chapter 7 loss units cost acc
DESCRIPTION
Chapter of Loss UnitsTRANSCRIPT
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
(70% complete)13,000units
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:
(75% complete)14,500units
Material$25,100
Started75,000units
Conversion50,000
Ending Work in Process
Current Costs:
(60% complete)16,000units
Material$120,000
Abnormal spoilage2,500units
Conversion300,000
Normal spoilage (continuous)5,000units
Transferred out66,000units
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
Abnormal spoilage5,000units
Ending Work in Process: (70% complete)14,500units
Transferred out97,000units
Beginning Work in Process Costs:
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
Abnormal spoilage2,500units
Ending Work in Process: (55% complete)15,000units
Transferred out19,500units
Beginning Work in Process Costs:
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:
Ending Work in Process
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:
Ending Work in Process
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
Total costs to account for
$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
Total costs to account for
$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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