary in process
costing?
Equivalent units is a derived amount of output units that takes the quantity of each input (factor
of production) in units completed or in incomplete units in work in process, and converts the
quantity of input into the amount of completed output units that could be made with that quantity
of input. Each equivalent unit is comprised of the physical quantities of direct materials or
conversion costs inputs necessary to produce output of one fully completed unit. Equivalent unit
measures are necessary since all physical units are not completed to the same extent at the same
time.
17-4 What problems might arise in estimating the degree of completion of semiconductor
chips in a semiconductor plant?
The accuracy of the estimates of completion depends on the care and skill of the estimator and
the nature of the process. Semiconductor chips may differ substantially in the finishing necessary
to obtain a final product. The amount of work necessary to finish a product may not always be
easy to ascertain in advance.
17-5 Name the five steps in process costing when equivalent units are computed.
The five key steps in process costing follow:
Step 1: Summarize the flow of physical units of output.
Step 2: Compute output in terms of equivalent units.
Step 3: Summarize total costs to account for.
Step 4: Compute cost per equivalent unit.
Step 5: Assign total costs to units completed and to units in ending work in process.