chapter 7 loss units cost acc

SPECIAL PRODUCTION ISSUES: LOST UNITS AND ACCRETION

740Chapter 7 Special Production Issues: Lost Units and Accretion

Chapter 7 Special Production Issues: Lost Units and Accretion741

CHAPTER 7

SPECIAL PRODUCTION ISSUES: LOST UNITS AND ACCRETIONMULTIPLE CHOICE

1.Shrinkage should be treated as

a.defective units.

b.spoiled units.

c.miscellaneous expense.

d.a reduction of overhead.

ANSWER:b EASY

2.Economically reworked units may

a.not be sold through normal channels of distribution.

b.be sold through normal channels of distribution.

c.not be reprocessed to a sufficient quality level.

d.also be called a spoiled unit.

ANSWER:b EASY

3.A unit that is rejected at a quality control inspection point, but that can be reworked and sold, is referred to as a

a.spoiled unit.

b.scrap unit.

c.abnormal unit.

d.defective unit.

ANSWER:d EASY

4.Spoiled units are

a.units that cannot be economically reworked to bring them up to standard.

b.units that can be economically reworked to bring them up to standard.

c.the same as defective units.

d.considered abnormal losses.

ANSWER:a EASY

5.The cost of abnormal losses (net of disposal costs) should be written off as

Product costPeriod cost

a.yesno

b.yesyes

c.noyes

d.nono

ANSWER:c EASY

6.Which of the following would fall within the range of tolerance for a production cycle?

Abnormal lossNormal loss

a.yesyes

b.yesno

c.nono

d.noyes

ANSWER:d EASY

7.If abnormal spoilage occurs in a job order costing system, has a material dollar value, and is related to a specific job, the recovery value of the spoiled goods should be

debited to credited to

a. a scrap inventory accountthe specific job in process

b. the specific job in processoverhead

c. a loss accountthe specific job in process

d. factory overheadsales

ANSWER:a MEDIUM

8.If normal spoilage is detected at an inspection point within the process (rather than at the end), the cost of that spoilage should be

a.included with the cost of the units sold during the period.

b.included with the cost of the units completed in that department during the period.

c.allocated to ending work in process units and units transferred out based on their relative values.

d.allocated to the good units that have passed the inspection point.

ANSWER:d MEDIUM

9.A continuous loss

a.occurs unevenly throughout a process.

b.never occurs during the production process.

c.always occurs at the same place in a production process.

d.occurs evenly throughout the production process.

ANSWER:dEASY

10.Which of the following would be considered a discrete loss in a production process?

a.adding the correct ingredients to make a bottle of ketchup

b.putting the appropriate components together for a stereo

c.adding the wrong components when assembling a stereo

d.putting the appropriate pieces for a bike in the box

ANSWER:cEASY

11.The method of neglect handles spoilage that is

a.discrete and abnormal.

b.discrete and normal.

c.continuous and abnormal.

d.continuous and normal.

ANSWER:d MEDIUM

12.Normal spoilage is defined as unacceptable production that

a.arises because of a special job or process.

b.occurs in on-going operations.

c.is caused specifically by human error.

d.is in excess of that which is expected.

ANSWER:bEASY

13.When the cost of good units are increased and lost units are not included in an equivalent unit schedule, these units are considered

a.normal and discrete.

b. normal and continuous.

c.abnormal and discrete.

d.abnormal and continuous.

ANSWER:bEASY

14.The net cost of normal spoilage in a job order costing system in which spoilage is common to all jobs should be

a.assigned directly to the jobs that caused the spoilage.

b.charged to manufacturing overhead during the period of the spoilage.

c.charged to a loss account during the period of the spoilage.

d.allocated only to jobs that are completed during the period.

ANSWER:b MEDIUM

15.Normal spoilage is

a.written off as a period cost.

b.never shown in EUP schedules.

c.treated as a product cost.

d.both b and c.

ANSWER:cEASY

16.Normal spoilage units resulting from a continuous process

a.are extended to the EUP schedule.

b.result in a higher unit cost for the good units produced.

c.result in a loss being incurred.

d.cause estimated overhead to increase.

ANSWER:bEASY

17.When normal spoilage is discovered at a discrete inspection point and the degree of completion of ending work in process has not reached the level of completion of the inspection point, normal spoilage is handled by

a.prorating the spoilage cost between units transferred out and units in ending work in process.

b.extending the spoiled units to the EUP schedule.

c.assigning the normal spoilage costs to the units transferred out and those in beginning inventory.

d.both b and c.

ANSWER:d MEDIUM

18.In a job order costing system, the net cost of normal spoilage is equal to

a.estimated disposal value plus the cost of spoiled work.

b.the cost of spoiled work minus estimated spoilage cost.

c.the units of spoiled work times the predetermined overhead rate.

d.the cost of spoiled work minus the estimated disposal value.

ANSWER:d MEDIUM

19.Taylor Co. has a production process in which the inspection point is at 65 percent of conversion. The beginning inventory for July was 35 percent complete and ending inventory was 80 percent complete. Normal spoilage costs would be assigned to which of the following groups of units, using FIFO costing?

BeginningEndingUnits Started

InventoryInventory& Completed

a.noyesyes

b.yesyesyes

c.nonoyes

d.yesnono

ANSWER:b MEDIUM

20.The cost of normal discrete losses is

a.absorbed by all units past the inspection point on an equivalent unit basis.

b.absorbed by all units in ending inventory.

c.considered a period cost.

d.written off as a loss on an equivalent unit basis.

ANSWER:aEASY

21.When spoilage is discovered at a discrete point in the production process,

a.equivalent units for the spoilage are shown in the EUP schedule.

b.its cost, if normal, should be assigned to the units transferred out.

c.its cost, if abnormal, should be assigned to the good units produced.

d.both a and c.

ANSWER:aEASY

22.When the cost of lost units must be assigned, and those same units must be included in an equivalent unit schedule, these units are considered

a.normal and discrete.

b.normal and continuous.

c.abnormal and discrete.

d.abnormal and continuous.

ANSWER:dMEDIUM

23.Abnormal spoilage is

a.spoilage that is forecasted or planned.

b.spoilage that is in excess of planned.

c.accounted for as a product cost.

d.debited to Cost of Goods Sold.

ANSWER:b EASY

24.Which of the following accounts is credited when abnormal spoilage is written off in an actual cost system?

a.Miscellaneous Revenue

b.Loss from Spoilage

c.Finished Goods

d.Work in Process

ANSWER:d EASY

25.Which of the following types of spoilage cost is considered a product cost?

Abnormal spoilageNormal spoilage

a.yesyes

b.yesno

c.noyes

d.nono

ANSWER:c EASY

26.Abnormal spoilage can be

continuousdiscrete

a.yesno

b.nono

c.yesyes

d.noyes

ANSWER:c EASY

27.The cost of abnormal discrete units must be assigned to

good unitslost units

a.yesyes

b.nono

c.yesno

d.noyes

ANSWER:d EASY

28.The cost of abnormal continuous losses is

a.considered a product cost.

b.absorbed by all units in ending inventory and transferred out on an equivalent unit basis.

c.written off as a loss on an equivalent unit basis.

d.absorbed by all units past the inspection point.

ANSWER:c EASY

29.Which of the following statements is false? The cost of rework on defective units, if

a.abnormal, should be assigned to a loss account.

b.normal and if actual costs are used, should be assigned to material, labor and overhead costs of the good production.

c.normal and if standard costs are used, should be considered when developing the overhead application rate.

d.abnormal, should be prorated among WIP, FG, and CGS.

ANSWER:dMEDIUM

30.A process that generates continuous defective units

a.never requires a quality control point.

b.requires a quality control point at the end of the process.

c.requires quality control points every time new materials are added to the production process.

d.requires quality control points at the beginning of the production process.

ANSWER:bMEDIUM

31.The addition of material in a successor department that causes an increase in volume is called

a.accretion.

b.reworked units.

c.complex procedure.

d.undetected spoilage.

ANSWER:a EASY

32.When material added in a successor department increases the number of units, the

a.extra units are treated like spoilage.

b.unit cost of the transferred-in units is decreased.

c.costs associated with the extra units are maintained separately for financial reporting purposes.

d.unit cost of the transferred-in units is increased.

ANSWER:b EASY

33.Which of the following is not a question that needs to be answered in regard to quality control?

a.What happens to the spoiled units?

b.What is the actual cost of spoilage?

c.How can spoilage be controlled?

d.Why does spoilage happen?

ANSWER:aMEDIUM

34.In regard to spoilage, management should be most concerned with which of the following?

a.accounting for spoilage

b.controlling spoilage

c.planning for spoilage

d.inspecting spoilage

ANSWER:b EASY

Use the following information for questions 3546.

The following information is available for K Co. for June:

Started this month80,000units

Beginning WIP

(40% complete)7,500units

Normal spoilage (discrete)1,100units

Abnormal spoilage900units

Ending WIP


Transferred out72,500units

Beginning Work in Process Costs:

Material$10,400

Conversion13,800

Current Costs:

Material$120,000

Conversion350,000

All materials are added at the start of production and the inspection point is at the end of the process.

35.What are equivalent units of production for material using FIFO?

a.80,000

b.79,100

c.78,900

d.87,500

ANSWER:a MEDIUM

36.What are equivalent units of production for conversion costs using FIFO?

a.79,700

b.79,500

c.81,100

d.80,600

ANSWER:dMEDIUM

37.What are equivalent units of production for material using weighted average?

a.86,600

b.87,500

c.86,400

d.85,500

ANSWER:b EASY

38.What are equivalent units of production for conversion costs using weighted average?

a.83,600

b.82,700

c.82,500

d.81,600

ANSWER:a EASY

39.What is cost per equivalent unit for material using FIFO?

a.$1.63

b.$1.37

c.$1.50

d.$1.56

ANSWER:c EASY

40.What is cost per equivalent unit for conversion costs using FIFO?

a.$4.00

b.$4.19

c.$4.34

d.$4.38

ANSWER:c EASY

41.What is cost per equivalent unit for material using weighted average?

a.$1.49

b.$1.63

c.$1.56

d.$1.44

ANSWER:a EASY

42.What is cost per equivalent unit for conversion costs using weighted average?

a.$4.19

b.$4.41

c.$4.55

d.$4.35

ANSWER:d EASY

43.What is the cost assigned to ending inventory using FIFO?

a.$75,920

b.$58,994

c.$56,420

d.$53,144

ANSWER:bMEDIUM

44.What is the cost assigned to abnormal spoilage using FIFO?

a.$1,350

b.$3,906

c.$5,256

d.$6,424

ANSWER:cMEDIUM

45.What is the cost assigned to normal spoilage and how is it classified using weighted average?

a.$6,193 allocated between WIP and Transferred Out

b.$6,424 assigned to units Transferred Out

c.$6,193 assigned to loss account

d.$6,424 assigned to units Transferred Out

ANSWER:bMEDIUM

46.What is the total cost assigned to goods transferred out using weighted average?

a.$435,080

b.$429,824

c.$428,656

d.$423,400

ANSWER:bDIFFICULT

Use the following for questions 4757.

The following information is available for OP Co. for the current year:

Beginning Work in Process

Costs of Beginning Work in Process:


Material$25,100

Started75,000units

Conversion50,000

Ending Work in Process

Current Costs:


Material$120,000

Abnormal spoilage2,500units

Conversion300,000

Normal spoilage (continuous)5,000units


All materials are added at the start of production.

47.Using weighted average, what are equivalent units for material?

a.82,000

b.89,500

c.84,500

d.70,000

ANSWER:c EASY

48.Using weighted average, what are equivalent units for conversion costs?

a.80,600

b.78,100

c.83,100

d.75,600

ANSWER:b EASY

49.What is the cost per equivalent unit for material using weighted average?

a.$1.72

b.$1.62

c.$1.77

d.$2.07

ANSWER:aMEDIUM

50.What is the cost per equivalent unit for conversion costs using weighted average?

a.$4.62

b.$4.21

c.$4.48

d.$4.34

ANSWER:cMEDIUM

51.What is the cost assigned to normal spoilage using weighted average?

a.$31,000

b.$15,500

c.$30,850

d.none of the above

ANSWER:dEASY

52.Assume that the cost per EUP for material and conversion are $1.75 and $4.55, respectively. What is the cost assigned to ending Work in Process?

a.$100,800

b.$87,430

c.$103,180

d.$71,680

ANSWER:d EASY

53.Using FIFO, what are equivalent units for material?

a.75,000

b.72,500

c.84,500

d.70,000

ANSWER:d EASY

54.Using FIFO, what are equivalent units for conversion costs?

a.72,225

b.67,225

c.69,725

d.78,100

ANSWER:b EASY

55.Using FIFO, what is the cost per equivalent unit for material?

a.$1.42

b.$1.66

c.$1.71

d.$1.60

ANSWER:c EASY

56.Using FIFO, what is the cost per equivalent unit for conversion costs?

a.$4.46

b.$4.15

c.$4.30

d.$3.84

ANSWER:a EASY

57.Assume that the FIFO EUP cost for material and conversion are $1.50 and $4.75, respectively. Using FIFO what is the total cost assigned to the units transferred out?

a.$414,194

b.$339,094

c.$445,444

d.$396,975

ANSWER:aDIFFICULT

Use the following information for questions 5865.

T Co. has the following information for July:

Units started100,000units

Beginning Work in Process: (35% complete)20,000units

Normal spoilage (discrete)3,500units


Ending Work in Process: (70% complete)14,500units



Material$15,000

Conversion10,000

All materials are added at the start of the production process. T Co. inspects goods at 75 percent completion as to conversion.

58.What are equivalent units of production for material, assuming FIFO?

a.100,000

b. 96,500

c. 95,000

d.120,000

ANSWER:a MEDIUM

59.What are equivalent units of production for conversion costs, assuming FIFO?

a.108,900

b.103,900

c.108,650

d.106,525

ANSWER:dMEDIUM

60.Assume that the costs per EUP for material and conversion are $1.00 and $1.50, respectively. What is the amount of the period cost for July using FIFO?

a.$0

b.$9,375

c.$10,625

d.$12,500

ANSWER:cMEDIUM

61.Assume that the costs per EUP for material and conversion are $1.00 and $1.50, respectively. Using FIFO, what is the total cost assigned to the transferred-out units (rounded to the nearest dollar)?

a.$245,750

b.$244,438

c.$237,000

d.$224,938

ANSWER:bDIFFICULT

62.What are equivalent units of production for material assuming weighted average is used?

a.107,000

b.116,500

c.120,000

d.115,000

ANSWER:c EASY

63.What are equivalent units of production for conversion costs assuming weighted average is used?

a.113,525

b.114,400

c.114,775

d.115,650

ANSWER:a EASY

64.Assume that the costs per EUP for material and conversion are $1.00 and $1.50, respectively. What is the cost assigned to normal spoilage, using weighted average, and where is it assigned?

ValueAssigned To

a.$7,437.50Units transferred out and EI

b.$7,437.50Units transferred out

c.$8,750.00Units transferred out and EI

d.$8,750.00Units transferred out

ANSWER:b EASY

65.Assume that the costs per EUP for material and conversion are $1.00 and $1.50, respectively. Assuming that weighted average is used, what is the cost assigned to ending inventory?

a.$29,725.00

b.$37,162.50

c.$38,475.00

d.$36,250.00

ANSWER:a EASY

66.A companys AQL represents

a.its minimum tolerance for defects.

b.its maximum tolerance for defects.

c.a decision to seek world-class status as a manufacturer.

d.its automated quality limits.

ANSWER:b EASY

67.World-class companies

a.believe that Six-Sigma is the best AQL to have.

b.have performed well if their defect percentage is greater than their AQL.

c.continuously attempt to raise their AQL.

d.all of the above.

ANSWER:c MEDIUM

68.Six Sigma translates into a rate of 3.4 defects per

a.million items processed.

b.billion items processed.

c.thousand items processed.

d.hundred items processed.

ANSWER:aEASY

69.The concept of Six Sigma is directly related to

Variation eliminationJIT Inventory

a.nono

b.noyes

c.yesyes

d.yesno

ANSWER:d MEDIUM

70.Performing services with zero errors is viewed as a(an)

a.reasonable goal for all service organizations.

b.impossible goal for any service organization.

c.laudable goal for most service organizations.

d.goal equivalent to achieving Six-Sigma performance.

ANSWER:c MEDIUM

71.Which of the following would be the most likely cause of an increase in the number of units in a department?

a.Bulk packaging

b.Expansion of material

c.Heat processing

d.All of the above

ANSWER:b MEDIUM

SHORT ANSWER/PROBLEMS

1.How is the cost of reworking defective items accounted for?

ANSWER:Reworked units are also known as defective units. These units can be reprocessed and sold or sold as is as irregulars. Rework cost is classified as either a product or period cost. If rework is considered normal and actual costing is used, the cost is added to current Work in Process and is assigned to all units produced. If rework is abnormal, the cost is allocated to a loss account for the period.

MEDIUM

2.Discuss the accounting treatment of spoilage in a job order costing system.

ANSWER: If the spoilage is common to all jobs, is normal, and can be estimated, the net cost is applied to production using a predetermined overhead rate that was set by including the spoilage estimate in estimated overhead. If spoilage pertains to a particular job and is normal, the disposal value of the spoiled goods should be removed from that particular job. If the spoilage is abnormal, the net cost should be charged to a loss account and credited to the particular Work in Process job that created the spoilage.

MEDIUM

3.Discuss why units are lost during production.

ANSWER: In most production processes, losses are anticipated to a certain degree. Losses may be classified as normal and abnormal depending on managements expectations. A normal loss is one that is expected, while an abnormal loss is one that exceeds the normal loss. The losses may result in spoiled or defective units. Spoiled units cannot be economically reworked; defective units can be. Losses can occur on a continuous or a discrete basis. Quality control points are established at the end of and/or within the process to inspect goods and remove from further processing those units that are either spoiled or defective.

MEDIUM

4.Discuss how spoilage is treated in EUP computations.

ANSWER:If spoilage is normal and continuous, the calculations for EUP do not include this spoilage (method of neglect), and the good units simply absorb the cost of such spoilage. If spoilage is normal and discrete, the equivalent units are used in the EUP calculations, and the spoilage cost is assigned to all units that passed through the inspection point during the current period. If the spoilage is abnormal and either discrete or continuous, the equivalent units are used in EUP calculations and costed at the cost per EUP; the total cost is then assigned to a loss account.

MEDIUM

Use this data for questions 5 and 6.

The following information is available for Paas Co. for January 2001. All materials are added at the start of production.

Beginning Work in Process: (80% complete)8,000units

Started35,000units

Normal spoilage (continuous)6,000units


Ending Work in Process: (55% complete)15,000units



Material$ 14,000

Conversion45,000

Current Costs:

Material 50,000

Conversion175,000

Total Costs $ 284,000

5.Prepare a cost of production report for January using FIFO.

ANSWER:BI 8,000 + Started 35,000 = Accountable for 43,000

Paas Co.

Cost Report

January 31, 2001

MaterialCC

BWIP8,00001,600

S & C11,50011,50011,500

EWIP15,00015,0008,250

Norm6,00000

Abnorm. 2,500 2,500 2,500

Acctd. for43,00029,00023,850

Material: $50,000/29,000 = $1.72

Conversion Costs: $175,000/23,850 = $7.34

Cost Assignment:


15,000 $1.72 =$ 25,800

8,250 $7.34 =60,555$ 86,355

Abnormal Spoilage

2,500 $9.06 =

22,650

Cost Transferred Out

$284,000 86,355 22,650 = 174,995

Total costs accounted for $ 284,000MEDIUM

6.Prepare the cost of production report assuming weighted average.

ANSWER: BI 8,000 + Started 35,000 = Accountable for 43,000

Paas Company

Cost Report

January 31, 2001

MaterialCC

TO19,50019,50019,500

EWIP15,00015,0008,250

Norm6,00000

Abnorm. 2,500 2,500 2,500

Acctd. for43,00037,00030,250

Material: $64,000/37,000 = $1.73

Conversion Costs: $220,000/30,250 = $ 7.27

Cost Assignment:


15,000 $1.73 =$25,950

8,250 $7.27 = 59,978$ 85,928

Abnormal Spoilage

2,500 $9.00 =

22,500

Transferred Out

$284,000 85,928 22,500 =

175,572

Total costs accounted for

$ 284,000MEDIUM

7.MJ Company manufactures picture frames of all sizes and shapes and uses a job order costing system. There is always some spoilage in each production run. The following costs relate to the current run:

Estimated overhead (exclusive of spoilage)$160,000

Spoilage (estimated)$ 25,000

Sales value of spoiled frames$ 11,500

Labor hours100,000

The actual cost of a spoiled picture frame is $7.00. During the year 170 frames are considered spoiled. Each spoiled frame can be sold for $4. The spoilage is considered a part of all jobs.

a.Labor hours are used to determine the predetermined overhead rate. What is the predetermined overhead rate per direct labor hour?

b.Prepare the journal entry needed to record the spoilage.

c.Prepare the journal entry if the spoilage relates only to Job #12 rather than being a part of all production runs.

ANSWER:

a.$160,000 + $25,000 $11,500 = $173,500

$173,500/100,000 = $1.735 per DLH

b.Disposal Value of Spoiled Work680

Manufacturing Overhead510

Work in Process Inventory

1,190

c.Disposal Value of Spoiled Work680

Work in Process InventoryJob #12

680

MEDIUM

8.I Eat Yogurt Company produces yogurt in two departmentsMixing and Finishing. In Mixing, all ingredients except fruit are added at the start of production. In Finishing, fruit is added and then the mixture is placed into containers. Adding the fruit to the basic yogurt mixture increases the volume transferred in by the number of gallons of fruit added. Any spoilage that occurs is in the Finishing Department. Spoilage is detected just before the yogurt is placed into containers or at the 98 percent completion point. All spoilage is abnormal.

Finishing Department

BWIP (100% fruit, 0% container, 30% CC)5,000gallons

Gallons transferred in5,500

Gallons of fruit added1,200

EWIP (100% fruit, 0% container, 60% CC)1,700gallons

Gallons transferred out9,000

Abnormal spoilage1,000

BWIP Costs:

Transferred In $ 9,700

Fruit10,500

CC15,000

Current Costs:

Transferred In12,400

Fruit54,000

Containers11,000

CC 98,000

Total Costs$ 210,600

Prepare a cost of production report for September 2001. The company uses weighted average.

ANSWER:I Eat Yogurt Co.

Cost Report

September 30, 2001

BWIP5,000

Trans. In5,500

Fruit 1,200

Acctble. For11,700

TIFruitContainerCC

TO9,0009,0009,0009,000

EWIP1,7001,70001,020

AS 1,000 1,000 0 980

11,70011,7009,00011,000

Costs:

TIFruitContainerCC

BWIP

$ 9,700$10,500$ 0$ 15,000

Current 12,400 54,000 11,000 98,000

$22,100$64,500$11,000$113,000

EUP

11,70011,7009,00011,000

Per unit$1.89$5.51$1.22$10.27

Cost Assignment:

EWIP

1,700 $1.89 =$ 3,213

1,700 $5.51 =9,367

1,020 $10.27 = 10,475$ 23,055

Spoilage

1,000 $1.89 =$ 1,890

1,000 $5.51 =5,510

980 $10.27 = 10,065 17,465

Transferred Out

$210,600 23,055 17,465 = 170,080

Total accounted for

$ 210,600

MEDIUM

9.In Dept 1 material is added at the beginning, in Dept 2 material is added at the end. Normal losses in Department 1 should not exceed 5 percent of the units started; losses are found at an inspection point located 70 percent of the way through the production process. The normal loss in Department 2 is 3 percent of the units transferred in; losses are determined at an inspection point at the end of the production process.

The following production and cost data are available for January 2001.

PRODUCTION RECORDS

(IN UNITS)

Dept. 1Dept. 2

Beginning inventory6,0003,000

Started or transferred in150,000?

Ending inventory18,00015,000

Spoiled units9,0006,000

Transferred out?111,000

COST RECORD

Beginning inventory

Preceding departmentn/a$6,690

Material$3,0000

Conversion2,334504

Current period:

Preceding departmentn/a$230,910*

Material$36,000740

Conversion208,96252,920

*This is not the amount derived from your calculations. Use this amount so that you do not carry forward any possible cost errors from Department 1.

The beginning and ending inventory units in Department 1 are, respectively, 10 percent and 60 percent complete as to conversion. In Department 2, the beginning and ending units are, respectively, 40 percent and 80 percent complete as to conversion.

Assume spoilage in Department 1 is continuous and discrete in Department 2. Use FIFO in Department 1 and weighted average in Department 2.

ANSWER:

Department 1 Department 2 .

MatCC

TIMatCC

Complete129,000129,000

111,000111,000111,000

+ Equiv End18,00010,800

15,000012,000

+ Abn Loss 1,500 1,050

2,1302,1302,130

148,500140,850+ Norm Loss 3,870 3,870 3,870

Equiv Beg (6,000) (600)EP132,000117,000129,000EP142,500140,250

Unit Cost

Unit Cost

TI$6,690 + 230,910 = $1.80

132,000

Mat$36,000 = $0.25

Mat $740 = $0.01

142,500

117,000

CC$208,962 = $1.49

CC$504 + 52,920 = $0.41

140,250

129,000

End WIP18,000 $0.25 = $ 4 500End WIP15,000 $1.80 = $27,000

10,800 $1.49 = 16,092

12,000 $0.41 = 4,920

$20,592

$31,920ABN Loss1,500 $0.25 = $ 375ABN Loss 2,130 $2.22 = $4,729

1,050 $1.49 = 1,565

$1,940

COGM (Department 1)

COGM (Department 2)

$ 250,296 20,592 1,940 = $ 227,764

$291,764 $31,920 $4,729 = $255,115

DIFFICULT

10.All material is added at the beginning of the process.

CostsMaterialConversionTotal

Beginning inventory$ 30,000$ 3,600$ 33,600

Current period 885,120 335,088 1,220,208

Total costs$915,120$338,688$1,253,808

UNITS

Beginning inventory (30% completeconversion)6,000units

Started180,000units

Completed152,000units

Ending inventory (70% completeconversion)20,000units

Normal spoilage4,800units

Required: Find ending WIP inventory, abnormal loss, and COGM. Assume that, for conversion costs, abnormal shrinkage is 60 percent.

ANSWER:

MatCC

Units Complete152,000152,000

+ Equivalents Ending WIP20,00014,000

+ Abnormal Loss9,2005,520(9,200 .6)

= Equivalent ProductionWA181,200171,520

= Equivalent Begin WIP (6,000) (1,800)

= Equivalent ProductionFIFO175,200169,720

Unit Costs:

WA

FIFO

Mat$915,120 = $5.05Mat$885,120 = $5.05

181,200

175,200

CC$338,688 = $1.97CC$335,088 = $1.97

171,520

169,720

Ending WIP

Material20,000 $5.05 $101,000

CC14,000 $1.97 27,580

$128,580

Abnormal Spoilage

Material9,200 $5.05$ 46,460

CC5,520 $1.97 10,874

$ 57,334

Cost of Good Transferred

$1,253,808 128,580 57,334 = $1,067,894

MEDIUM

11.Department 1 uses FIFO costing and Department 2 uses weighted average.

Units are introduced into the process in Department 1 (this is the only material added in Department 1). Spoilage occurs continuously through the department and normal spoilage should not exceed 10 percent of the units started.

Department 2 adds material (packaging) at the 75 percent completion point; this material does not cause an increase in the number of units being processed. A quality control inspection takes place when the goods are 80 percent complete. Spoilage should not exceed 5 percent of the units transferred in from Department 1.

The following production cost data are applicable for operations for May 2001:

Department 1 Production Data

Beginning inventory (65% complete)1,000

Units started25,000

Units completed22,000

Units in ending inventory (40% complete)2,800

Department 1 Cost Data

Beginning inventory:

Material$1,550

Conversion 2,300$3,850

Current period:

Material$38,080

Conversion 78,645 116,725

Total costs to account for

$120,575

Department 2 Production Data

Beginning inventory (90% complete)8,000

Units transferred in22,000

Units completed24,000

Units in ending inventory (20% complete)4,500

Department 2 Cost Data

Beginning inventory:

Transferred in$40,800

Material24,000

Conversion 4,320$ 69,120

Current period:

Transferred in$113,700*

Material`53,775

Conversion 11,079 178,554


$247,674

*This may not be the same amount determined for Department 1; ignore any difference and use this figure.

Required:

a.Compute the equivalent units of production in each department.

b.Determine the cost per equivalent unit in each department and compute the cost transferred out, the cost in ending inventory, and the cost of spoilage (if necessary).

ANSWER:

a.

1

MatCC

Mat =$38,080= $1.60

23,800

Complete22,00022,000

+ End WIP 2,800 1,120(2,800 4)CC =$78,645= $3.50

24,80023,120

22,470

Beg WIP(1,000) (650)(1,000 .65)End WIP= 2,800 $1.60= $ 4,480

23,80022,470

=1,120 $3.50

3.920

$ 8,400

COGM = $120,575 8,400= $112,175

b.

2

TIMatCCMat =$ 77,775= $3.05

25,500

Complete24,00024,00024,000

+ End WIP4,5000900CC = $ 15,399= $0.59

+ Normal1,1001,100880

26,100

+ Abnormal 400 400 320

30,00025,50026,100TI = $154,500= $5.15

30,000

End WIP

Abn Loss

4,500 $5.15$23,175400 $3.05$1,220

900 $0.59 531 320 $0.59189

$23,706400 $5.15 2,060

$3,469

COGM = $247,674 23,706 3,469 = $220,499MEDIUM

12.Consider the following data for a cooking department for the month of January:

Physical

Units

Work in process, beginning inventory*11,000

Started during current period

74,000

To account for

85,000

Good units completed and transferred out during current period:

From beginning work in process11,000

Started and completed

50,000

Good units completed61,000

Spoiled units8,000

Work in process, ending inventory~16,000

Accounted for85,000

*Direct material, 100% complete; conversion costs, 25% complete

~Direct material, 100% complete; conversion costs, 75% complete

Inspection occurs when production is 100 percent completed. Normal spoilage is 11 percent of good units completed and transferred out during the current period.

The following cost data are available:

Work in process, beginning inventory:

Direct material$220,000

Conversion costs

30,000$ 250,000

Costs added during current period:

Direct material

1,480,000

Conversion costs

942,000

Costs to account for

$2,672,000

Required: Prepare a detailed cost of production report. Use the FIFO method. Distinguish between normal and abnormal spoilage.

ANSWER:

Normal Sp = 11% 61,000 = 6,710 unitsFIFO

Abnormal Sp = 8,000 6,710 = 1,290 units

MatCCMat = $1,480,000= $22.00

67,290

Complete61,00061,000

+ End16,00012,000

+ Ab Sp 1,2901,290CC = $942,000= 13.17

Ave78,29074,290

71,540 $35.17

Beg (11,000)(2,750)

FIFO67,29071,540

WIP

Material 16,000 $22.00 $352,000

CC 12,000 $13.17 158,040

$510,040

Loss = 1,290 $35.1745,369

COGM = $2,672,000 510,040 45,369 = $2,116,591

MEDIUM

13.In the Lamination Department, varnish is added when the goods are 60 percent complete as to overhead. The units that are spoiled during processing are found upon inspection at the end of production. Spoilage is considered discrete.

Production Data for March 2001

Beginning inventory (80% complete as to labor,

70% complete as to overhead)1,000units

Transferred in during month7,450units

Ending inventory (40% complete as to labor,

20% complete as to overhead)1,500units

Normal spoilage (found during final quality inspection)100units

Abnormal spoilagefound at 30% completion of direct labor and

15% of conversion; the sanding machine was misaligned and

scarred the chairs200units

All other units were transferred to finished goods

Cost Data for March 2001

Beginning work in process inventory:

Prior department costs$7,510

Varnish950

Direct labor2,194

Overhead 5,522$ 16,176

Current period costs:

Prior department costs$68,540

Varnish7,015

Direct labor23,000

Overhead 56,782 155,337


$171,513

Required: Determine the proper disposition of the March costs for the Laminating Department using the weighted average method.

ANSWER:

TIMATDLMOH

Complete6,650

6,650

6,650

6,650

+ end1,500

0

600

300

+ normal100

100

100

100

+ abnormal 200

0

60

30

8,450

6,750

7,410

7,080

Unit Cost$76,050 = $9$7,965= $1.18$25,194 = $3.40$62,304 = $8.80

8,450

6,7507,410

7,080

End WIP

DL600 $3.40= $ 2,040

MOH300 $8.80= 2,640

TI1,500 $9.00= 13,500

$18,180

Abnormal Loss60 $3.40=$ 204

DL30 $8.80=264

MOH200 $9.00= 1,800

TI

$ 2,268

COGM = $171,513 18,180 2,268 = $151,065

MEDIUM

14.Tons of Shad employs a weighted average process costing system for its products. One product passes through three departments (Molding, Assembly, and Finishing) during production. The following activity took place in the Finishing Department during March 2001:

Units in beginning inventory4,200

Units transferred in from Assembly42,000

Units spoiled2,100

Good units transferred out33,600

The costs per equivalent unit of production for each cost failure area as follows:

Cost of prior departments$5.00

Raw material1.00

Conversion 3.00

Total cost per EUP$9.00

Raw material is added at the beginning of the Finishing process without changing the number of units being processed. Work in process inventory was 40 percent complete as to conversion on March 31. All spoilage was discovered at final inspection. Of the total units spoiled, 1,680 were within normal limits.

Required:

a.Calculate the equivalent units of production

b.Determine the cost of units transferred out of Finishing

c.Determine the cost of ending Work in Process Inventory

d.The portion of the total transferred in cost associated with beginning Work in Process Inventory amounted to $18,900. What is the current period cost that was transferred in from Assembly to Finishing?

e. Determine the cost associated with abnormal spoilage for the month.

ANSWER:

a.

TIMatCC

Complete33,60033,60033,600

+ Equiv WIP10,50010,5004,200

+ Normal Sp1,6801,6801,680

+ Abnor Sp 420 420 420

46,20046,20039,900

b.33,600 $9$302,400TC = 46,200 $5$231,000

1,680 $9 15,120

46,200 $1 46,200

$317,520

39,900 $3 119,700

$396,900

c.10,500 $5 $52,500

10,500 $1 10,500

4,200 $3 12,600

$75,600

COGM = $396,900 75,600 3,780 = $317,520d.$5 = $18,900 + X

46,200

X = $231,000 18,900 = $212,100

e.ABN = 420 $9 = $3,780

420 $9 = $3,780

MEDIUM

15.Department 2 adds new material to the units received from Department 1 at the end of process. A normal loss occurs early in processing. Production and cost data for Department 2 for the month of September are as follows:

Production record (in units):

In process, September 1

75% complete for processing cost

4,000

Received from Department 1

20,000

Completed and transferred to finished goods

16,000

Lost in processing (normal)

2,000

In process, September 30

2/3 complete for process cost

6,000

Cost Record:

Work in process inventory, September 1:

Preceding department cost$ 620

Processing cost

2,000$2,620

Cost from preceding department in September

1,800

Material cost for September

4,800

Processing cost for September

10,200

Required: Determine the following for Department 2 under (a) weighted average the method of costing and (b) the FIFO method of costing: (1) unit costs for each cost component, (2) cost of production transferred to finished goods, (3) cost of work in process inventory of September 30.

ANSWER:

Equivalent productionTIMaterialConv. cost

Units complete16,00016,00016,000

+ Equiv. ending WIP 6,000 0 4,000

= Equiv. prod. average22,00016,00020,000

Equiv. begin. WIP(4,000) 0(3,000)

= Equiv. prod. FIFO18,00016,00017,000Unit Cost AverageUnit Cost FIFOTI = $620 + 1,800

TI = $1,800

22,000= $0.11 18,000 = $0.10

Mat =$4,800

Mat = $4,800

16,000= $0.30

16,000 = $0.30

CC = $2,000 + 10,200

CC = $10,200

20,000= $0.61 17,000= $0.60

End. WIPWAEnd. WIPFIFOPD6,000 $0.11 = $ 660.006,000 $0.10 = $ 600.00

CC4,000 $0.61 = 2,440.004,000 $0.60 = 2,400.00

$3,100.00

$3,000.00Cost of Goods Complete

WA

FIFO$19,420 3,100 =$16,320.00$19,420 3,000 =$16,420.00

MEDIUM

16. The formula for a chemical compound requires one pound of Chemical X and one pound of Chemical Y. In the simplest sense, one pound of Chemical X is processed in Department A and transferred to Department B for further processing where one pound of Chemical Y is added when the process is 50 percent complete. When the processing is complete in Department B, the finished compound is transferred to finished goods. The process is continuous, operating 24 hours a day.

Normal spoilage occurs in Department A. Five percent of material is lost in the first few seconds of processing. No spoilage occurs in Department B.

The following data are available for the month of October 2001:

Dept. ADept. B

Units in process, October 18,00010,000

Stage of completion of beginning inventory3/43/10

Units started or transferred in50,000?

Units transferred out46,500?

Units in process, October 31??

Stage of completion of ending inventory1/31/5

Units of Chemical Y added in Department B

44,500

Required:

a.Prepare a schedule showing finished equivalents for Chemical X and for conversion cost for Department A using the FIFO method.

b.Determine for Department B the number of units of good product completed during October and the number of units in process on October 31.

c.Prepare a schedule for Department B showing finished equivalents for preceding department cost, cost of Chemical Y, and conversion cost using the FIFO method.

ANSWER:

a.

c.

MatCCPDMatCC

46,50046,50044,50044,50044,500

9,0003,00012,00002,400

(8,000)(6,000)(10,000) 0(3,000)

47,50043,50046,50044,50043,900b.Since the material in the second department goes in at the 50 percent point and the ending WIP inventory is only at the 20 percent point, units complete is the same as the equivalents of material 44,500, given that units started plus units in beginning WIP are equal to units complete plus ending WIP 10,000 + 46,500 44,500 = 12,000 units in ending WIP.

MEDIUM

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chapter 7 loss units cost acc

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