Question

True/False

85. When there are differences between estimates and actual amounts, one outcome is under or over applied overhead. 86. Job costing provides a cost estimate for individual jobs while process costing provides an average cost estimate for an individual unit of product 87. Process costing makes assumptions about exactly when and how costs are incurred during the production process. 88. Mismeasurement of inputs into the costing system is likely to be lower in companies that have just commenced operations. 89. Percentage of completion for work in process units is subject to judgement. 90. If the percentage of completion is over estimated in ending work in process this will affect the cost per equivalent unit for this period and next period. 68. All spoilage in a process costing system is considered normal spoilage. 69·The costs associated with abnormal spoilage is excluded from product costs and treated as a separate loss.

Answer 1

85: TRUE
In case of production, when overheads are incurred they are absorbed by manufactured units of products , if more overhead is absorbed than that actually incurred then it results in over absorption, similarly less overhead absorption than that actually incurred causes under absorption. These overheads are allocated among units produced based on estimated or predetermined overhead rate which may not be the same as actual overhead incurred. Thus there may be difference between estimates and actual amounts as a result of under or over applied overhead than that estimated to be applied beforehand

86: TRUE
Job costing is used mainly by companies who produce more than one product, Job costing helps in allocating what direct materials were allocated in the Job, how many labor hours were employed for that specific job, of the total overhead incurred, what part was incurred specifically for that job etc, giving us total cost estimate of individual jobs
Process costing is used when a company produces a large number of units of similar products, through process costing all expenses incurred during production can be allocated in number of units produced equally giving us an average cost estimate of individual product

87: TRUE
Process costing is used to make assumption about exactly when and how costs are incurred in each production process as well as  it is used in allocating the costs incurred in producing a given units of product after they pass through several processes. Based on the materials used, labor hours worked and overheads absorbed in multiple processes to convert raw materials into finished products, Total costs are assigned evenly among final products because process costing is used mainly in industries where products are homogeneous

88: FALSE
Mismeasurement of inputs into costing system is likely to be higher in companies that have just commenced operations because they do not have past performance records to compare their strategies with for current production. Their plans and budgets towards production and costs estimates are mostly assumptions as a result of which they have high probability of having mismeasurements of inputs into costing system

89: TRUE
A company keeps monitoring it's production processes in order to find out whether production process and costs incurred are as per estimates or not and if not then how much is the deviation. Normally a product goes through multiple processes where it is completed to a specific percentage until it is finished, till then it is work in progress. When a product is in middle of production processes than percentage of completion of work in process units is judged that based on it's completion percentage how much costs has already been incurred and how much is expected to be further incurred until it is completed, Based on this judgement company can decide whether to carry on with the process or simply stop further processing of work in process units if there are major deviations from estimated data

90: TRUE
If ending work in process's percentage completion is overestimated than that will reduce the overall cost of goods sold in current period as well as increase the operating income, thus cost per equivalent unit will be reduced . Now this ending inventory becomes next period's opening inventory according to which less cost is incurred, and if in next period this error is rectified than that will increase the cost per equivalent units in next period and reduce the operating profit

68: FALSE
All spoilage in process costing is not considered Normal spoilage. Spoilage in process costing system consists of both normal as well as abnormal spoilage depending on nature of occurence, Standard waste and scrap that occurs during production process is considered Normal spoilage whereas spoilage that is not expected to occur during normal production process is considered Abnormal Spoilage

69: TRUE
Costs associated with abnormal loss cannot be allocated among the produced units of products as Normal loss is treated, Instead they are excluded from Product costs and treated as a separate loss by debiting in 'Costing Profit & Loss Account' under ' Abnormal Loss Account'