Exercises - Lost Units and Accretion

Exercises - Lost Units and Accretion - 289 Chapter 7...

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22. (EUP computations; normal and abnormal loss) The Atlanta Division of South- eastern Paint produces environmental paints in processes in which spoilage takes place on a continual basis. Management considers normal spoilage to be 0.5 percent or less of gallons of material placed into production. The follow- ing operating statistics are available for June 2000 for the paint BMZ: Beginning inventory (20% complete as to material; 30% complete as to conversion) 8,000 gallons Started during June 180,000 gallons Ending inventory (60% complete as to material; 70% complete as to conversion) 4,000 gallons Spoiled 1,400 gallons a. How many gallons were transferred out? b. How much normal spoilage occurred? c. How much abnormal spoilage occurred? d. What are the FIFO equivalent units of production for materials? For con- version costs? e. How are costs associated with the normal spoilage handled? f. How are costs associated with the abnormal spoilage handled? 23. (EUP computation; normal and abnormal loss; FIFO) Arkansas Foods manu- factures corn meal in a continuous, mass-production process. Corn is added at the beginning of the process. Losses are few and occur only when foreign materials are found in the corn meal. Inspection occurs at the 95 percent com- pletion point as to conversion. During May, a machine malfunctioned and dumped salt into 18,000 pounds of corn meal. This abnormal loss occurred when conversion was 70 percent complete on those pounds of product. The error was immediately noticed, and those pounds of corn meal were pulled from the production process. An ad- ditional 1,000 pounds of meal were detected as unsuitable at the inspection point. These lost units were considered well within reasonable limits. May pro- duction data are shown below: Beginning work in process (85% complete) 50,000 pounds Started during the month 425,000 pounds Ending work in process (25% complete) 10,000 pounds 24. (EUP computation; normal and abnormal loss; cost per EUP; FIFO) CandleSticks uses a FIFO process costing system to account for its candle production process. Wax occasionally forms imperfectly in molds and, thus, spoilage is viewed as continuous. The accepted quality level is good output of 92 percent of the pounds of wax placed in production. All wax is entered at the beginning of the process. March 2001 data follow: Beginning inventory (30% complete as to conversion) 9,000 pounds Started during month 30,000 pounds Transferred 31,500 pounds (315,000 candles; 10 wax candles are obtained from a pound of wax) Ending inventory (20% complete as to conversion) 5,400 pounds Loss ? pounds The following costs are associated with March production: Chapter 7 Special Production Issues: Lost Units and Accretion 289
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Beginning inventory: Material $3,600 Conversion 2,700 $ 6,300 Current period: Material $9,207 Conversion 8,964 18,171 Total costs $24,471
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