Ch19 Spoilage, Rework & Scrap – Complete Test Bank

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Horngren's Cost Accounting: A Managerial Emphasis, 17e, Global Edition by Datar/Rajan

Chapter 19 Spoilage, Rework, and Scrap

Objective 19.1

1) Which of the following defines spoilage?

A) units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units

B) units of production whether fully or partially completed, that do not meet the specifications required by customers for good units and are discarded or sold at reduced prices

C) residual material that results from manufacturing a product

D) products of a joint production process that have low total sales values relative to the total sales value of the main product

Diff: 2

Objective: 1

AACSB: Analytical thinking

2) Which of the following describes rework?

A) units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units

B) products of a joint production process that have low total sales values relative to the total sales value of the main product

C) units of production whether fully or partially completed, that do not meet the specifications required by customers for good units and are discarded or sold at reduced prices

D) residual material that results from manufacturing a product

Diff: 2

Objective: 1

AACSB: Analytical thinking

3) Rework units are:

A) remanufactured and sold after they are returned from customers

B) repaired and sold units that are first quality items

C) produced from residual materials that were byproducts of a prior processing run

D) units with low or zero sales value but have some utility

Diff: 2

Objective: 1

AACSB: Analytical thinking

4) Which of the following is an example of spoilage?

A) short lengths from woodworking operations that cannot be used to make another product

B) edges from plastic molding operations that result from the main product's manufacturing process but have little or no value

C) defective units of laptops detected after the production process but reworked before the units are sold as good products to customers

D) defective men's button down cotton collar dress shirts that have small pulls in the material and must be sold as discounted "seconds" in the factory store

Diff: 2

Objective: 1

AACSB: Analytical thinking

5) Which of the following best describes scrap?

A) units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units

B) products of a joint production process that have low total sales values relative to the total sales value of the main product

C) residual material that results from manufacturing a product

D) units of production whether fully or partially completed, that do not meet the specifications required by customers for good units and are discarded or sold at reduced prices

Diff: 2

Objective: 1

AACSB: Analytical thinking

6) A leather shoe manufacturer makes "duck" boots that consist of leather and rubber. Some of the books are defective and are sold in the factory store at deep discounts. Leather strips from the cutting process and rubber shavings are byproducts of the process. The leather strips have no use and are discarded while the rubber scraps are collected and periodically picked up by a recycling company at no cost to the shoe manufacturer. Which of the following classifications of these items would be accurate?

A) the defective boots are spoilage and the leather and the rubber are scrap

B) the defective boots, leather and rubber are scrap but the shoes are more valuable scrap as they can be sold

C) the defective boots are spoilage , the leather strips are scrap, and the rubber is rework

D) all three items are spoilage

Diff: 2

Objective: 1

AACSB: Analytical thinking

7) Which of the following is an example of scrap?

A) short lengths from woodworking operations that must be discarded

B) defective units of laptops detected after the production process but reworked before the units are sold as good products to customers

C) defective aluminum cans sold to aluminum manufacturers for remelting to produce other aluminum products

D) defective shirts, jeans, shoes, and carpeting sold as seconds

Diff: 2

Objective: 1

AACSB: Analytical thinking

8) Some amounts of spoilage, rework, or scrap are inherent in many production processes.

Diff: 2

Objective: 1

AACSB: Analytical thinking

9) An item classified as spoilage has no value.

Diff: 2

Objective: 1

AACSB: Analytical thinking

10) Reworked goods are unacceptable units of production usually NOT capable of being repaired or converted into a salable product.

Diff: 2

Objective: 1

AACSB: Analytical thinking

11) Rework is finished production that is NOT in accordance with customer desires. The product is redone and sold as finished goods.

Diff: 2

Objective: 1

AACSB: Analytical thinking

12) Rework is residual material that results from manufacturing a product and can have either a high or low sales value relative to the product with which it is associated.

Diff: 2

Objective: 1

AACSB: Analytical thinking

13) Scrap and rework are considered to be the same thing by managerial accountants.

Diff: 2

Objective: 1

AACSB: Analytical thinking

14) There is no difference between scrap which can be sold for relatively small amount and a byproduct.

Diff: 2

Objective: 1

AACSB: Analytical thinking

15) Distinguish among spoilage, reworked units, and scrap. Give an example of each.

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: 2

Objective: 1

AACSB: Analytical thinking

16) For each of the following items identify whether it is spoilage, reworked units, or scrap.

________ a. Defective shirts sold as seconds

________ b. End cuts from suit-making operations that are discarded

________ c. Edges from plastic moldings that is a low value byproduct

________ d. Carpets sold as seconds in a factory outlet at a deep discount

________ e. Precision tools that are not built successfully to the necessary tolerance,

but which can be successfully converted to a saleable product

________ f. Rock extracted as a result of mining processing

________ g. Complex defective products such as semiconductors

a. spoilage

b. scrap

c. scrap

d. spoilage

e. spoilage and rework

f. scrap

g. spoilage (usually too complex to rework)

Diff: 2

Objective: 1

AACSB: Analytical thinking

Objective 19.2

1) Spoilage that is an inherent result of the particular production process and arises even under efficient operating conditions is referred to as:

A) incremental spoilage

B) normal spoilage

C) irregular spoilage

D) direct spoilage

Diff: 2

Objective: 2

AACSB: Analytical thinking

2) Spoilage that is not inherent in a particular production process and would not arise under efficient operating conditions is referred to as:

A) incremental spoilage

B) usual spoilage

C) abnormal spoilage

D) indirect spoilage

Diff: 2

Objective: 2

AACSB: Analytical thinking

3) Costs of normal spoilage are usually accounted for as:

A) a deduction from the cost of goods sold

B) a component of the costs of good units manufactured

C) a "loss from normal spoilage account" in income statement

D) a liability on a balance sheet

Diff: 2

Objective: 2

AACSB: Analytical thinking

4) Costs of abnormal spoilage are usually accounted for as:

A) a deduction from the cost of goods sold

B) a component of the costs of good units manufactured

C) a separate line item in an income statement

D) an asset on a balance sheet

Diff: 2

Objective: 2

AACSB: Analytical thinking

5) The loss from abnormal spoilage account would appear:

A) on a balance sheet

B) as a detailed item in the retained earnings schedule of a balance sheet

C) a separate line item on an income statement

D) a deduction from the cost of goods sold

Diff: 2

Objective: 2

AACSB: Analytical thinking

6) A company produces 12,000 units of which 200 are spoiled units because the process, even though carefully and efficiently executed is unable to produce good units 100% of the time. Another 70 units are spoiled because machines broke down and there also were operator errors. What is the normal spoilage rate (round to two decimal places)

A) 2.25%

B) 1.71%

C) 1.67%

D) 0.58%

Diff: 2

Objective: 2

AACSB: Analytical thinking

7) Companies that attempt to achieve zero defects in the manufacturing process treat spoilage as:

A) scrap

B) reworked units

C) abnormal spoilage

D) indirect spoilage

Diff: 2

Objective: 2

AACSB: Analytical thinking

8) Which one of the following conditions usually exists when comparing normal and abnormal spoilage to controllability?

A) Normal is Controllable and Abnormal is Controllable

B) Normal is Controllable and Abnormal is Uncontrollable

C) Normal is Uncontrollable and Abnormal is Uncontrollable

D) Normal is Uncontrollable and Abnormal is Controllable

Diff: 2

Objective: 2

AACSB: Analytical thinking

9) Which of the following statements is true of normal spoilage?

A) It is a spoilage which is not inherent in a particular production process.

B) It occurs due to machine breakdowns and operator errors.

C) It is usually regarded as avoidable and controllable.

D) It arises even when the process is carried out in an efficient manner.

Diff: 2

Objective: 2

AACSB: Analytical thinking

10) Which of the following statements is true of an abnormal spoilage?

A) It is a spoilage which is inherent in a particular production process.

B) It arises even when the process is carried out in an efficient manner.

C) It is usually regarded as avoidable and controllable.

D) The costs of abnormal spoilage are typically included as a component of the costs of good units manufactured.

Diff: 2

Objective: 2

AACSB: Analytical thinking

11) Which of the following statements is true of normal spoilage and abnormal spoilage?

A) Normal spoilage is inherent in a particular production process, whereas abnormal spoilage is not inherent in a particular production process.

B) Abnormal spoilage arises even when the process is carried out in an efficient manner, whereas normal spoilage does not arise when the process is carried out in an efficient manner.

C) Normal spoilage is usually regarded as avoidable and controllable, whereas abnormal spoilage is unavoidable and uncontrollable.

D) The costs of normal spoilage are recorded as a loss as a separate line item in an income statement, whereas costs of abnormal spoilage are included as a component of the costs of good units manufactured.

Diff: 2

Objective: 2

AACSB: Analytical thinking

12) Consider the following production information:

What is the total spoilage?

A) 7,000

B) 110

C) 880

D) 1,100

Diff: 2

Objective: 2

AACSB: Analytical thinking

13) Consider the following production information:

What is the amount of abnormal spoilage?

A) 1,300

B) 2,600

C) 680

D) 130

Diff: 2

Objective: 2

AACSB: Analytical thinking

14) The costs of normal spoilage are typically included as a component of the costs of good units manufactured.

Diff: 2

Objective: 2

AACSB: Analytical thinking

15) Abnormal spoilage is spoilage inherent in a particular production process.

Diff: 2

Objective: 2

AACSB: Analytical thinking

16) Abnormal spoilage is spoilage that should arise under efficient operating conditions.

Diff: 1

Objective: 2

AACSB: Analytical thinking

17) Companies calculate the units of abnormal spoilage and record the cost in the Loss from Abnormal Spoilage account, which appears as a separate line item in an income statement.

Diff: 2

Objective: 2

AACSB: Analytical thinking

18) Spoilage can be considered either normal or abnormal.

Diff: 1

Objective: 2

AACSB: Analytical thinking

19) Normal spoilage is spoilage that is NOT considered to be inherent in a production process.

Diff: 1

Objective: 2

AACSB: Analytical thinking

20) Under efficient operating conditions, all spoilage is considered to be abnormal spoilage.

Diff: 1

Objective: 2

AACSB: Analytical thinking

21) Normal spoilage rates are computed by dividing units of normal spoilage by total good units completed, NOT total actual units started in production.

Diff: 2

Objective: 2

AACSB: Analytical thinking

22) Costs of abnormal spoilage are separately accounted for as losses of the period.

Diff: 2

Objective: 2

AACSB: Analytical thinking

23) There is a tradeoff between the speed of production and the normal spoilage rate.

Diff: 2

Objective: 2

AACSB: Analytical thinking

24) Normal spoilage is usually regarded as avoidable and controllable.

Diff: 2

Objective: 2

AACSB: Analytical thinking

25) Units spoiled due to machine breakdowns and operator errors are normal spoilage.

Diff: 2

Objective: 2

AACSB: Analytical thinking

26) Line operators and other plant personnel generally can decrease or eliminate normal spoilage by identifying the reasons for machine breakdowns, operator errors.

Diff: 2

Objective: 2

AACSB: Analytical thinking

27) Costs of abnormal spoilage are considered inventoriable and are written off as a period expense.

Diff: 2

Objective: 2

AACSB: Analytical thinking

28) What are the objectives in accounting for spoilage?

Diff: 2

Objective: 2

AACSB: Analytical thinking

29) What is the distinction between normal and abnormal spoilage?

Diff: 2

Objective: 2

AACSB: Analytical thinking

Objective 19.3

1) Colil 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 of $302,000 were used during the month. Work-in-process records revealed that 14,500 card units were started in January, 7,250 card units were complete, and 6,400 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.

What is the direct material cost per equivalent unit? (Please round the final answer to the nearest cent.)

A) $13.89

B) $20.83

C) $17.06

D) $24.59

Diff: 2

Objective: 3

AACSB: Application of knowledge

2) Colil 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 of $310,000 were used in production during the month. Work-in-process records revealed that 16,000 card units were started in January, 8,000 card units were complete, and 5,600 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.

What is the direct material cost assigned to good units completed? (Please round interim calculations to the nearest cent, and final calculations to the nearest whole dollar.)

A) $155,040

B) $263,830

C) $108,528

D) $263,568

Diff: 3

Objective: 3

AACSB: Analytical thinking

3) Colil 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 of $304,000 were used during the month. Work-in-process records revealed that 14,000 card units were started in January, 7,000 card units were complete, and 4,600 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.

What is the amount allocated to the work-in-process ending inventory? (Round any cost per unit calculations to the nearest cent.)

A) $33,276

B) $42,896

C) $52,104

D) $75,985

Diff: 3

Objective: 3

AACSB: Application of knowledge

4) Outose 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 undetectable materials defects. Inspection occurs when units are 60% converted. Spoiled units generally constitute 5% of the good units. Data for December 2020 are as follows:

Costs for December:

What is the number of total spoiled units?

A) 12,420 units

B) 3,645 units

C) 4,355 units

D) 8,000 units

Diff: 2

Objective: 3

AACSB: Application of knowledge

5) Outose 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 undetectable materials defects. Spoiled units generally constitute 3% of the good units. Data for December 2020 are as follows:

Costs for December:

Normal spoilage totals:

A) 2,403 units

B) 8,100 units

C) 2,160 units

D) 5,940 units

Diff: 2

Objective: 3

AACSB: Application of knowledge

6) Outose 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 undetectable materials defects. Spoiled units generally constitute 4% of the good units. Data for December 2020 are as follows:

Costs for December:

Abnormal spoilage totals:

A) 3,244 units

B) 8,400 units

C) 5,492 units

D) 2,908 units

Diff: 3

Objective: 3

AACSB: Application of knowledge

7) Outose 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 undetectable materials defects. Spoiled units generally constitute 4% of the good units. Data for December 2020 are as follows:

Costs for December:

What is the total cost per equivalent unit using the weighted-average method of process costing? (Round any cost per unit calculations to the nearest cent.)

A) $3.78

B) $3.62

C) $7.78

D) $4.00

Diff: 2

Objective: 3

AACSB: Application of knowledge

8) Outose 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 undetectable materials defects. Spoiled units generally constitute 4% of the good units. Data for December 2020 are as follows:

Costs for December:

What cost is allocated to abnormal spoilage using the weighted-average process-costing method? (Round any cost per unit calculations to the nearest cent.)

A) $ 0

B) $29,768

C) $39,450

D) $77,600

Diff: 3

Objective: 3

AACSB: Application of knowledge

9) Outose 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 undetectable materials defects. Inspection occurs when units are 50% converted. Spoiled units generally constitute 4% of the good units. Data for December 2020 are as follows:

Costs for December:

What is the amount of direct materials and conversion costs assigned to ending work in process using the weighted-average process-costing method? (Round any cost per unit calculations to the nearest cent.)

A) $37,798; $46,056

B) $76,356; $47,174

C) $72,576; $49,631

D) $153,216; $11,397

Diff: 3

Objective: 3

AACSB: Application of knowledge

10) 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 undetectable defects. Inspection occurs when units are 40% converted. Spoiled fillets generally constitute 5% of the good fillets. Data for April 2020 are as follows:

Costs for April:

What is the number of total spoiled units?

A) 45,000 units

B) 72,650 units

C) 5,000 units

D) 10,000 units

Diff: 2

Objective: 3

AACSB: Application of knowledge

11) 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 undetectable defects. Spoiled fillets generally constitute 5% of the good fillets. Data for April 2020 are as follows:

Costs for April:

Normal spoilage totals:

A) 9,300 units

B) 0 units

C) 10,000 units

D) 700 units

Diff: 2

Objective: 3

AACSB: Application of knowledge

12) 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 undetectable defects. Spoiled fillets generally constitute 5% of the good fillets. Data for April 2020 are as follows:

Costs for April:

Abnormal spoilage totals:

A) 5,750 units

B) 0 units

C) 9,250 units

D) 15,000 units

Diff: 3

Objective: 3

AACSB: Application of knowledge

13) 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 undetectable defects. Inspection occurs when units are 40% converted. Spoiled fillets generally constitute 6% of the good fillets. Data for April 2020 are as follows:

Costs for April:

What is the total cost per equivalent unit using the weighted-average method of process costing? (Round any cost per unit calculations to the nearest cent.)

A) $3.77

B) $2.34

C) $1.88

D) $4.22

Diff: 2

Objective: 3

AACSB: Application of knowledge

14) 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 undetectable defects. Inspection occurs when units are 50% converted. Spoiled fillets generally constitute 6% of the good fillets. Data for April 2020 are as follows:

Costs for April:

What cost is allocated to abnormal spoilage using the weighted-average process-costing method? (Round any cost per unit calculations to the nearest cent.)

A) $ 0

B) $30,586

C) $13,881

D) $14,020

Diff: 3

Objective: 3

AACSB: Application of knowledge

15) 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 undetectable defects. Spoiled fillets generally constitute 4% of the good fillets. Data for April 2020 are as follows:

Costs for April:

What is the amount of direct materials and conversion costs assigned to ending work in process using the weighted-average process-costing method? (Round any cost per unit calculations to the nearest cent.)

A) $1,795; $59,015

B) $44,850; $10,718

C) $101,402; $81,610

D) $81,610; $24,824

Diff: 3

Objective: 3

AACSB: Application of knowledge

16) Which of the following is true of the calculation of the cost per good unit (a unit that is completed and transferred out) under the weighted-average process costing method?

A) the equivalent units in the denominator include goods completed and transferred out and all units that were spoiled

B) the numerator only includes the materials and conversion costs of good units and excludes the costs of spoiled units

C) the equivalent units in the denominator include goods completed and transferred out and excludes the units that were spoiled

D) the calculation is total costs transferred out divided by the good units that were transferred out

Diff: 2

Objective: 3

AACSB: Analytical thinking

17) Excluding spoiled units in the equivalent-unit calculation results in:

A) lower cost per good unit.

B) higher cost per good unit

C) better management information

D) higher cost for spoiled units

Diff: 2

Objective: 3

AACSB: Analytical thinking

18) The inspection point is the:

A) stage of the production cycle where products are checked to determine whether they are acceptable or unacceptable units

B) point at which costs are allocated between normal and abnormal spoilage

C) point at which the calculation of equivalent units is made

D) stage of allocating total costs transferred out to good units completed and transferred

Diff: 2

Objective: 3

AACSB: Analytical thinking

19) Under the FIFO method, all spoilage costs are assumed to be related to the units:

A) in beginning inventory, plus the units completed during the period

B) completed during the period, using the unit costs of that period

C) in ending inventory

D) in both beginning and ending inventory plus the units completed during the period

Diff: 2

Objective: 3

AACSB: Analytical thinking

20) Verer 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 undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for March 2020 are as follows:

Costs:

What are the normal and abnormal spoilage units, respectively, for March when using FIFO?

A) 3,216 units; 484 units

B) 1,982 units; 1,404 units

C) 6,399 units; 1,528 units

D) 590 units; 2,028 units

Diff: 3

Objective: 3

AACSB: Application of knowledge

21) Verer 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 undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for March 2020 are as follows:

Costs:

What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing? (Round any cost per unit calculations to the nearest cent.)

A) $146,378; $8,121

B) $4,844; $4,780

C) $4,780; $8,710

D) $10,720; $8,710

Diff: 3

Objective: 3

AACSB: Application of knowledge

22) Verer 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 undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for March 2020 are as follows:

Costs:

What costs are allocated to the ending work-in-process inventory for direct materials and conversion costs, respectively, using the FIFO method of process costing? (Round any cost per unit calculations to the nearest cent.)

A) $36,496; $25,807

B) $28,012; $27,373

C) $27,502; $25,165

D) $25,736; $14,598

Diff: 3

Objective: 3

AACSB: Application of knowledge

23) Consider the following data from the month of June:

What is the total costs of good units completed and transferred out and the work-in-process, ending?

A) $168,000, $180,000

B) $84,000, $180,000

C) $180,000, $84,000

D) $168,000, $96,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

24) Based on the following information from a company's process costing system that is reporting on the month of May's activity in one of its departments, which journal entries would be correct?

A)

Finished Goods $154,000

Work in Process $154,000

Finished Goods $5,000

Loss from Spoilage $5,000

B)

Loss from Spoilage $19,000

Finished Goods $19,000

C)

Finished Goods $154,000

Work in Process $154,000

Loss from Abnormal Spoilage $5,000

Work in process $5,000

D)

Finished Goods $135,000

Work in Process $135,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

25) 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 undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for February 2020 are as follows:

Costs:

What are the normal and abnormal spoilage units, respectively, for February when using FIFO?

A) 2,328 units; 4,180 units

B) 6,828 units; 3,016 units

C) 7,216 units; 7,584 units

D) 7,216 units; 14,800 units

Diff: 3

Objective: 3

AACSB: Application of knowledge

26) 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 undetectable material defects. Spoiled units generally constitute 3% of the good units. Data provided for February 2020 are as follows:

Costs:

What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing? (Round any cost per unit calculations to the nearest cent.)

A) $21,033; $36,779

B) $12,953; $36,779

C) $14,128; $12,953

D) $31,428; $8,080

Diff: 3

Objective: 3

AACSB: Application of knowledge

27) 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 undetectable material defects. Spoiled units generally constitute 5% of the good units. Data provided for February 2020 are as follows:

Costs:

What costs are allocated to the ending work-in-process inventory for direct materials and conversion costs, respectively, using the FIFO method of process costing? (Round any cost per unit calculations to the nearest cent.)

A) $1,922,400; $12,175

B) $55,222; $49,543

C) $64,080; $12,175

D) $40,584; $18,715

Diff: 3

Objective: 3

AACSB: Application of knowledge

28) 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 undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for February 2020 are as follows:

Costs:

What are the direct material and conversion costs of all the units that were initially in the beginning work-in-process inventory and were subsequently shipped? Take into account the costs related to the completion of the conversion of the units during the month. Use the FIFO method of process costing. (Round any cost per unit calculations to the nearest cent.)

A) $79,464; $48,039

B) $0; $47,678

C) $59,598; $41,149

D) $41,272; $15,981

Diff: 3

Objective: 3

AACSB: Application of knowledge

29) 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 undetectable material defects. Spoiled units generally constitute 5% of the good units. Data provided for February 2020 are as follows:

Costs:

What is the total costs of all the units that were initially in the beginning work-in-process inventory and were subsequently shipped? Take into account the costs related to the completion of the conversion of the units during the month. Use the FIFO method of process costing. (Round any cost per unit calculations to the nearest cent.)

A) $35,182

B) $361,200

C) $396,382

D) $197,982

Diff: 3

Objective: 3

AACSB: Application of knowledge

30) 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 undetectable material defects. Spoiled units generally constitute 5% of the good units. Data provided for February 2020 are as follows:

Costs:

What are the total costs of all the units that were started during February and subsequently shipped before the end of the period? (Round any cost per unit calculations to the nearest cent.)

A) $609,180

B) $505,440

C) $560,820

D) $403,200

Diff: 3

Objective: 3

AACSB: Application of knowledge

31) 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 undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for February 2020 are as follows:

Costs:

Which of the following journal entries correctly represents the transfer of completed goods begun during February using the FIFO method of process costing? (Round any cost per unit calculations to the nearest cent.)

A) Finished Goods 501,032

Work in Process 501,032

B) Loss from Spoilage 29,906

Finished Goods 29,906

C) Finished Goods 927,955

Work in Process 927,955

D) Finished Goods 398,868

Work in Process 398,868

Diff: 3

Objective: 3

AACSB: Application of knowledge

32) The first step in the five-step procedure for process costing with spoilage is to compute the output in terms of equivalent units.

Diff: 2

Objective: 3

AACSB: Analytical thinking

33) The last step in the five-step procedure for process costing with spoilage is to summarize total costs to account for.

Diff: 2

Objective: 3

AACSB: Analytical thinking

34) Counting spoiled units as part of output units in a process-costing system usually results in a higher cost per unit.

Diff: 3

Objective: 3

AACSB: Analytical thinking

35) Costs in beginning inventory are pooled with costs in the current period when determining the costs of good units under the weighted-average method of process costing.

Diff: 2

Objective: 3

AACSB: Analytical thinking

36) Under the weighted-average method, the costs of normal spoilage are added to the costs of their related good units. Hence, the cost per good unit completed and transferred out equals the total costs transferred out divided by the number of good units produced.

Diff: 3

Objective: 3

AACSB: Analytical thinking

37) Spoilage is typically assumed to occur at the stage of completion where inspection takes place.

Diff: 2

Objective: 3

AACSB: Analytical thinking

38) Spoilage and rework costs are thoroughly captured in the accounting system.

Diff: 2

Objective: 3

AACSB: Analytical thinking

39) Under the FIFO method, all spoilage costs are assumed to be related to the units completed during this period using the unit costs of the current period.

Diff: 3

Objective: 3

AACSB: Analytical thinking

40) To simplify calculations under FIFO, spoiled units are accounted for as if they were started in the current period.

Diff: 2

Objective: 3

AACSB: Analytical thinking

41) Normal spoilage costs are usually deducted from the costs of good units.

Diff: 2

Objective: 3

AACSB: Analytical thinking

42) Identify the appropriate order of the following steps in the procedure for process costing with spoilage.

a. summarize total costs to account for

b. assign total costs to units completed, to spoiled units, and to units in ending inventory

c. summarize the flow of physical units

d. compute output in terms of equivalent units

e. compute cost per equivalent unit

Step 1 ________

Step 2 ________

Step 3 ________

Step 4 ________

Step 5 ________

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

Objective: 3

AACSB: Analytical thinking

43) Maxire Shoes manufactures shoes. All direct materials are included at the inception of the production process. For March, there were 2,800 units in beginning inventory with a direct material cost of $1,400. Direct materials totaled $35,000 for the month. Work-in-process records revealed that 70,000 units were started in March and that 60,000 were finished. When March ended there were 12,800 units in work-in-process. Normal spoilage of 2% of units finished was incurred. Ending work-in-process units are complete in respect to direct materials costs. Spoilage is not detected until the process is complete. Endicott uses the weighted-average method.

Required:

a. What are the direct materials costs assigned to completed good units?

b. What are the direct material amounts allocated to the work-in-process ending inventory?

a. Equivalent units (spoilage recognized) = 2,800 + 70,000 = 72,800

Cost to account for:

Beginning work in process $ 1,400

Current period 35,000

Total costs to account for $36,400

Divided by equivalent units 72,800

Cost per equivalent unit $ 0.50

Assigned to good units:

(58,800 × $0.50) $29,400

b. Ending work in process:

(12,800 × $0.50) $ 6,400

Diff: 3

Objective: 3

AACSB: Application of knowledge

44) Venosis Sports is a manufacturer of sportswear. It produces all of its products in one department. The information for the current month is as follows:

Beginning work in process 22,000 units

Units started 44,000 units

Units completed 55,000 units

Ending work in process 10,000 units

Spoilage 1,000 units

Beginning work-in-process direct materials $15,000

Beginning work-in-process conversion $ 6,000

Direct materials added during month $70,800

Direct manufacturing labor during month $37,400

Beginning work in process was half complete as to conversion. Direct materials are added at the beginning of the process. Factory overhead is applied at a rate equal to 50% of direct manufacturing labor. Ending work in process was 60% complete. All spoilage is normal and is detected at end of the process.

Required:

Prepare a production cost worksheet if spoilage is recognized and the weighted-average method is used.

Flow of Production Physical units Direct materials Conversion

Work in process, beginning 22,000

Started during period 44,000

To account for 66,000

Good units completed 55,000 55,000 55,000

Normal spoilage 1,000 1,000 1,000

Work in process, ending 10,000 10,000 6,000

Accounted for 66,000 66,000 62,000

Costs Totals Direct Materials Conversion

Work in process, beginning $ 21,000 $15,000 $ 6,000

Costs added during period 108,200 70,800 37,400

Total costs to account for 129,200 85,800 43,400

Divided by equivalent units 66,000 62,000

Equivalent unit costs $ 2.00 $ 1.30 $ 0.70

Assignment of costs

Costs transferred out (55,000 × $2.00) $ 110,000

Normal spoilage (1,000 × $2.00) 2,000

Work in process, ending

Direct materials (10,000 × $1.30) 13,000

Conversion (10,000 × $0.60 × 0.70) 4,200

Costs accounted for $129,200

Diff: 3

Objective: 3

AACSB: Application of knowledge

45) Silver Spoon Incorporated is a manufacturer of kitchen utensils. It produces all of its products in one department. The information for the current month is as follows:

Beginning work in process 40,000 units

Units started 52,000 units

Units completed 73,000 units

Ending work in process 16,000 units

Spoilage 3,000 units

Beginning work-in-process direct materials $30,000

Beginning work-in-process conversion $ 8,000

Direct materials added during month $126,400

Direct manufacturing labor during month $60,480

Beginning work in process was 25% complete as to conversion. Direct materials are added at the beginning of the process. Factory overhead is applied at a rate equal to 40% of direct manufacturing labor. Ending work in process was 60% complete. All spoilage is normal and is detected at the end of the process.

Required:

Prepare a production cost worksheet if spoilage is recognized and the weighted-average method is used.

Flow of Production Physical units Direct materials Conversion

Work in process, beginning 40,000

Started during period 52,000

To account for 92,000

Good units completed 73,000 73,000 73,000

Normal spoilage 3,000 3,000 3,000

Work in process, ending 16,000 16,000 9,600

Accounted for 92,000 92,000 85,600

Costs Totals Direct Materials Conversion

Work in process, beginning $ 38,000 $30,000 $ 8,000

Costs added during period 186,880 126,400 60,480

Total costs to account for 224,880 156,400 68,480

Divided by equivalent units 92,000 85,600

Equivalent unit costs $ 2.50 $ 1.70 $ 0.80

Assignment of costs

Costs transferred out (73,000 × $2.50) $ 182,500

Normal spoilage (3,000 × $2.50) 7,500

Work in process, ending

Direct materials (16,000 × $1.70) 27,200

Conversion (16,000 × $0.75 × 0.80) 7,680

Costs accounted for $224,880

Diff: 3

Objective: 3

AACSB: Application of knowledge

46) New Image Sports uses a process-costing system. For March, the company had the following activities:

Beginning work-in-process inventory (1/3 complete) 7,200 units

Units placed in production 28,800 units

Good units completed 21,600 units

Ending work-in-process inventory 12,000 units

Cost of beginning work in process $ 6,000

Direct material costs, current $21,600

Conversion costs, current $14,400

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 60% completed as to conversion.

Required:

Prepare a production cost worksheet using the FIFO method.

Started and completed = 21,600 - 2,400 = 14,400

PRODUCTION COST WORKSHEET

Flow Of Production Physical Units Direct Materials Conversion

Work in process, beginning 7,200

Started during period 28,800

To account for 36,000

Good units completed:

Beginning work in process 7,200 4,800

Started and completed 14,400 14,400 14,400

Normal spoilage 2,400 2,400 2,400

Work in process, ending 12,000 12,000 7,200

Accounted for 36,000 28,800 28,800

Costs Totals Direct Materials Conversion

Work in process, beginning $ 6,000

Costs added during period 36,000 $21,600 $14,400

Total costs to account for $42,000 $21,600 $14,400

Divided by equivalent units 28,800 28,800

Equivalent-unit costs $ 1.25 $ 0.75 $ 0.50

Assignment of cost:

Work in process, beginning $ 6,000

Completion of beginning (4,800 × $0.50) 2,400

Total beginning inventory 8,400

Started and completed (14,400 × $1.25) 18,000

Normal spoilage (2,400 × $1.25) 3,000

Total costs transferred out 29,400

Work in process, ending

Direct materials (12,000 × $0.75) $9,000

Conversion (12,000 × $0.50 × 0.6) 3,600 12,600

Costs accounted for $42,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

47) Weather Instruments assembles products from component parts. It has two departments that process all products. During January, the beginning work in process in the assembly department was half complete as to conversion and complete as to direct materials. The beginning inventory included $12,000 for materials and $4,000 for conversion costs. Overhead is applied at the rate of 50% of direct manufacturing labor costs. Ending work-in-process inventory in the assembly department was 40% complete. All spoilage is considered normal and is detected at the end of the process.

Assembly Finishing

Beginning work-in-process units 20,000 24,000

Units started this period 40,000 ?

Units transferred this period 50,000 54,000

Ending work-in-process units 8,000 20,000

Material costs added $44,000 $28,000

Direct manufacturing labor $16,000 $24,000

Required:

Prepare a production cost worksheet using weighted-average for the assembly department>

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, beginning $16,000 $12,000 $ 4,000

Costs added during period 68,000 44,000 24,000

Total costs to account for 84,000 56,000 28,000

Divided by equivalent units 60,000 55,200

Equivalent-unit costs $ 1.44 $ 0.93 $ 0.51

Assignment of costs

Transferred out (50,000 × $1.44) $72,000

Normal spoilage (2,000 × $1.44) 2,880

Total costs transferred out 74,880

Work in process, ending

Direct materials (8,000 × $0.93) $7,440

Conversion (8,000 × 0.40 × $0.51) 1,632 9,072

Costs accounted for $83,952

(Differences due to rounding)

Diff: 3

Objective: 3

AACSB: Application of knowledge

48) The Duolane Pottery manufactures 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 $180,000 for the month. Work-in-process records revealed that 3,000 tons were started in April and that 2,100 tons were finished; 500 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?

b. What are the costs assigned to completed units?

c. What are the costs transferred out?

d. What are the amounts allocated to the work-in-process ending inventory?

a.

Cost to account for $180,000

Divided by equivalent units 3,000

Cost per equivalent unit $ 60

b. Assigned to good units completed:

(2,100 × $60) $126,000

c. Transferred out — Finished $126,000

Normal spoilage (500 × $60) 30,000

Total $156,000

d. Ending work-in-process inventory:

(400 × $60) $ 24,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

49) Harriet has been reviewing the accounting system for her company and she is very concerned about the accounting for spoilage. It appears that spoilage is accounted for only at the end of the processing cycle. While this concept is acceptable in general, Harriet believes that a better method can be found to properly account for the spoilage when it occurs. She believes that there must be something better than the weighted-average method of accounting for spoilage. She would like the company to use a method that provides closer tracking of the spoilage with the accounting for the spoilage.

Required:

Discuss the problems Harriet is having with the accounting system.

Diff: 3

Objective: 3

AACSB: Application of knowledge

Objective 19.4

1) When spoiled goods have a disposal value, the net cost of the spoilage is computed by:

A) deducting disposal value from the costs of the spoiled goods accumulated to the inspection point

B) adding the costs to complete a saleable product to the costs accumulated to the inspection point

C) deducting the costs to complete a saleable product from the costs accumulated to the inspection point

D) adding disposal value to the costs of the good units transferred

Diff: 2

Objective: 4

AACSB: Analytical thinking

2) The costs of normal spoilage are allocated to the units in ending work-in-process inventory, in addition to completed units if the units:

A) in ending inventory have not passed the inspection point

B) in ending work-in-process inventory have passed the inspection point

C) in ending work in process inventory are more than 25% complete

D) in ending work-in-process inventory are less than 25% complete

Diff: 3

Objective: 4

AACSB: Analytical thinking

3) 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 in ending work in process

D) units that started during the particular period

Diff: 2

Objective: 4

AACSB: Analytical thinking

4) Assume the following:

WIP, beginning 3,500 units (100% complete as to direct materials, 40% complete as to conversion costs)

Started 10,500 units during the period

Total spoilage is 600 with normal spoilage is calculated to be 450 units

Completed and transferred out during the period 6,000 units

WIP, ending 7,400 units (100% complete as to direct materials, 50% complete as to conversion costs)

Spoiled units 600 and inspection happens when the process is 20% complete

All materials are added at the start of the process

Under the weighted average method, what would be the equivalent units of work done for the period?

A) 11,190

B) 6,000

C) 7,400

D) 9,820

Diff: 3

Objective: 4

AACSB: Analytical thinking

5) Early inspections can:

A) prevent any further conversion costs being wasted on units that are already good

B) increase conversion costs on units that are already spoiled

C) increase any further costs being spent on units that are already spoiled

D) prevent any further costs being wasted on units that are already spoiled

Diff: 3

Objective: 4

AACSB: Analytical thinking

6) Cost of spoiled units equals:

A) all costs incurred in producing them up to the point of delivery

B) all costs incurred in producing them up to the point of inspection

C) all costs incurred in producing them up to the point of selling

D) all costs incurred in producing them up to the point of packaging

Diff: 3

Objective: 4

AACSB: Analytical thinking

7) Which of the following is true of unit costs of normal and abnormal spoilage when they are detected at the same inspection point?

A) Unit cost of normal spoilage is more than unit cost of abnormal spoilage.

B) Unit cost of normal spoilage is equal to unit cost of abnormal spoilage.

C) Unit cost of abnormal spoilage is more than unit cost of normal spoilage.

D) Addition of unit cost of normal spoilage and unit cost of abnormal spoilage is equal to unit cost of good units produced and transferred.

Diff: 2

Objective: 4

AACSB: Analytical thinking

8) Which of the following statement is true of costs of normal and abnormal spoilage?

A) Costs of normal spoilage are shown as an asset in a balance sheet; however, abnormal spoilage costs are shown as liabilities in a balance sheet.

B) Costs of abnormal spoilage are shown as an asset in a balance sheet; however, normal spoilage costs are shown as liabilities in a balance sheet.

C) Costs of abnormal spoilage are separately accounted for as losses of the accounting period in which they are detected.

D) Costs of normal spoilage are separately accounted for as losses of the accounting period in which they are detected.

Diff: 2

Objective: 4

AACSB: Analytical thinking

9) 700 shirts are sold as seconds at $19 per shirt. Cost of spoiled shirts is $500,200. Cost of shirts at inspection point equals $9,500,000. Calculate the net cost of the spoilage.

A) $9,486,700

B) $486,900

C) $513,500

D) $9,513,300

Diff: 2

Objective: 4

AACSB: Analytical thinking

10) In general, it is presumed that normal spoilage occurs halfway between the beginning of the production process and the inspection point in the production cycle. This is because there is no easy way to determine where the spoilage has happened until the inspection has occurred.

Diff: 2

Objective: 4

AACSB: Analytical thinking

11) All accounting systems must assume that the inspection point occurs when a process is 100% complete.

Diff: 2

Objective: 4

AACSB: Analytical thinking

12) The downside to conducting inspections at too early a stage is that units spoiled at later stages of the process may go undetected.

Diff: 2

Objective: 4

AACSB: Analytical thinking

13) Firms often conduct multiple inspections to avoid instances of undetected spoiled units at later stages of the process.

Diff: 2

Objective: 4

AACSB: Analytical thinking

14) 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.

Diff: 2

Objective: 4

AACSB: Analytical thinking

15) Spoilage always occurs at beginning stages of a production process and can be detected only at the end of process.

Diff: 1

Objective: 4

AACSB: Analytical thinking

16) If a company inspects units only at the end of the production process, the units in ending work-in-process inventory are not assigned any costs of normal spoilage.

Diff: 1

Objective: 4

AACSB: Analytical thinking

17) Costs of abnormal spoilage are separately accounted for as losses of the accounting period in which they are detected.

Diff: 1

Objective: 4

AACSB: Analytical thinking

18) The unit costs of normal and abnormal spoilage are the same when the two are detected at the same inspection point.

Diff: 1

Objective: 4

AACSB: Analytical thinking

19) How does inspecting at various stages of completion affect the amount of normal and abnormal spoilage?

Diff: 2

Objective: 4

AACSB: Analytical thinking

20) Why do firms often conduct multiple inspections?

Diff: 2

Objective: 4

AACSB: Analytical thinking

21) What is the advantage and disadvantage of early inspections?

Diff: 2

Objective: 4

AACSB: Analytical thinking

22) Spoilage can be a significant cost for many organizations. Discuss when spoilage might happen and how the costs of normal spoilage get allocated.

Diff: 3

Objective: 4

AACSB: Analytical thinking

Objective 19.5

1) The Peric Manufacturing Shop produces motorcycle parts. Typically, 20 pieces out of a job lot of 1,500 parts are spoiled. Spoilage is considered a normal part of Peric's production process. Costs are assigned at the inspection point, $48.00 per unit. Spoiled pieces may be disposed at $18.00 per unit. The spoiled goods must be inventoried appropriately when the normal spoilage is detected. The current job requires the production of 3,000 good parts.

Which of the following journal entries properly reflects the recording of spoiled goods?

A)

Work-in-Process Control 450

Manufacturing Overhead Control 750

Materials Control 1,200

B)

Materials Control 720

Manufacturing Overhead Control 1,200

Work-in-Process Control 1,920

C)

Work-in-Process Control 1,920

Materials Control 720

Manufacturing Overhead Control 1,200

D)

Manufacturing Overhead Control 750

Materials Control 450

Work-in-Process Control 1,200

Diff: 2

Objective: 5

AACSB: Application of knowledge

2) The Peric Manufacturing Shop produces motorcycle parts. Typically, 18 pieces out of a job lot of 800 parts are spoiled. Costs are assigned at the inspection point, $42.00 per unit. Spoiled pieces may be disposed at $26.00 per unit. The spoiled goods must be inventoried appropriately when the normal spoilage is detected. The current job requires the production of 2,400 good parts.

Which of the following journal entries would be correct if the spoilage occurred due to specifications required for Job 101?

A)

Work-in-Process Control 468

Materials Control 468

B)

Materials Control 468

Work-in-Process Control 468

C)

Materials Control 1,404

Work-in-Process Control 1,404

D)

Work-in-Process Control 1,404

Materials Control 1,404

Diff: 2

Objective: 5

AACSB: Application of knowledge

3) Which of the following is a journal entry to recognize the disposal value?

A)

Materials Control XXX

Work-in-Process Control XXX

Manufacturing Overhead Control XXX

B)

Work-in-Process Control XXX

Manufacturing Overhead Control XXX

Materials Control XXX

C)

Manufacturing Overhead Control XXX

Work-in-Process Control XXX

D)

Materials Control XXX

Work-in-Process Control XXX

Diff: 3

Objective: 5

AACSB: Analytical thinking

4) To recognize the disposal value of normal spoilage:

A) Manufacturing Overhead Control account is debited with spoiled goods at current net disposal value

B) Materials Control account is debited with spoiled goods at current net disposal value

C) Work-in-Process Control account is debited with spoiled goods at current net disposal value

D) Manufacturing Overhead Control account is credited with spoiled goods at current net disposal value

Diff: 3

Objective: 5

AACSB: Analytical thinking

5) Which of the following sentences is true of classification of spoilage as normal or abnormal when inventories are present?

A) Classifying spoilage as normal rather than abnormal results in same current operating income.

B) Classifying spoilage as normal rather than abnormal results in a decrease in current operating income.

C) Classifying spoilage as abnormal rather than normal results in an increase in current operating income.

D) Classifying spoilage as normal rather than abnormal results in an increase in current operating income.

Diff: 3

Objective: 5

AACSB: Analytical thinking

6) Which of the following sentences is true of normal spoilage and abnormal spoilage?

A) Normal spoilage costs are inventoriable and are added to the cost of good units produced, while abnormal spoilage costs are deducted from the cost of good units produced.

B) Abnormal spoilage costs are inventoriable and are deducted from the cost of good units produced, while normal spoilage costs are expensed in the accounting period in which they occur.

C) Abnormal spoilage costs are inventoriable and are added to the cost of good units produced, while normal spoilage costs are expensed in the accounting period in which they occur.

D) Normal spoilage costs are inventoriable and are deducted from the cost of good units produced, while abnormal spoilage costs are expensed in the accounting period in which they occur.

Diff: 3

Objective: 5

AACSB: Analytical thinking

7) How do job-costing systems account for spoilage?

A) Normal spoilage specific to a job and the cost of abnormal spoilage are both allocated as part of manufacturing overhead.

B) Normal spoilage specific to a job is assigned to that job or, when common to all jobs, is allocated as part of manufacturing overhead. The cost of abnormal spoilage is written off as a loss in the accounting period.

C) Normal spoilage and abnormal spoilage are both written off as a loss in the accounting period.

D) Normal spoilage that is common to all jobs is allocated to specific jobs by dividing total normal spoilage by the jobs worked on during the period while abnormal spoilage is allocated to overhead.

Diff: 2

Objective: 5

AACSB: Analytical thinking

8) Costs of abnormal spoilage are NOT considered to be inventoriable costs and are written off as costs of the accounting period in which the abnormal spoilage is detected.

Diff: 2

Objective: 5

AACSB: Analytical thinking

9) When assigning costs, job-costing systems generally distinguish normal spoilage attributable to a specific job from normal spoilage common to all jobs.

Diff: 2

Objective: 5

AACSB: Analytical thinking

10) In job-costing systems, abnormal spoilage costs are considered to be inventoriable costs and normal spoilage costs are not considered to be inventoriable costs and are written off as costs of the accounting period in which the abnormal spoilage is detected.

Diff: 3

Objective: 5

AACSB: Analytical thinking

11) Normal spoilage costs in job-costing systems are treated differently than in process-costing systems.

Diff: 3

Objective: 5

AACSB: Analytical thinking

12) When normal spoilage is common to all jobs, the budgeted manufacturing overhead rate includes a provision for the normal spoilage cost.

Diff: 2

Objective: 5

AACSB: Analytical thinking

13) When inventories are present, classifying spoilage as normal rather than abnormal results in a decrease in current operating income.

Diff: 2

Objective: 5

AACSB: Analytical thinking

14) Shazam Machines produces numerous types of money change machines. All machines are made in the same production department and many use exactly the same processes. Because customers have such different demands for the machine characteristics, the company uses a job-costing system. Unfortunately, some of the production managers have been upset for the last few months when their jobs were charged with the spoilage that occurred over an entire processing run of several types of machines. Some of the best managers have even threatened to quit unless the accounting system is changed.

Required:

What recommendations can you suggest to improve the accounting for spoilage?

Diff: 2

Objective: 5

AACSB: Analytical thinking

15) How do job-costing systems account for spoilage?

Diff: 2

Objective: 5

AACSB: Analytical thinking

Objective 19.6

1) Which of the following entries reflects the original cost assignment to spoiled units before considering rework cost?

A)

Work-in-Process Control XXX

Materials Control XXX

Wages Payable Control XXX

Manufacturing Overhead Allocated XXX

B)

Finished Goods Control XXX

Work-in-Process Control XXX

C)

Manufacturing Overhead Allocated XXX

Materials Control XXX

Wages Payable Control XXX

Work-in-Process Control XXX

D)

Materials Control XXX

Wages Payable Control XXX

Work-in-Process Control XXX

Manufacturing Overhead Allocated XXX

Diff: 2

Objective: 6

AACSB: Analytical thinking

2) Which of the following entries is correct when the costs of the rework is normal and common to all the jobs?

A)

Manufacturing Overhead Control XXX

Materials Control XXX

Wages Payable Control XXX

Manufacturing Overhead Allocated XXX

B)

Work-in-Process Control XXX

Materials Control XXX

Wages Payable Control XXX

Manufacturing Overhead Allocated XXX

C)

Wages Payable Control XXX

Manufacturing Overhead Allocated XXX

D)

Wages Payable Control XXX

Manufacturing Overhead Allocated XXX

Manufacturing Overhead Control XXX

Materials Control XXX

Diff: 2

Objective: 6

AACSB: Analytical thinking

3) If the rework is abnormal:

A) it is debited to Wages Payable Control

B) it is credited to Wages Payable Control

C) it is credited to Loss from Abnormal Rework

D) it is debited to Loss from Abnormal Rework

Diff: 3

Objective: 6

AACSB: Analytical thinking

4) If the rework is normal but occurs because of the requirements of a specific job:

A) the rework cost is spread among all jobs that are in work-in-process

B) the rework costs are charged to that job

C) the rework costs are charged to finished goods

D) the rework costs are charged to cost of goods sold or taken as a loss for the period

Diff: 2

Objective: 6

AACSB: Analytical thinking

5) If it is normal rework common to all jobs, the costs are charged to:

A) manufacturing overhead and spread over all jobs

B) specific jobs that are still in process

C) finished goods

D) cost of goods sold

Diff: 2

Objective: 6

AACSB: Analytical thinking

6) If a company set a standard of zero rework:

A) all rework is treated as abnormal and is written off as a cost of the current period

B) all rework is treated as normal and is written off as a cost of the current period

C) all rework is treated as abnormal and is shown as a liability of the current period

D) all rework is treated as normal and is shown as a liability of the current period

Diff: 3

Objective: 6

AACSB: Analytical thinking

7) When rework is normal and NOT attributable to a specific job, the costs of rework are charged to manufacturing overhead and are spread, through overhead allocation, over all jobs.

Diff: 2

Objective: 6

AACSB: Analytical thinking

8) If the rework is considered abnormal, the costs of the rework are charged to a "Loss from Abnormal Rework" account.

Diff: 2

Objective: 6

AACSB: Analytical thinking

9) Dynalia Florists operate a flower shop. Because most of their orders are via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is $5.25: $3.50 for labor, $1.25 for more flowers, and $0.50 for overhead. This ratio of costs holds for the average original order. On a recent day, the shop reworked 40 orders out of 250. The original cost of the 40 orders totaled $700. The average cost of all orders is $18.34, including rework, with an average selling price of $25.

Required:

Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to Arrangement Department Overhead Control. Prepare a journal entry to transfer the finished goods to Finished Goods Inventory.

Arrangement Department Overhead Control 210

Materials Control (40 × $1.25) 50

Wages Payable Control (40 × $3.50) 140

Shop Overhead Control (40 × $0.50) 20

Finished Goods 700

Work-in-Process Control 700

Diff: 2

Objective: 6

AACSB: Analytical thinking

10) Robolane Incorporated manufactures and distributes small robotic toys. Because most of its orders are via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is $12.45: $5 for labor, $5.15 for more materials, and $2.30 for overhead. This ratio of costs holds for the average original order. On a recent day, the shop reworked 80 orders out of 800. The original cost of the 80 orders totaled $2,000. The average cost of all orders is $26.245, including rework, with an average selling price of $35.

Required:

Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to Robo Department Overhead Control. Prepare journal entries to record all relevant rework charges as well as to transfer the reworked items finished goods to Finished Goods Inventory.

Robo Department Overhead Control 996.00

Materials Control (80 × $5.15) 412.00

Wages Payable Control (80 × $5.00) 400.00

Shop Overhead Control (80 × $2.30) 184.00

Finished Goods 2,000

Work-in-Process Control 2,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

11) When a unit has to be reworked, the rework may be classified in three ways. What are those ways, and how does the accounting for each differ?

Diff: 2

Objective: 6

AACSB: Analytical thinking

12) What are the advantages of costing rework?

Diff: 2

Objective: 6

AACSB: Analytical thinking

Objective 19.7

1) When the amount of scrap is immaterial, which of the following is the easiest accounting entry when recording scrap sold for cash?

A) Sales of Scrap

Cash

B) Manufacturing Overhead Control

Cash

C) Cash

Scrap Revenues

D) Sales of scrap

Accounts Receivable

Diff: 3

Objective: 7

AACSB: Analytical thinking

2) In accounting for scrap, which of the following statements is true?

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) No amount or value of scrap should be entered into the accounting records.

D) Scrap records not only help measure efficiency, but also help keep track of scrap, and so reduce the chances of theft.

Diff: 3

Objective: 7

AACSB: Analytical thinking

3) When the amount of scrap is material and the scrap is sold immediately after it is produced, which of the following is the journal entry if the scrap attributable to a specific job is sold on account?

A) Scrap Revenues

Accounts Payable

B) Work-in-Process Control

Accounts Receivable

C) Accounts Receivable

Work-in-Process Control

D) Work-in-Process Control

Accounts Payable

Diff: 3

Objective: 7

AACSB: Analytical thinking

4) If scrap, common to all jobs, is returned to the storeroom, the journal entry is:

A) Accounts Receivable

Materials Control

B) Materials Control

Work-in-Process Control

C) Work-in-Process Control

Materials Control

D) Materials Control

Manufacturing Overhead Control

Diff: 3

Objective: 7

AACSB: Analytical thinking

5) If scrap is reused as direct material rather than sold as scrap, which of the following would be the proper account?

A) Accounts Receivable is debited at its estimated net realizable value and then credited when the scrap is reused.

B) Materials Control is debited at its estimated net realizable value and then credited when the scrap is

reused.

C) Manufacturing Overhead Control is debited at its estimated net realizable value and then credited when the scrap is reused.

D) Work-in-Process Control is debited at its estimated net realizable value and then credited when the scrap is reused.

Diff: 3

Objective: 7

AACSB: Analytical thinking

6) Which of the following statements is true of scrap?

A) When a production process yields two or more products with high total sales values relative to the total sales values of other products, those are called scrap.

B) For accounting purpose, distinction is made between normal and abnormal scrap.

C) Scrap refers to units of production, fully or partially completed, that do not meet the specifications required by customers for good units and are discarded or sold at reduced prices.

D) Scrap is either sold or disposed of quickly or it is stored for later sale, disposal, or reuse.

Diff: 2

Objective: 7

AACSB: Analytical thinking

7) Job-costing systems sometimes allocate scrap revenues:

A) to increase the revenues earned as a result of specific job

B) only when it is not economically feasible to trace it to the cost of the job

C) only when the scrap can eventually be sold

D) to the jobs that yielded the scrap and only then as a reduction in cost

Diff: 2

Objective: 7

AACSB: Analytical thinking

8) Scrap is usually divided between normal and abnormal scrap.

Diff: 2

Objective: 7

AACSB: Analytical thinking

9) If scrap is returned to the company's storeroom and inventoried, it should NOT have any value in the accounting records.

Diff: 3

Objective: 7

AACSB: Analytical thinking

10) One way of accounting for scrap is to recognize it at the time of sale.

Diff: 2

Objective: 7

AACSB: Analytical thinking

11) Costs are assigned to scrap only if it is abnormal scrap.

Diff: 2

Objective: 7

AACSB: Analytical thinking

12) Scrap is residual material that results from manufacturing a product; it has low total sales value compared with the total sales value of the product.

Diff: 1

Objective: 7

AACSB: Analytical thinking

13) Recognizing the value of scrap in the accounting records is always done at the time the scrap is produced.

Diff: 2

Objective: 7

AACSB: Analytical thinking

14) Busy Hands Craft Company is a small manufacturing 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.

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 accounting system. 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

Objective: 7

AACSB: Analytical thinking

15) 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?

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

Objective: 7

AACSB: Analytical thinking

16) 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.

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 high-value 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 costs; and

3. investing in more sophisticated capital equipment that can be designed to reduce these costs.

Diff: 3

Objective: 7

AACSB: Analytical thinking

17) How can a company account for scrap? Include in your explanation a discussion of the two aspects of accounting for scrap.

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 accounting for the 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

Objective: 7

AACSB: Analytical thinking

18) For each of the following (actual real-world examples), develop products that can be sold from the listed scrap.

a. The Federal Reserve Banks destroy old money. Burning this money is usually forbidden under the environmental laws of most municipalities.

b. A manufacturer of cotton undergarments for prisoners has much cotton left over. The manufacturer is located in a very rural area of Alabama.

c. A hog renderer has hog bristles as a result of the slaughtering process.

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

Objective: 7

AACSB: Analytical thinking

Objective 19.A

1) The standard-costing method:

A) adds a layer of complexity to the calculation of equivalent-unit costs in a process-costing environment

B) makes calculating equivalent-unit costs unnecessary

C) requires an analysis of the spoilage costs in beginning inventory

D) requires an analysis of the spoilage costs in ending inventory

Diff: 2

Objective: A

AACSB: Analytical thinking

2) Under standard costing, there is no need to calculate a cost per equivalent unit.

Diff: 2

Objective: A

AACSB: Analytical thinking

3) Under standard costing, costs are assigned to normal and abnormal spoilage units using actual costs of the units up to the inspection point.

Diff: 2

Objective: A

AACSB: Analytical thinking

4) Springfield Sign Shop manufactures only specific orders. It uses a standard cost system. During one large order for the airport authority, an unusual number of signs were spoiled. The normal spoilage rate is 10% of units started. The point of first inspection is half way through the process, the second is three-fourths through the process, and the final inspection is at the end of the process. Other information about the job is as follows:

Signs started 3,000

Signs spoiled 450

Direct materials put into process at beginning $ 60,000

Conversion costs for job $120,000

Standard direct material costs per sign $27

Standard conversion cost per sign $54

Average point of spoilage is the 3/4 completion point

Average current disposal cost per spoiled sign $15

Required:

Make necessary journal entries to record all spoilage.

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-in-Process Control, airport job (450 × $67.50) 30,375

Diff: 3

Objective: A

AACSB: Application of knowledge