ch18 - Cost Accounting 13e(Horngren et al Chapter 18 1...

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Unformatted text preview: Cost Accounting, 13e (Horngren et al.) Chapter 18 1 Spoilage, Rework, and Scrap 1) Reducing defects helps to reduce costs, but it does not make the business more competitive. Answer: FALSE Explanation: Reducing defects makes the business more competitive. Diff: 2 Terms: spoilage Objective: 1 AACSB: Analytical skills 2) An item classified as spoilage has no value. Answer: FALSE Explanation: Although the item does not meet the specifications, it may be sold as a "second" or for its scrap value. It is not necessarily thrown out. Diff: 2 Terms: spoilage Objective: 1 AACSB: Analytical skills 3) Reworked goods are unacceptable units of production usually not capable of being repaired or converted into a salable product. Answer: FALSE Explanation: Reworked goods are unacceptable units of production that can be repaired into a salable product. Diff: 2 Terms: rework Objective: 1 AACSB: Ethical reasoning 4) Rework is finished production that is not in accordance with customer desires. The product is redone and sold as finished goods. Answer: TRUE Diff: 2 Terms: rework Objective: 1 AACSB: Ethical reasoning 5) The value of scrap material can have either a high or low sales value relative to the product with which it is associated. Answer: FALSE Explanation: Scrap material by definition has a low sales value. Diff: 2 Terms: scrap Objective: 1 AACSB: Analytical skills 6) Scrap and rework are considered to be the same thing by managerial accountants. Answer: FALSE Explanation: Scrap and rework are not considered to be the same thing by managerial accountants. Diff: 2 Terms: scrap, rework Objective: 1 AACSB: Analytical skills 7) Normal spoilage adds to the cost of the job to which it is attributed in a job order costing system. Answer: TRUE Diff: 2 Terms: normal spoilage Objective: 1 AACSB: Analytical skills 8) The first step in the five-step procedure for process costing with spoilage is to compute the output in terms of equivalent units. Answer: FALSE Explanation: The first step in the fivestep procedure for process costing with spoilage is to summarize the flow of physical units. Diff: 2 Terms: process costing, spoilage Objective: 1 AACSB: Analytical skills 9) The last step in the five-step procedure for process costing with spoilage is to compute the cost per equivalent unit. Answer: FALSE Explanation: The last step in the fivestep procedure for process costing with spoilage is to assign total costs to units completed, to spoiled units, and to units in ending work in process. Diff: 2 Terms: process costing, spoilage Objective: 1 AACSB: Analytical skills 10) When calculating normal spoilage rates, the base should be the actual units started in production. Answer: FALSE Explanation: The base should be good Diff: 2 Terms: normal spoilage Objective: 1 AACSB: Analytical skills 11) Abnormal spoilage is spoilage that should arise under efficient operating conditions. Answer: FALSE Explanation: Abnormal spoilage should not arise under efficient operating conditions. Diff: 2 Terms: abnormal spoilage Objective: 1 AACSB: Analytical skills 12) A company whose goal is zero defects would usually treat all spoilage as abnormal. Answer: TRUE Diff: 2 Terms: normal spoilage, abnormal spoilage Objective: 1 AACSB: Ethical reasoning 13) Spoilage can be considered either normal or abnormal. Answer: TRUE Diff: 2 Terms: spoilage Objective: 1 AACSB: Ethical reasoning 14) Normal spoilage is spoilage that is not considered to be inherent in a production process. Answer: FALSE Explanation: Normal spoilage is spoilage that is considered to be inherent in a production process. Diff: 1 Terms: normal spoilage Objective: 1 AACSB: Analytical skills 15) Under efficient operating conditions, all spoilage is considered to be abnormal spoilage. Answer: FALSE Explanation: Normal spoilage is spoilage that is considered to be inherent in a production process. It arises even when the process is operated in an efficient manner. Diff: 1 Terms: normal spoilage Objective: 1 AACSB: Ethical reasoning 16) When ng the normal spoilage rate, it is calculated based on the number of good units competed, rather than using the number of determini units started. Answer: TRUE Diff: 2 Terms: normal spoilage Objective: 1 AACSB: Analytical skills 17) A company might consider all spoilage to be abnormal if it wants to pay serious attention to the problem. Answer: TRUE Diff: 2 Terms: abnormal spoilage Objective: 1 AACSB: Ethical reasoning 18) Counting spoiled units as part of output units in a process-costing system usually results in a higher cost per unit. Answer: FALSE Explanation: Counting spoiled units usually results in a lower cost per unit. Diff: 3 Terms: spoilage Objective: 2 AACSB: Analytical skills 19) Costs in inventory are pooled with costs in the current period when determining the costs of good units under the weighted-average beginning method of process costing. Answer: TRUE Diff: 2 Terms: weighted-average method Objective: 2 AACSB: Analytical skills 20) Under the average method, the costs of normal spoilage are added to the costs of their related good units. Hence, the cost per good weighted- unit completed and transferred out equals the total costs transferred out divided by the number of good units produced. Answer: TRUE Diff: 3 Terms: weighted-average method, normal spoilage Objective: 2 AACSB: Analytical skills 21) The stage of the production cycle where products are examined to determine if they are acceptable is called the inspection point. Answer: TRUE Diff: 2 Terms: inspection point Objective: 2 AACSB: Ethical reasoning 22) Spoilage and rework costs are thoroughly captured in the accounting system. Answer: FALSE Explanation: The actual costs of spoilage and rework are often greater than the costs recorded in the accounting system because the opportunity costs of disruption of the production line, storage, and lost contribution margin are not recorded in accounting systems. Diff: 2 Terms: spoilage, rework Objective: 2 AACSB: Analytical skills 23) Under the method, all spoilage costs are assumed to be related to the units completed during this period using the unit costs of the FIFO current period. Answer: TRUE Diff: 3 Terms: first-in, first-out method, spoilage Objective: 3 AACSB: Analytical skills 24) When spoiled goods have a disposal value, the net cost of spoilage is computed by adding the disposal value to the costs of the spoiled goods accumulated to the inspection point. Answer: FALSE Explanation: The net cost of spoilage is computed by subtracting the disposal value from the costs of the spoiled goods accumulated to the inspection point. Diff: 2 Terms: spoilage Objective: 3 AACSB: Analytical skills 25) To simplify calculations under FIFO, spoiled units are accounted for as if they were started in the current period. Answer: TRUE Diff: 2 Terms: spoilage Objective: 3 AACSB: Analytical skills 26) Normal spoilage costs are usually deducted from the costs of good units. Answer: FALSE Explanation: Normal spoilage is usually added to the cost of the good units. Diff: 2 Terms: normal spoilage Objective: 4 AACSB: Analytical skills 27) Costs of abnormal spoilage are separately accounted for as losses of the period. Answer: TRUE Diff: 2 Terms: abnormal spoilage Objective: 4 AACSB: Analytical skills 28) Under standard costing, there is no need to calculate a cost per equivalent unit. Answer: TRUE Diff: 2 Terms: spoilage, standard costing Objective: 4 AACSB: Analytical skills 29) In presumed that normal spoilage occurs halfway between the beginning of the production process and the inspection point in general, it the production cycle. This is because there is no easy way to determine where the spoilage has happened until the is inspection has occurred. Answer: FALSE Explanation: The common approach is to presume that normal spoilage occurs at the inspection point in the production cycle. Diff: 2 Terms: spoilage, standard costing Objective: 4 AACSB: Analytical skills 30) In job costing, costs of abnormal spoilage are not considered as inventoriable costs and are therefore written off as costs of the period in which detection occurs. Answer: TRUE Diff: 3 Terms: abnormal spoilage, job costing Objective: 5 AACSB: Analytical skills 31) In both job costing and process costing, normal spoilage attributable to a specific job is assigned to that job. Answer: FALSE Explanation: In process costing, spoilage costs are not assigned to that job. Diff: 3 Terms: job costing, process costing, normal spoilage Objective: 5 AACSB: Analytical skills 32) When normal and not attributable to any specific job, the costs of rework are charged to manufacturing overhead and spread rework is through overhead allocation over all jobs. Answer: TRUE Diff: 3 Terms: rework Objective: 6 AACSB: Communication 33) Abnormal spoilage costs are not considered inventoriable costs under a job-costing system. Answer: TRUE Diff: 2 Terms: abnormal spoilage, job-order system Objective: 6 AACSB: Analytical skills 34) Scrap is usually divided between normal and abnormal scrap. Answer: FALSE Explanation: There is no abnormal Diff: 2 Terms: scrap Objective: 7 AACSB: Analytical skills 35) If scrap is returned to the company's storeroom and inventoried, it should not have any value in the accounting records. Answer: FALSE Explanation: The scrap will be inventoried. It might not have a value in dollars but it will have a physical quantity value. Diff: 3 Terms: scrap Objective: 7 AACSB: Ethical reasoning 36) Many companies track scrap only in nonfinancial terms (liters, for example) and record its sale as another revenue item. Answer: TRUE Diff: 2 Terms: scrap Objective: 7 AACSB: Analytical skills 37) Costs are assigned to scrap only if it is normal scrap. Answer: FALSE Explanation: Scrap is not broken down into normal and abnormal costs. Diff: 2 Terms: scrap Objective: 7 AACSB: Analytical skills 38) Accountin g for scrap is very similar to accounting for byproducts. Answer: TRUE Diff: 2 Terms: scrap, byproducts Objective: 7 AACSB: Analytical skills 39) Recognizi ng the value of scrap in the accounting records is always done at the time the scrap is produced. Answer: FALSE Explanation: There are methods in which the value of scrap is recognized at the time it is produced and there are methods in which the value of scrap is recognized at the time of its sale. Diff: 2 Terms: scrap Objective: 7 AACSB: Ethical reasoning 40) All accounting systems must assume that the inspection point occurs when a process is 100% complete. Answer: FALSE Explanation: All accounting systems do not have to assume that the inspection point occurs when a process is 100% complete. Diff: 2 Terms: inspection point Objective: A AACSB: Communication 41) Managers often cite reductions in the costs of spoilage as a(n): A) major B) justification for implementing a just-in-time production system measurement of improved output quality C) immaterial item that is not to be tracked D) indication of improvement in the accounting system Answer: A Diff: 2 Terms: spoilage Objective: 1 AACSB: Analytical skills 42) Unaccept able units of production that are discarded or sold for reduced prices are referred to as: A) reworked units B) spoilage C) scrap D) defective units Answer: B Diff: 1 Terms: spoilage Objective: 1 AACSB: Ethical reasoning 43) Unaccept able units of production that are subsequently repaired and sold as acceptable finished goods are: A) reworked units B) spoilage C) scrap D) defective units Answer: A Diff: 1 Terms: rework Objective: 1 AACSB: Reflective thinking 44) Costs of poor quality production include the: A) opportunity cost of the plant and workers B) effect on C) current customers effect on D) potential customers All of these answers are correct. Answer: D Diff: 2 Terms: spoilage Objective: 1 AACSB: Reflective thinking 45) Material left over when making a product is referred to as: A) reworked units B) spoilage C) scrap D) defective units Answer: C Diff: 1 Terms: scrap Objective: 1 AACSB: Reflective thinking 46) A production process which involves spoilage and rework occurs in: A) the manufacture of high precision tools B) semiconductor units C) the manufacture of clothing D) All of these answers are correct. Answer: A Diff: 2 Terms: spoilage, rework Objective: 1 AACSB: Reflective thinking 47) Spoilage inherent result of the particular production process and arises under efficient operating conditions is referred to as: that is an A) ordinary B) spoilage normal spoilage C) abnormal D) spoilage None of these answers is correct. Answer: B Diff: 2 Terms: normal spoilage Objective: 1 AACSB: Reflective thinking 48) Spoilage that should not arise under efficient operating conditions is referred to as: A) ordinary B) spoilage normal spoilage C) abnormal D) spoilage None of these answers is correct. Answer: C Diff: 2 Terms: abnormal spoilage Objective: 1 AACSB: Reflective thinking 49) Costs of normal spoilage are usually accounted for as: A) part of the cost of goods sold B) part of the cost of goods manufactured C) a separate line item in the income statement D) an asset in the balance sheet Answer: B Diff: 2 Terms: normal spoilage Objective: 1 AACSB: Reflective thinking 50) Costs of abnormal spoilage are usually accounted for as: A) part of the cost of goods sold B) part of the cost of goods manufactured C) a separate line item in the income statement D) an asset in the balance sheet Answer: C Diff: 2 Terms: abnormal spoilage Objective: 1 AACSB: Reflective thinking 51) The loss from abnormal spoilage account would not appear: A) on the balance sheet B) as a detailed C) item in the retained earnings schedule of the balance sheet as a detailed D) item on the income statement Either A or B is correct. Answer: D Diff: 2 Terms: abnormal spoilage Objective: 1 AACSB: Analytical skills 52) Normal spoilage should be computed using as the base the: A) total units B) completed total good units completed C) total actual D) units started into production None of these answers is correct. Answer: B Diff: 2 Terms: normal spoilage Objective: 1 AACSB: Analytical skills 53) Companie s that attempt to achieve zero defects in the manufacturing process treat spoilage as: A) scrap B) reworked units C) abnormal D) spoilage normal spoilage Answer: C Diff: 2 Terms: abnormal spoilage Objective: 1 AACSB: Ethical reasoning 54) Which conditions usually exists when comparing normal and abnormal spoilage to controllability? one of the following Normal Spoilage Abnormal Spoilage A) Controllable B) Controllable Controllable C) Uncontrollable Uncontrollable D) Uncontrollable Uncontrollable Answer: Controllable D Diff: 2 Terms: normal spoilage, abnormal spoilage Objective: 1 AACSB: Reflective thinking 55) Not counting spoiled units in the equivalent-unit calculation results in: A) lower cost per good unit. B) higher cost per good unit C) better D) management information Both A and C are correct. Answer: B Diff: 2 Terms: spoilage Objective: 1 AACSB: Analytical skills 56) Recogniti on of spoiled units when computing output units: A) highlights the costs of normal spoilage to management B) distorts the C) accounting data focuses D) management's attention on reducing spoilage Both A and C are correct. Answer: D Diff: 2 Terms: spoilage, normal spoilage Objective: 1 AACSB: Communication Answer the following questions using the information below: Astoria Computer Systems, Inc., manufactures printer circuit cards. All direct materials are added at the inception of the production process. During January, the accounting department noted that there was no beginning inventory. Direct materials purchases totaled $100,000 during the month. Work-in-process records revealed that 4,000 card units were started in January, 2,000 card units were complete, and 1,500 card units were spoiled as expected. Ending work-in-process card units are complete in respect to direct materials costs. Spoilage is not detected until the process is complete. 57) What are the respective direct material costs per equivalent unit, assuming spoiled units are recognized or ignored? A) $20.00; $35.00 B) $25.00; $40.00 C) $30.00; $45.00 D) $35.00; $50.00 Answer: B Explanation: B) C D C A G N C W C spoilage Objective: 1 AACSB: Analytical skills 58) What is the direct material cost assigned to good units completed when spoilage units are recognized? A) $50,000 B) $100,000 C) $80,000 D) $87,500 Answer: D Explanation: D) C D C A G N C W C spoilage Objective: 1 AACSB: Analytical skills 59) What is the cost transferred out assuming spoilage units are ignored? A) $87,500 B) $80,000 C) $50,000 D) $77,500 Answer: B Explanation: B) C D C A G N C W C spoilage Objective: 1 AACSB: Analytical skills 60) What are amounts allocated to the work-in-process ending inventory assuming spoilage units are recognized and ignored, the respectively? A) $20,000; B) $24,500 $30,000; C) $34,250 $12,500; D) $20,000 $37,500; $40,000 Answer: C Explanation: C) C D C A G N C W C spoilage Objective: 1 AACSB: Analytical skills 61) Spoilage costs allocated to ending work in process are larger by which method and by how much? A) when spoiled B) units are recognized, by $2,500 when spoiled C) units are recognized, by $4,250 when spoiled D) units are ignored, by $7,500 when spoiled units are recognized, by $7,500 Answer: C Explanation: C) C D C Diff: 3 T C W C $ 1 AACSB: Reflective thinking Answer the following questions using the information below: Craft Concept manufactures small tables in its Processing Department. Direct materials are added at the initiation of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Before inspection, some units are spoiled due to nondetectible materials defects. Inspection occurs when units are 50% converted. Spoiled units generally constitute 5% of the good units. Data for December 20X5 are as follows: WIP, beginning inventory 12/1/20X5 Direct materials (100% complete) Conversion costs (75% complete) Started during December Completed and transferred out 12/31/20X5 WIP, ending inventory 12/31/20X5 Direct materials (100% complete) Conversion costs (65% complete) Costs for December: WIP, beginning Inventory: Direct materials Conversion costs Direct materials added Conversion costs added 62) 10,000 units 40,000 units 38,400 units 8,000 units $ 50,000 30,000 100,000 140,000 What is the number of total spoiled units? A) 1,600 units B) 2,000 units C) 2,700 units D) 3,600 units Answer: D Explanation: D) S Diff: 2 T 1 AACSB: Analytical skills 63) Normal spoilage totals: A) 1,600 units B) 2,000 units C) 1,920 units D) 2,700 units Answer: C Explanation: C) N Diff: 2 T 1 AACSB: Analytical skills 64) Abnormal spoilage totals: A) 1,600 units B) 2,000 units C) 1,680 units D) 1,920 units Answer: C Explanation: C) S N A abnormal spoilage Objective: 1 AACSB: Analytical skills 65) What is the total cost per equivalent unit using the weighted-average method of process costing? A) $3.00 B) $3.60 C) $6.60 D) $4.60 Answer: C Explanation: C) W C T D E T spoilage, weightedaverage method Objective: 2 AACSB: Analytical skills 66) What cost is allocated to abnormal spoilage using the weighted-average process-costing method? A) $ 0 B) $ 7,360 C) $11,088 D) $16,400 Answer: C Explanation: C) S N A W C T D E T 1 abnormal spoilage, weighted-average method Objective: 2 AACSB: Analytical skills 67) What are amounts of direct materials and conversion costs assigned to ending work in process using the weighted-average processthe costing method? A) $18,720; B) $24,000 $22,900; C) $19,820 $24,000; D) $18,720 $28,560; $14,160 Answer: C Explanation: C) W C T D E T D C spoilage, weightedaverage method Objective: 2 AACSB: Analytical skills Answer the following questions using the information below: Fish Fillet Incorporated obtains fish and then processes them into frozen fillets and then prepares the frozen fish fillets for distribution to its retail sales department. Direct materials are added at the initiation of the cycle. Conversion costs are incurred evenly throughout the production cycle. Before inspection, some fillets are spoiled due to nondetectible defects. Inspection occurs when units are 50% converted. Spoiled fillets generally constitute 3.5% of the good fillets. Data for April 2008 are as follows: WIP, beginning inventory 4/1/2008 Direct materials (100% complete) Conversion costs (50% complete) Started during April Completed and transferred out 4/31/2008 WIP, ending inventory 4/31/2008 Direct materials (100% complete) Conversion costs (20% complete) Costs for April: WIP, beginning Inventory: Direct materials Conversion costs Direct materials added Conversion costs added 68) 40,000 fillets 75,000 fillets 100,000 fillets 8,000 fillets $ 55,000 40,000 145,100 188,065 What is the number of total spoiled units? A) 8,000 units B) 5,000 units C) 25,000 units D) 7,000 units Answer: D Explanation: B) S Diff: 2 T 1 AACSB: Analytical skills 69) Normal spoilage totals: A) 3,500 units B) 0 units C) 8,000 units D) 7,000 units Answer: A Explanation: A) N Diff: 2 T 1 AACSB: Analytical skills 70) Abnormal spoilage totals: A) 3,500 units B) 0 units C) 8,000 units D) 7,000 units Answer: A Explanation: A) S Diff: 3 T A 1 AACSB: Analytical skills 71) What is the total cost per equivalent unit using the weighted-average method of process costing? A) $4.00 B) $1.74 C) $2.10 D) $3.84 Answer: D Explanation: D) W C T D E T spoilage, weightedaverage method Objective: 2 AACSB: Analytical skills 72) What cost is allocated to abnormal spoilage using the weighted-average process-costing method? A) $ 0 B) $13,440 C) $26,880 D) $14,500 Answer: B Explanation: B) S N A W C T D E T 3 abnormal spoilage, weighted-average method Objective: 2 AACSB: Analytical skills 73) What are amounts of direct materials and conversion costs assigned to ending work in process using the weighted-average processthe costing method? A) $3,360; $13,920 B) $13,920; $3,360 C) $13,920; D) $16,800 $16,800; $13,920 Answer: B Explanation: B) W C Diff: 2 T D C 2 AACSB: Analytical skills 74) The cost per good unit in the weighted-average method is equal to the: A) total cost of B) direct materials and conversion costs per equivalent unit, plus a share of normal spoilage sum of the costs per equivalent unit of direct materials, and conversion costs C) total costs D) divided by total equivalent units None of these answers is correct. Answer: A Diff: 2 Terms: spoilage, weightedaverage method Objective: 2 AACSB: Reflective thinking 75) Under the FIFO method, all spoilage costs are assumed to be related to the units: A) in beginning B) inventory, plus the units completed during the period completed C) during the period in ending D) inventory in both beginning and ending inventory plus the units completed during the period Answer: B Diff: 2 Terms: spoilage, first-in, first-out method Objective: 3 AACSB: Ethical reasoning Answer the following questions using the information below: Cartwright Custom Carpentry manufactures chairs in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to nondetectible material defects. Spoiled units generally constitute 3% of the good units. Data provided for March 20X5 are as follows: WIP, beginning inventory 3/1/20X5 Direct materials (100% complete) Conversion costs (89.5% complete) Started during March Completed and transferred out WIP, ending inventory 3/31/20X5 Direct materials (100% complete) Conversion costs (75% complete) Costs: WIP, beginning inventory: Direct materials Conversion costs Direct materials added Conversion costs added 76) 30,000 units 80,000 units 86,000 units 20,000 units $ 70,000 40,000 160,000 120,000 What are the normal and abnormal spoilage units, respectively, for March when using FIFO? A) 2,580 units; B) 1,420 units 1,950 units; C) 1,390 units 1,690 units; D) 1,050 units 1,420 units; 2,000 units Answer: A Explanation: A) N Diff: 3 T 3, 4 AACSB: Analytical skills 77) What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing? A) $5,890.64; B) $9,133.20 $5,890.64; C) $5,826.00 $6,469.64; D) $7,690.36 $9,133.20; $5,026.80 Answer: D Explanation: D) W C T D Diff: 3 T A ( N A 3 AACSB: Analytical skills 78) What allocated to the ending work-in-process inventory for direct materials and conversion costs, respectively, using the FIFO costs are method of process costing? A) $38,250; B) $24,850 $40,000; C) $23,100 $40,000; D) $21,590 $49,500; $13,600 Answer: B Explanation: B) W C T D Diff: 3 T ( N A D C 4 AACSB: Analytical skills 79) Which of following journal entries correctly represents the transfer of completed goods for the current period using the FIFO method the of process costing? A) Finished Goods 10,560.28 B) Loss from Spoilage 10,560.28 Loss from Spoilage C) 5,026.80 Finished Goods 5,026.80 Finished Goods 327,251.00 D) Work in Process 327,251.00 Finished Goods Work in Process 401,700.00 Answer: 401,700.00 C Explanation: C) W C T D E ( N A ( N A D C A B C S N T first-in, first-out method, spoilage Objective: 3 AACSB: Reflective thinking Answer the following questions using the information below: Samantha's Office Supplies manufactures desk organizers in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to nondetectible material defects. Spoiled units generally constitute 4% of the good units. Data provided for February 2008 are as follows: WIP, beginning inventory 2/1/2008 Direct materials (100% complete) Conversion costs (50% complete) Started during February Completed and transferred out WIP, ending inventory 2/29/2008 Direct materials (100% complete) Conversion costs (25% complete) Costs: WIP, beginning inventory: Direct materials Conversion costs Direct materials added Conversion costs added 80) 25,000 units 82,000 units 81,000 units 15,000 units $ 150,000 44,000 209,916 109,893 What are the normal and abnormal spoilage units, respectively, for February when using FIFO? A) 1,400 units; B) 1,480 units 3,280 units; C) 1,640 units 3,240 units; D) 7,760 units 3,240 units; 11,000 units Answer: C Explanation: C) N Diff: 3 T 3, 4 AACSB: Analytical skills 81) What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing? A) $12,571; B) $30,108 $30,108; C) $12,571 $1,257; $3,010 D) $8,000; $4,000 Answer: A Explanation: A) W C T D E T N A * * N A first-in, first-out method, normal spoilage, abnormal spoilage Objective: 3 AACSB: Analytical skills 82) What allocated to the ending work-in-process inventory for direct materials and conversion costs, respectively, using the FIFO costs are method of process costing? A) $38,250; $4,850 B) $40,000; C) $23,100 $38,400; $4,950 D) $49,500; $38,400 Answer: C Explanation: C) W C T D E T D C first-in, first-out method, spoilage Objective: 4 AACSB: Analytical skills 83) What are and conversion costs of all the units that were initially in the beginning work-in-process inventory and were subsequently the direct shipped? Take into account the costs related to the completion of the conversion of the units during the month. Use the material FIFO method of process costing.? A) $38,250; B) $24,850 $0; $16,500 C) $40,000; D) $21,590 $49,500; $13,600 Answer: B Explanation: B) W C T D E T N A * * N A B D C T first-in, first-out method, spoilage Objective: 4 AACSB: Analytical skills 84) What are all the units that were initially in the beginning work-in-process inventory and were subsequently shipped? Take into the total account the costs related to the completion of the conversion of the units during the month. Use the FIFO method of costs of process costing. A) $194,000 B) $16,500 C) $210,500 D) $ 97,000 Answer: C Explanation: C) W C T D Diff: 3 T * C C A T 4 AACSB: Analytical skills 85) What are the total costs of all the units that were started during February and subsequently shipped before the end of the period? A) $314,280 B) $217,280 C) $318,160 D) $153,500 Answer: B Explanation: B) W C T D E T * * C S = C first-in, first-out method, spoilage Objective: 4 AACSB: Analytical skills 86) Which of following journal entries correctly represents the transfer of completed goods begun during February using the FIFO the method of process costing? A) Finished Goods 470,456.73 B) Work in Process 470,456.73 Loss from Spoilage C) 12,571.04 Finished Goods 12,571.04 Finished Goods 217,280.00 D) Work in Process 217,280.00 Finished Goods Work in Process 314,280.00 Answer: 314,280.00 C Explanation: C) W C T D E T Diff: 3 T A T C S = C C = 3 AACSB: Reflective thinking 87) The standard-costing method: A) adds a layer of complexity to the calculation of equivalent-unit costs in a process-costing environment B) makes C) calculating equivalent-unit costs unnecessary requires an D) analysis of the spoilage costs in beginning inventory requires an analysis of the spoilage costs in ending inventory Answer: B Diff: 2 Terms: standard-costing method, spoilage Objective: 4 AACSB: Reflective thinking 88) The inspection point is the: A) stage of the B) production cycle where products are checked to determine whether they are acceptable or unacceptable units point at which costs are allocated between normal and abnormal spoilage C) point at which the calculation of equivalent units is made D) None of these answers is correct. Answer: A Diff: 2 Terms: inspection point Objective: 4 AACSB: Ethical reasoning 89) When spoiled goods have a disposal value, the net cost of the spoilage is computed by: A) deducting B) disposal value from the costs of the spoiled goods accumulated to the inspection point adding the costs to complete a salable product to the costs accumulated to the inspection point C) calculating the costs incurred to the inspection point D) None of these answers is correct. Answer: A Diff: 2 Terms: spoilage Objective: 4 AACSB: Analytical skills 90) The costs spoilage are allocated to the units in ending work-in-process inventory, in addition to completed units if the units: of normal A) in ending B) inventory have not passed the inspection point in ending work- in-process inventory have passed the inspection point C) in ending work in process inventory are more than 50% complete D) in ending work- in-process inventory are less than 50% complete Answer: B Diff: 3 Terms: inspection point, normal spoilage Objective: 4 AACSB: Analytical skills 91) The Harleysvil le Manufact uring Shop produces motorcycle parts. Typically, 10 pieces out of a job lot of 1,000 parts are spoiled. Costs are assigned at the inspection point, $50.00 per unit. Spoiled pieces may be disposed at $10.00 per unit. The spoiled goods must be inventoried appropriately when the normal spoilage is detected. The current job requires the production of 2,500 good parts. Which of the following journal entries properly reflects the recording of spoiled goods? A) Materials Control Manufacturing Overhead Control 200 Work-in-Process Control B) 800 1,000 Materials Control Manufacturing Overhead Control 250 Work-in-Process Control C) 1,000 1,250 Work-inProcess Control 1,250 D) Materials Control Manufacturing Overhead Control 250 1,000 Manufacturing Materials Control Overhead Work-in-Process Control Control 1,000 Answer: 200 800 B Explanation: B) M Diff: 2 T W 5 AACSB: Reflective thinking 92) The Harleysvil le Manufact uring Shop produces motorcycle parts. Typically, 10 pieces out of a job lot of 1,000 parts are spoiled. Costs are assigned at the inspection point, $50.00 per unit. Spoiled pieces may be disposed at $10.00 per unit. The spoiled goods must be inventoried appropriately when the normal spoilage is detected. Job 101 requires the production of 2,500 good parts. Which of the following journal entries would be correct if the spoilage occurred due to specifications required for Job 101? A) Work-inProcess Control B) 100 Materials Control 100 Materials Control 100 C) Work-in-Process Control 100 Materials Control 250 D) Work-in-Process Control 250 Work-in250 Process Control Materials Control Answer: 250 C Explanation: C) 2 Diff: 2 T 5 AACSB: Reflective thinking 93) A difference between job costing and process costing is that: A) job-costing do not distinguish between normal spoilage attributable to all jobs and normal spoilage attributable to a specific job systems usually B) job-costing C) systems usually distinguish between normal spoilage attributable to a specific job and spoilage common to all jobs process costing normally does not distinguish between normal spoilage attributable to a specific job and spoilage common to all jobs D) Both B and C are correct. Answer: D Diff: 2 Terms: spoilage, normal spoilage Objective: 5 AACSB: Reflective thinking 94) Which of the following entries reflects the original cost assignment before production items are reworked? A) Work-inProcess Control XXX B) Materials Control Wages Payable Control Manufacturing Overhead Allocated XXX XXX XXX Finished Goods Control XXX C) Work-in-Process Control XXX Manufacturing Overhead Allocated XXX D) Materials Control Wages Payable Control Work-in-Process Control XXX XXX XXX Materials Payable Control Control XXX Work-in-Process Control Wages Manufacturing Overhead Allocated Answer: XXX XXX XXX A Diff: 2 Terms: rework Objective: 6 AACSB: Reflective thinking 95) Accountin g for rework in a process-costing system: A) accounts for B) normal rework in the same way as a job-costing system requires C) abnormal rework to be distinguished from normal rework if the rework is normal, then rework is accounted for in the same manner as accounting for normal rework common to all jobs D) All of these answers are correct. Answer: D Diff: 2 Terms: rework Objective: 6 AACSB: Reflective thinking 96) In accounting for scrap, which one of the following statements is FALSE? A) Normal scrap is accounted for separately from abnormal scrap B) In accounting for scrap, there is no distinction between the scrap attributable to a specific job and scrap common to all jobs C) Initial entries to scrap accounting records are most often made in dollar terms D) All of these answers are correct. Answer: D Diff: 3 Terms: scrap Objective: 6 AACSB: Reflective thinking 97) When the amount of scrap is immaterial, the easiest accounting entry when recording scrap sold for cash is: A) Sales of Scrap B) Cash Cash C) Manufacturing Overhead Control Cash D) Sales of Scrap Accounts Receivable Answer: Sales of scrap C Diff: 2 Terms: scrap Objective: 7 AACSB: Reflective thinking 98) Assume the amount of scrap is material and the scrap is sold immediately after it is produced. If the scrap attributable to a specific job is sold on account, the journal entry is: A) Work-inProcess Control B) Cash Work-inProcess Control C) Accounts Receivable Accounts Receivable D) Work-in-Process Control Work-inProcess Control Answer: Accounts Payable C Diff: 3 Terms: scrap Objective: 7 AACSB: Reflective thinking 99) If scrap, to all jobs, is returned to the storeroom and the time between the scrap being inventoried and its disposal is quite lengthy, common the journal entry is: A) Work-inProcess Control B) Materials Control Materials Control C) Work-in-Process Control Manufacturing Control Overhead Materials Control D) Materials Control Answer: Manufacturing Overhead Control D Diff: 3 Terms: scrap Objective: 7 AACSB: Reflective thinking 100) The accounting for scrap under process costing is similar to the accounting under: A) job costing B) when scrap is different for each job job costing C) when scrap is common to all jobs process costing when scrap is different for each job D) process costing when scrap is a common to all jobs Answer: B Diff: 2 Terms: scrap Objective: 7 AACSB: Reflective thinking 101) Which of the following is NOT a major consideration when accounting for scrap? A) keeping detailed records of physical quantities of scrap at all stages of the production process B) inventory C) costing including when and how scrap affects operating income planning and D) control including physical tracking decisions as to whether to group scrap with reworked units Answer: D Diff: 2 Terms: scrap Objective: 7 AACSB: Reflective thinking 102) Normal spoilage is computed on the basis of the number of: A) good units that pass inspection during the current period B) units that pass the inspection point during the current period C) units that are D) 100% complete as to materials None of these answers is correct. Answer: A Diff: 2 Terms: normal spoilage, inspection point Objective: A AACSB: Reflective thinking 103) Which of ECTLY reflects what units passed inspection this period? Assume beginning work in process was completed and ending the work in process was started during the period. following Inspection Point at Completion Level INCORR 10% 50% 100% A) Beginning work in process (30% complete) B) No Yes Yes Started and C) completed Yes Yes Yes Ending work in process (40% complete) D) Yes No No Beginning work in process (5% complete) Answer: Yes No No D Diff: 3 Terms: inspection point Objective: A AACSB: Analytical skills 104) Distinguis h among spoilage, reworked units, and scrap. Give an example of each. Answer: Spoilage refers to unacceptable units of production that are discarded or are sold for reduced prices. Both partially completed or fully completed units of output can be spoiled. Examples are defective clothes sold as seconds. Reworked units are unacceptable units of production that are subsequently repaired and sold as acceptable finished goods. Defective units of product (such as pagers, computer disk drives, computers, and telephones) detected during production or immediately after production but before units are shipped to customers, can sometimes be reworked and sold as good products. Scrap is material left over when making a product. It has low sales value compared with the sales value of the product. Examples are shavings and short lengths from woodworking operations and edges left over from plastic molding operations. Diff: 1 Terms: spoilage, rework, scrap Objective: 1 AACSB: Reflective thinking 105) For each scrap. of the following ________ a. Defective jeans sold as seconds items ________ b. Shavings identify ________ c. Edges from plastic moldings whether it ________ d. Carpets sold as seconds is ________ e. Precision tools that are not built successfully to the necessary tolerance, but which can be successfully spoilage, converted to a saleable product reworked ________ f. Rock extracted as a result of mining processing units, or ________ g. Complex defective products such as semiconductors Answer: a. spoilage b. scrap c. scrap d. spoilage e. spoilage and rework f. scrap g. spoilage (usually too complex to rework) Diff: 2 Terms: spoilage, rework, scrap Objective: 1 AACSB: Ethical reasoning 106) Identify spoilage. the appropriat a. summarize total costs to account for e order of b. assign total costs to units completed, to spoiled units, and to units in ending inventory the c. summarize the flow of physical units following d. compute output in terms of equivalent units steps in e. compute cost per equivalent unit the procedure Step 1________ for Step 2________ process Step 3________ costing Step 4________ with Step 5________ Answer: Step 1 c. summarize the flow of physical units Step 2 d. compute output in terms of equivalent units Step 3 a. summarize total costs to account for Step 4 e. compute cost per equivalent unit Step 5 b. assign total costs to units completed, to spoiled units, and to units in ending inventory Diff: 2 Terms: process costing, spoilage Objective: 1 AACSB: Reflective thinking 107) What are the objectives in accounting for spoilage? Answer: The key objectives in accounting for spoilage are determining the magnitude of the costs of the spoilage and distinguishing between the costs of normal and abnormal spoilage. To effectively manage a company (or a division of a business), a manager needs information concerning how his business is performing. Spoilage is a cost which should be controlled and minimized. The dimensions of the cost must be known (the dollar amount of the spoilage). The accounting system must be capable of determining the dollar amount of the spoilage costs while distinguishing between normal and abnormal spoilage. This information must be reported and available to management on a timely basis. Diff: 2 Terms: spoilage Objective: 1 AACSB: Reflective thinking 108) The Clay Shop manufact ures pottery products. All direct materials are included at the inception of the production process. For April, there was no beginning inventory in the processing plant. Direct materials totaled $310,000 for the month. Work-in-process records revealed that 5,000 tons were started in April and that 3,000 tons were finished; 1,000 tons were spoiled as expected. Ending work-in-process units are complete in respect to direct materials costs. Spoilage is not detected until the process is complete. Required: a. What is the cost per equivalent unit if spoiled units are recognized or ignored? b. What are the costs assigned to completed units when spoilage units are recognized or when they are not recognized? c. What are the costs transferred out if spoilage units are recognized or ignored? d. What are the amounts allocated to the work-in-process ending inventory when spoilage units are recognized or ignored? Answer: a. Recognized Ignored Cost to account for $310,000 $310,000 Divided by equivalent units 5,000 4,000 Cost per equivalent unit $ 62 $ 77.50 b. Assigned to good units completed: (3,000 × $62) $186,000 (3,000 × $77.50) $232,500 c. Transferred out Finished $186,000 $232,500 Normal spoilage (1,000 × $62) 62,000 0 Total $248,000 $232,500 d. Ending work-inprocess inventory: (1,000 × $62) $ 62,000 (1,000 × $77.50) $ 77,500 Diff: 2 Terms: spoilage Objective: 1 AACSB: Analytical skills 109) Endicott n process. For March, there were 1,400 units in beginning inventory with a direct material cost of $700. Direct materials Shoes totaled $15,000 for the month. Work-in-process records revealed that 35,000 units were started in March and that 30,000 manufact were finished. Normal spoilage of 2% of units finished was incurred. Ending work-in-process units are complete in respect ures to direct materials costs. Spoilage is not detected until the process is complete. Endicott uses the weighted-average method. shoes. All direct Required: materials are a. What are the direct materials costs assigned to completed good units when spoilage units are recognized or when they included are ignored? at the inception b. What are the direct material amounts allocated to the work-in-process ending inventory when spoilage units are of the recognized or ignored? productio Answer: a. Equivalent units (spoilage recognized) = 1,400 + 35,000 = 36,400 Equivalent units (spoilage ignored) = 1,400 + 35,000 - (30,000 × 0.02) = 35,800 Recognized Ignored Cost to account for: Beginning work in process $ 700 $ 700 Current period 15,000 15,000 Total costs to account for $15,700 $15,700 Divided by equivalent units 36,400 35,800 Cost per equivalent unit $ 0.431 $ 0.439 Assigned to good units: (29,400 × $0.431) $12,671 (29,400 × $0.439) $12,907 b. Ending work in process: (6,400 × $0.431) $ 2,758 (6,400 × $0.439) $ 2,810 Diff: 3 Terms: spoilage Objective: 2 AACSB: Analytical skills 110) Viking Beginning work in process 20,000 units Sports is a Units started 40,000 units manufact Units completed 50,000 units urer of Ending work in process 8,000 units sportswea Spoilage 2,000 units r. It produces Beginning work-in-process direct materials $12,000 all of its Beginning work-in-process conversion $ 4,000 products Direct materials added during month $60,000 in one Direct manufacturing labor during month $20,000 departme nt. The Beginning work in process was half complete as to conversion. Direct materials are added at the beginning of the process. informati Factory overhead is applied at a rate equal to 50% of direct manufacturing labor. Ending work in process was 60% on for the complete. All spoilage is normal and is detected at end of the process. current month is Required: as follows: Prepare a production cost worksheet if spoilage is recognized and the weighted-average method is used. Answer: PRODUCTION COST WORKSHEET Flow of Production Physical units Direct materials Conversion Work in process, beginning 20,000 Started during period 40,000 To account for 60,000 Good units completed 50,000 50,000 50,000 Normal spoilage 2,000 2,000 2,000 Work in process, ending 8,000 8,000 4,800 Accounted for 60,000 60,000 56,800 Costs Totals Direct Materials Conversion Work in process, beginning $ 16,000 $12,000 $ 4,000 Costs added during period 90,000 60,000 30,000 Total costs to account for 72,000 34,000 Divided by equivalent units 60,000 56,800 Equivalent unit costs $ 1.80 $ 1.20 $ 0.60 Assignment of costs Costs transferred out (50,000 × $1.80) $ 90,000 Normal spoilage (2,000 × $1.80) 3,600 Work in process, ending Direct materials (8,000 × $1.20) 9,600 Conversion (8,000 × $0.60 × 0.60) 2,880 Costs accounted for $106,080 (Differences due to rounding) Diff: 2 Terms: spoilage, weightedaverage method Objective: 2 AACSB: Analytical skills 111) Silver Spoon Beginning work in process 37,500 units Incorporat Units started 55,000 units ed is a Units completed 75,000 units manufact Ending work in process 14,500 units urer of Spoilage 3,000 units kitchen utensils. It Beginning work-in-process direct materials $25,000 produces Beginning work-in-process conversion $ 10,000 all of its Direct materials added during month $113,750 products Direct manufacturing labor during month $40,020 in one departme Beginning work in process was 25% complete as to conversion. Direct materials are added at the beginning of the process. nt. The Factory overhead is applied at a rate equal to 37.5% of direct manufacturing labor. Ending work in process was 60% informati complete. All spoilage is normal and is detected at the end of the process. on for the current Required: month is as Prepare a production cost worksheet if spoilage is recognized and the weighted-average method is used. follows: Answer: PRODUCTION COST WORKSHEET Flow of Production Physical units Direct materials Conversion Work in process, beginning 37,500 Started during period 55,000 To account for 92,500 Good units completed 75,000 75,000 75,000 Normal spoilage 3,000 3,000 3,000 Work in process, ending 14,500 14,500 8,700 Accounted for 92,500 92,500 86,700 Costs Totals Direct Materials Conversion Work in process, beginning $ 35,000 $25,000 $ 10,000 Costs added during period 168,778 113,750 55,028 Total costs to account for 138,750 65,028 Divided by equivalent units 92,500 86,700 Equivalent unit costs $ 2.25 $ 1.50 $ 0.75 Assignment of costs Costs transferred out (75,000 × $2.25) $ 168,750 Normal spoilage (3,000 × $2.25) 6,750 Work in process, ending Direct materials (14,500 × $1.50) 21,750 Conversion (14,500 × $0.75 × 0.60) 6,525 Costs accounted for $203,775 Diff: 2 Terms: spoilage, weightedaverage method Objective: 2 AACSB: Analytical skills 112) New Image Sports uses a processcosting system. For March, the company had the following activities: Beginning work-in-process inventory (1/3 complete) Units placed in production Good units completed Ending work-in-process inventory Cost of beginning work in process Direct material costs, current Conversion costs, current 6,000 units 24,000 units 18,000 units 10,000 units $ 5,000 $18,000 $13,800 Direct materials are placed into production at the beginning of the process. All spoilage is normal and is detected at the end of the process. Ending WIP is 50% completed as to conversion. Required: Prepare a production cost worksheet using the FIFO method. Answer: Normal spoilage = 6,000 + 24,000 18,000 - 10,000 = 2,000 Started and completed = 18,000 - 6,000 = 12,000 PRODUCTION COST WORKSHEET Flow Of Production Physical Units Direct Materials Conversion Work in process, beginning 6,000 Started during period 24,000 To account for 30,000 Good units completed: Beginning work in process 6,000 4,000 Started and completed 12,000 12,000 12,000 Normal spoilage 2,000 2,000 2,000 Work in process, ending 10,000 10,000 5,000 Accounted for 30,000 24,000 23,000 Diff: 3 Terms: normal spoilage, spoilage, first-in, first-out method Objective: 3 AACSB: Analytical skills 113) Weather department was half complete as to conversion and complete as to direct materials. The beginning inventory included Instrumen $12,000 for materials and $4,000 for conversion costs. Overhead is applied at the rate of 50% of direct manufacturing ts labor costs. Ending work-in-process inventory in the assembly department was 40% complete. All spoilage is considered assembles normal and is detected at the end of the process. products from Beginning work in process in the finishing department was 75% complete as to conversion and ending work in process was componen 25% converted. Direct materials are added at the end of the process. Beginning inventories included $16,000 for t parts. It transferred-in costs and $10,000 for direct manufacturing labor costs. Overhead in this department is equal to direct has two manufacturing labor costs. Additional information about the two departments follows: departme nts that Assembly Finishing process Beginning work-in-process units 20,000 24,000 all Units started this period 40,000 ? products. Units transferred this period 50,000 54,000 During Ending work-in-process units 8,000 20,000 January, Material costs added $44,000 $28,000 the Direct manufacturing labor $16,000 $24,000 beginning work in Required: process in the Prepare a production cost worksheet using weighted-average for the assembly department and FIFO for the finishing assembly department. Answer: Normal spoilage in assembly = 20,000 + 40,000 - 50,000 8,000 = 2,000 PRODUCTION COST WORKSHEET Assembly Department Weighted-Average Method Flow of production Physical Units Direct Materials Conversion Work in process, beginning 20,000 Started during period 40,000 To account for 60,000 Good units completed and Transferred out 50,000 50,000 50,000 Normal spoilage 2,000 2,000 2,000 Work in process, ending 8,000 8,000 3,200 Accounted for 60,000 60,000 55,200 Costs Totals Direct materials Conversion Work in process, $187,050 (Differences due to rounding) Diff: 3 Terms: spoilage, normal spoilage, first-in, first-out method Objective: 3 AACSB: Analytical skills 114) Valentine via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is $6: $3.75 for labor, Florists $1.50 for more flowers, and $0.75 for overhead. This ratio of costs holds for the average original order. On a recent day, operate a the shop reworked 48 orders out of 249. The original cost of the 48 orders totaled $720. The average cost of all orders is flower $16.16, including rework, with an average selling price of $30 shop. Because Required: most of their Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to Arrangement orders are Department Overhead Control. Prepare a journal entry to transfer the finished goods to Finished Goods Inventory. Answer: Arrangement Department Overhead Control 288 Materials Control (48 × $1.50) 72 Wages Payable Control (48 × $3.75) 180 Shop Overhead Control (48 × $0.75) 36 Finished Goods 720 Work-inProcess Control 720 Diff: 2 Terms: rework Objective: 6 AACSB: Analytical skills 115) Robotoys most of its orders are via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders Incorporat is $11.30: $4.15 for labor, $5.00 for more materials, and $2.15 for overhead. This ratio of costs holds for the average ed original order. On a recent day, the shop reworked 83 orders out of 700. The original cost of the 83 orders totaled $1,909. manufact The average cost of all orders is $24.34, including rework, with an average selling price of $34.50. ures and distributes Required: small robotic Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to Robo toys. Department Overhead Control. Prepare journal entries to record all relevant rework charges as well as to transfer the Because reworked items finished goods to Finished Goods Inventory. Answer: Robo Department Overhead Control 937.90 Materials Control (83 × $5.00) 415.00 Wages Payable Control (83 × $4.15) 344.45 Shop Overhead Control (83 × $2.15) 178.45 Finished Goods 1,909 Work-inProcess Control 1,909 Diff: 2 Terms: rework Objective: 6 AACSB: Analytical skills 116) Springfiel unusual number of signs were spoiled. The normal spoilage rate is 10% of units started. The point of first inspection is half d Sign way through the process, the second is three-fourths through the process, and the final inspection is at the end of the Shop process. Other information about the job is as follows: manufact ures only Signs started 3,000 specific Signs spoiled 450 orders. It uses a Direct materials put into process at beginning $ 60,000 standard Conversion costs for job $120,000 cost Standard direct material costs per sign $27 system. Standard conversion cost per sign $54 During Average point of spoilage is the 3/4 completion point one large Average current disposal cost per spoiled sign $15 order for the airport Required: authority, an Make necessary journal entries to record all spoilage. Answer: Average cost per sign when spoiled: Direct material cost $27.00 Conversion ($54 × 3/4) 40.50 Total cost per spoiled sign $67.50 Abnormal spoilage = Total spoilage - normal spoilage = 450 - 300 = 150 Materials Control (450 × $15) 6,750 Loss from Abnormal Spoilage (150 × $52.50) 7,875 Manufacturing Overhead Control (300 × $52.50) 15,750 Work-inProcess Control, airport job (450 × $67.50) 30,375 Diff: 3 Terms: spoilage, normal spoilage, standard cost system Objective: A AACSB: Analytical skills 117) Busy Hands Craft Company is a small manufact uring company that specializes in arts and crafts items. It recently bought an old textile mill that it has refurbished to manufacture and dye special cloth to be sold in its craft shops. However, it discovered something new for its accounting system. The company never before had finished goods that did not meet standard, leftover materials from processing runs, or unacceptable outputs. Required: As the business consultant for the company, explain how it can handle the items mentioned. Include any potential problems with the accounting procedures. Answer: First, an explanation of each item is needed. 1. Rework units are those units that are defective but can be reworked and sold as acceptable finished goods. 2. Scrap is leftover material that may have a minimal sales value. Scrap may be either sold, disposed, or reused in another job or processing run. 3. Spoilage is the production outputs that cannot be reworked. These units are discarded or sold for minimal value. The potential problem with these areas is that they may be treated differently by the accountingsystem. The company should establish an acceptable and consistent method of handling each area. A consistent policy also aids the managers who are being evaluated by their department's efforts. Diff: 2 Terms: rework, scrap, spoilage Objective: 1 AACSB: Analytical skills 118) Explain the meaning of the terms spoilage, scrap, and rework. Provide an example of each. Is it possible for a single firm to have all three from a single productive process? Answer: Spoilage is units of production that do not meet the specifications required by customers for good units, and are discarded or sold for reduced prices. An example of spoilage would be a damaged pair of Levi's Jeans sold as a "second." Rework is unacceptable units that are subsequently repaired and sold as acceptable finished goods. An example of rework would be a pair of Jeans that might require some additional trimming before they become acceptable. Scrap is residual material that results from manufacturing a product; it has low retail sales value compared with the total sales value of the product. An example of scrap would be any leftover material from a cutting process that is too small to use in any other clothing. As the above examples indicate, a single productive process might generate, spoilage, scrap, and rework simultaneously. Diff: 2 Terms: spoilage, scrap, rework Objective: 1 AACSB: Reflective thinking 119) You are the chief financial officer of a lumber mill, and you are becoming quite concerned about the spoilage, scrap, and reworked items associated with your production processes. Your firm produces mainly products for the building industry. Required: Discuss the problems associated with these items and the methods your company can use to reduce spoilage, scrap, and reworked items. Answer: The problems associated with these items include: 1. your company pays for the total raw material, not just the portion converted into a salable product; 2. the cost of disposing these unsalable or unused items, both the disposal costs and the costs and problems associated with finding a landfill site or other disposal site; 3. these disposed or unused items can create an eyesore, and attract the wrath of the environmentalists; and 4. developing highvalue added products that can be produced from these various items. The methods your company can use to reduce these items include: 1. calculating the costs of these problems because an accurate assessment of the total costs should certainly provide an incentive to your firm to investigate possible actions; 2. exploring methods of redesigning the production process to minimize these 3. investing in more sophisticated capital equipment that can be designed to reduce these costs. Diff: 3 Terms: rework, scrap, spoilage Objective: 1 AACSB: Analytical skills 120) Harriet very concerned about the accounting for spoilage. It appears that spoilage is accounted for only at the end of the processing has been cycle. While this concept is acceptable in general, Harriet believes that a better method can be found to properly account reviewing for the spoilage when it occurs. She believes that there must be something better than the weighted-average method of the accounting for spoilage. She would like the company to use a method that provides closer tracking of the spoilage with the accountin accounting for the spoilage. g system for her Required: company and she is Discuss the problems Harriet is having with the accounting system. Answer: The main problem Harriet has is that she does not understand the accounting system. The use of weightedaverage or FIFO is not for addressing the problems of spoilage tracking. While the methods differ slightly in the tracking of costs, FIFO keeps beginning inventories separate, and the point of accounting for spoilage is not affected by the accounting method. If the company can account for spoilage at different stages of completion, these stages can be converted into percentage of completion points, and the spoilage can be accounted for as the process completes each stage. Diff: 3 Terms: spoilage, first-in, first-out method Objective: 1 AACSB: Analytical skills 121) Spoilage significant cost for many organizations. Discuss when spoilage might happen and how the costs of normal spoilage get can be a allocated. Answer: Spoilage may occur at various stages of the production process. In general, the cost of spoiled units is equal to the all costs incurred in producing the spoiled units up to the point of inspection. The costs of normal spoilage are allocated to units in ending work-inprocess inventory. The most common approach is to presume that normal spoilage occurs at the inspection point in the production cycle and to allocate its cost over all units that have passed that point during the accounting period. One cost-benefit decision to be made is when to do inspections. Naturally, the earlier the spoilage is caught, the less costly it will be as the conversion costs will be lower in the early stages of production. The costs of performing inspections can be compared to the expected savings from reducing the spoilage costs as part of the determination of when in the process the inspections should happen. Diff: 3 Terms: spoilage, standard costing, inspection points Objective: 1 AACSB: Analytical skills 122) Shazam All machines are made in the same production department and many use exactly the same processes. Because customers Machines have such different demands for the machine characteristics, the company uses a job-costing system. Unfortunately, some produces of the production managers have been upset for the last few months when their jobs were charged with the spoilage that numerous occurred over an entire processing run of several types of machines. Some of the best managers have even threatened to types of quit unless the accounting system is changed. money change Required: machines. What recommendations can you suggest to improve the accounting for spoilage? Answer: Because the manufacturing process uses similar workstations for the products, it may be best to let the spoilage be considered a manufacturing problem rather than a job problem. With this assumption, the spoilage will be spread over the entire production process with each job being charged an appropriate amount of spoilage, thereby relieving some jobs of bearing the entire burden of spoilage just because they were being worked on when the machines or process malfunctioned. Diff: 2 Terms: spoilage Objective: 5 AACSB: Analytical skills 123) When a be reworked, the rework may be classified in three ways. What are those ways, and how does the accounting for each unit has to differ? Answer: The rework may be (1) normal rework attributable to a specific job; (2) normal rework common to all jobs; or (3) abnormal rework. If the rework is attributable to a specific job, then the cost of such rework should be charged to that job. If the rework is common to all jobs, then the cost of the rework should be charged to manufacturing overhead and spread across all jobs. If the rework is abnormal rework then the cost of the rework should be charged as a loss to the period in which the rework is required. Diff: 2 Terms: rework Objective: 6 AACSB: Reflective thinking 124) How can a company account for scrap? Include in your explanation a discussion of the two aspects of accounting for scrap. Answer: Since scrap is a residual material that results from manufacturing a product, it has a low sales value as compared to the actual value of the product. The aspects of accounting for scrap are (1) planning and control of the scrap (which includes the physical tracking), and (2) inventory costing (which includes when and how scrap affects operating income). Regarding the planning and control of the scrap it is important to measure how much scrap is being generated (by weighing or counting the pieces) and then keep records to indicate where the scrap is keeping a log of quantity and location. This will help to develop records that can be used to compare the amount of scrap generated to the expected amount generated based on budgets and units of good product completed. Also, since scrap has a value, it will reduce the likelihood that the scrap gets stolen. In terms of the cost scrap there are two options regarding when the scrap is potentially recognized in the accounting records: (1) at the time the scrap is produced, or (2) at the time the scrap is sold. If the dollar value of the scrap is immaterial, the simplest accounting method is to record the quantity of scrap returned to the storage area and then regard the scrap sales as a separate line item in the income statement. If the scrap is material in value, then it can be recognized at the time of its production and can have journal entries returning it to a materials control asset account (as a debit) and then credited when it later gets sold. Diff: 2 Terms: scrap Objective: 7 AACSB: Reflective thinking 125) For each products that can be sold from the listed scrap. of the following a. The Federal Reserve Banks destroy old money. Burning this money is usually forbidden under the environmental laws (actual of most municipalities. real-world b. A manufacturer of cotton undergarments for prisoners has much cotton left over. The manufacturer is located in a very examples) rural area of Alabama. , develop c. A hog renderer has hog bristles as a result of the slaughtering process. Answer: a. The Federal Reserve Banks bag up the shredded money and sell it in gift shops. This is a very efficient use of the scrap. The purchasers pay a price in excess of what the Federal Reserve would receive from any other source. Other uses might include selling for use as packaging materials. b. The above manufacturer sells the scrap for use in the cleaning of guns. Other uses would include similar cleaning uses or dyeing the cloth and selling it for ornaments. c. The hog bristles can be used in shaving equipment and for bristle brushes. Diff: 2 Terms: scrap Objective: 7 AACSB: Ethical reasoning ...
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