If a Department That Applies Process Costing Starts the Reporting

question 103

True/False

If a department that applies process costing starts the reporting period with 40,000 physical units that were 80% complete with respect to direct materials and 50% complete with respect to direct labor, it must add 8,000 equivalent units of direct materials and 20,000 equivalent units of direct labor to complete them.

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Definitions:

Manufacturing Margin

The difference between the cost of goods sold by a manufacturing company and its total sales, reflecting the gross margin specific to manufacturing operations.

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of goods sold.

Variable Costing

An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs, excluding fixed overhead.

Units Manufactured

The total quantity of products completed and ready for sale or use at the end of an accounting period.