CHAPTER 7
SPECIAL PRODUCTION ISSUES: LOST UNITS AND ACCRETION
MULTIPLE CHOICE
1.
Shrinkage should be treated as
a.
b.
c.
d.
defective units.
spoiled units.
miscellaneous expense.
a reduction of overhead.
ANSWER:
2.
not be sold through normal channels of distribution.
be sold through normal channels of distribution.
not be reprocessed to a sufficient quality level.
also be called a spoiled unit.
ANSWER:
b
EASY
A unit that is rejected at a quality control inspection point, but that can be reworked and
sold, is referred to as a
a.
b.
c.
d.
spoiled unit.
scrap unit.
abnormal unit.
defective unit.
ANSWER:
4.
EASY
Economically reworked units may
a.
b.
c.
d.
3.
b
d
EASY
Spoiled units are
a.
b.
c.
d.
units that cannot be economically reworked to bring them up to standard.
units that can be economically reworked to bring them up to standard.
the same as defective units.
considered abnormal losses.
ANSWER:
a
EASY
7–1
7–2
5.
Chapter 7
The cost of abnormal losses (net of disposal costs) should be written off as
a.
b.
c.
d.
Product cost
yes
yes
no
no
ANSWER:
6.
Abnormal loss
yes
yes
no
no
ANSWER:
EASY
d
Normal loss
yes
no
no
yes
EASY
If abnormal spoilage occurs in a job order costing system, has a material dollar value, and
is related to a specific job, the recovery value of the spoiled goods should be
a.
b.
c.
d.
debited to
a scrap inventory account
the specific job in process
a loss account
factory overhead
ANSWER:
8.
c
Period cost
no
yes
yes
no
Which of the following would fall within the range of tolerance for a production cycle?
a.
b.
c.
d.
7.
Special Production Issues: Lost Units and Accretion
a
credited to
the specific job in process
overhead
the specific job in process
sales
MEDIUM
If normal spoilage is detected at an inspection point within the process (rather than at the
end), the cost of that spoilage should be
a.
b.
c.
d.
included with the cost of the units sold during the period.
included with the cost of the units completed in that department during the period.
allocated to ending work in process units and units transferred out based on their
relative values.
allocated to the good units that have passed the inspection point.
ANSWER:
d
MEDIUM
Chapter 7
9.
Special Production Issues: Lost Units and Accretion
A continuous loss
a.
b.
c.
d.
occurs unevenly throughout a process.
never occurs during the production process.
always occurs at the same place in a production process.
occurs evenly throughout the production process.
ANSWER:
10.
c
EASY
The method of neglect handles spoilage that is
a.
b.
c.
d.
discrete and abnormal.
discrete and normal.
continuous and abnormal.
continuous and normal.
ANSWER:
d
MEDIUM
Normal spoilage is defined as unacceptable production that
a.
b.
c.
d.
arises because of a special job or process.
occurs in on-going operations.
is caused specifically by human error.
is in excess of that which is expected.
ANSWER:
13.
EASY
adding the correct ingredients to make a bottle of ketchup
putting the appropriate components together for a stereo
adding the wrong components when assembling a stereo
putting the appropriate pieces for a bike in the box
ANSWER:
12.
d
Which of the following would be considered a discrete loss in a production process?
a.
b.
c.
d.
11.
7–3
b
EASY
When the cost of good units are increased and lost units are not included in an equivalent
unit schedule, these units are considered
a.
b.
c.
d.
normal and discrete.
normal and continuous.
abnormal and discrete.
abnormal and continuous.
ANSWER:
b
EASY
7–4
14.
Chapter 7
The net cost of normal spoilage in a job order costing system in which spoilage is common
to all jobs should be
a.
b.
c.
d.
assigned directly to the jobs that caused the spoilage.
charged to manufacturing overhead during the period of the spoilage.
charged to a loss account during the period of the spoilage.
allocated only to jobs that are completed during the period.
ANSWER:
15.
MEDIUM
written off as a period cost.
never shown in EUP schedules.
treated as a product cost.
both b and c.
ANSWER:
c
EASY
Normal spoilage units resulting from a continuous process
a.
b.
c.
d.
are extended to the EUP schedule.
result in a higher unit cost for the good units produced.
result in a loss being incurred.
cause estimated overhead to increase.
ANSWER:
17.
b
Normal spoilage is
a.
b.
c.
d.
16.
Special Production Issues: Lost Units and Accretion
b
EASY
When normal spoilage is discovered at a discrete inspection point and the degree of
completion of ending work in process has not reached the level of completion of the
inspection point, normal spoilage is handled by
a.
b.
c.
d.
prorating the spoilage cost between units transferred out and units in ending work
in process.
extending the spoiled units to the EUP schedule.
assigning the normal spoilage costs to the units transferred out and those in
beginning inventory.
both b and c.
ANSWER:
d
MEDIUM
Chapter 7
18.
Special Production Issues: Lost Units and Accretion
In a job order costing system, the net cost of normal spoilage is equal to
a.
b.
c.
d.
estimated disposal value plus the cost of spoiled work.
the cost of spoiled work minus estimated spoilage cost.
the units of spoiled work times the predetermined overhead rate.
the cost of spoiled work minus the estimated disposal value.
ANSWER:
19.
Beginning
Inventory
no
yes
no
yes
ANSWER:
MEDIUM
b
Ending
Inventory
yes
yes
no
no
Units Started
& Completed
yes
yes
yes
no
MEDIUM
The cost of normal discrete losses is
a.
b.
c.
d.
absorbed by all units past the inspection point on an equivalent unit basis.
absorbed by all units in ending inventory.
considered a period cost.
written off as a loss on an equivalent unit basis.
ANSWER:
21.
d
Taylor Co. has a production process in which the inspection point is at 65 percent of
conversion. The beginning inventory for July was 35 percent complete and ending
inventory was 80 percent complete. Normal spoilage costs would be assigned to which of
the following groups of units, using FIFO costing?
a.
b.
c.
d.
20.
7–5
a
EASY
When spoilage is discovered at a discrete point in the production process,
a.
b.
c.
d.
equivalent units for the spoilage are shown in the EUP schedule.
its cost, if normal, should be assigned to the units transferred out.
its cost, if abnormal, should be assigned to the good units produced.
both a and c.
ANSWER:
a
EASY
7–6
22.
Chapter 7
When the cost of lost units must be assigned, and those same units must be included in an
equivalent unit schedule, these units are considered
a.
b.
c.
d.
normal and discrete.
normal and continuous.
abnormal and discrete.
abnormal and continuous.
ANSWER:
23.
MEDIUM
spoilage that is forecasted or planned.
spoilage that is in excess of planned.
accounted for as a product cost.
debited to Cost of Goods Sold.
ANSWER:
b
EASY
Which of the following accounts is credited when abnormal spoilage is written off in an
actual cost system?
a.
b.
c.
d.
Miscellaneous Revenue
Loss from Spoilage
Finished Goods
Work in Process
ANSWER:
25.
d
Abnormal spoilage is
a.
b.
c.
d.
24.
Special Production Issues: Lost Units and Accretion
d
EASY
Which of the following types of spoilage cost is considered a product cost?
a.
b.
c.
d.
Abnormal spoilage
yes
yes
no
no
ANSWER:
c
EASY
Normal spoilage
yes
no
yes
no
Chapter 7
26.
Special Production Issues: Lost Units and Accretion
Abnormal spoilage can be
a.
b.
c.
d.
continuous
yes
no
yes
no
ANSWER:
27.
good units
yes
no
yes
no
ANSWER:
EASY
d
lost units
yes
no
no
yes
EASY
The cost of abnormal continuous losses is
a.
b.
c.
d.
considered a product cost.
absorbed by all units in ending inventory and transferred out on an equivalent unit
basis.
written off as a loss on an equivalent unit basis.
absorbed by all units past the inspection point.
ANSWER:
29.
c
discrete
no
no
yes
yes
The cost of abnormal discrete units must be assigned to
a.
b.
c.
d.
28.
7–7
c
EASY
Which of the following statements is false? The cost of rework on defective units, if
a.
b.
c.
d.
abnormal, should be assigned to a loss account.
normal and if actual costs are used, should be assigned to material, labor and
overhead costs of the good production.
normal and if standard costs are used, should be considered when developing the
overhead application rate.
abnormal, should be prorated among WIP, FG, and CGS.
ANSWER:
d
MEDIUM
7–8
30.
Chapter 7
A process that generates continuous defective units
a.
b.
c.
d.
never requires a quality control point.
requires a quality control point at the end of the process.
requires quality control points every time new materials are added to the
production process.
requires quality control points at the beginning of the production process.
ANSWER:
31.
MEDIUM
accretion.
reworked units.
complex procedure.
undetected spoilage.
ANSWER:
a
EASY
When material added in a successor department increases the number of units, the
a.
b.
c.
d.
extra units are treated like spoilage.
unit cost of the transferred-in units is decreased.
costs associated with the extra units are maintained separately for financial
reporting purposes.
unit cost of the transferred-in units is increased.
ANSWER:
33.
b
The addition of material in a successor department that causes an increase in volume is
called
a.
b.
c.
d.
32.
Special Production Issues: Lost Units and Accretion
b
EASY
Which of the following is not a question that needs to be answered in regard to quality
control?
a.
b.
c.
d.
What happens to the spoiled units?
What is the actual cost of spoilage?
How can spoilage be controlled?
Why does spoilage happen?
ANSWER:
a
MEDIUM
Chapter 7
34.
Special Production Issues: Lost Units and Accretion
In regard to spoilage, management should be most concerned with which of the following?
a.
b.
c.
d.
accounting for spoilage
controlling spoilage
planning for spoilage
inspecting spoilage
ANSWER:
b
EASY
Use the following information for questions 35–46.
The following information is available for K Co. for June:
Started this month
Beginning WIP
(40% complete)
Normal spoilage (discrete)
Abnormal spoilage
Ending WIP
(70% complete)
Transferred out
Beginning Work in Process Costs:
Material
Conversion
Current Costs:
Material
Conversion
80,000 units
7,500 units
1,100 units
900 units
13,000 units
72,500 units
$10,400
13,800
$120,000
350,000
All materials are added at the start of production and the inspection point is at the end of the
process.
35.
7–9
What are equivalent units of production for material using FIFO?
a.
b.
c.
d.
80,000
79,100
78,900
87,500
ANSWER:
a
MEDIUM
7–10
36.
Chapter 7
What are equivalent units of production for conversion costs using FIFO?
a.
b.
c.
d.
79,700
79,500
81,100
80,600
ANSWER:
37.
b
EASY
What are equivalent units of production for conversion costs using weighted average?
a.
b.
c.
d.
83,600
82,700
82,500
81,600
ANSWER:
a
EASY
What is cost per equivalent unit for material using FIFO?
a.
b.
c.
d.
$1.63
$1.37
$1.50
$1.56
ANSWER:
40.
MEDIUM
86,600
87,500
86,400
85,500
ANSWER:
39.
d
What are equivalent units of production for material using weighted average?
a.
b.
c.
d.
38.
Special Production Issues: Lost Units and Accretion
c
EASY
What is cost per equivalent unit for conversion costs using FIFO?
a.
b.
c.
d.
$4.00
$4.19
$4.34
$4.38
ANSWER:
c
EASY
Chapter 7
41.
Special Production Issues: Lost Units and Accretion
What is cost per equivalent unit for material using weighted average?
a.
b.
c.
d.
$1.49
$1.63
$1.56
$1.44
ANSWER:
42.
$4.19
$4.41
$4.55
$4.35
ANSWER:
EASY
$75,920
$58,994
$56,420
$53,144
ANSWER:
b
MEDIUM
What is the cost assigned to abnormal spoilage using FIFO?
a.
b.
c.
d.
$1,350
$3,906
$5,256
$6,424
ANSWER:
45.
d
What is the cost assigned to ending inventory using FIFO?
a.
b.
c.
d.
44.
EASY
What is cost per equivalent unit for conversion costs using weighted average?
a.
b.
c.
d.
43.
a
c
MEDIUM
What is the cost assigned to normal spoilage and how is it classified using weighted
average?
a.
b.
c.
d.
$6,193 allocated between WIP and Transferred Out
$6,424 assigned to units Transferred Out
$6,193 assigned to loss account
$6,424 assigned to units Transferred Out
ANSWER:
b
MEDIUM
7–11
7–12
46.
Chapter 7
Special Production Issues: Lost Units and Accretion
What is the total cost assigned to goods transferred out using weighted average?
a.
b.
c.
d.
$435,080
$429,824
$428,656
$423,400
ANSWER:
b
DIFFICULT
Use the following for questions 47–57.
The following information is available for OP Co. for the current year:
Beginning Work in Process
(75% complete)
Started
Ending Work in Process
(60% complete)
Abnormal spoilage
Normal spoilage (continuous)
Transferred out
14,500 units
75,000 units
16,000
2,500
5,000
66,000
units
units
units
units
Costs of Beginning Work in Process:
Material
$25,100
Conversion
50,000
Current Costs:
Material
$120,000
Conversion
300,000
All materials are added at the start of production.
47.
Using weighted average, what are equivalent units for material?
a.
b.
c.
d.
82,000
89,500
84,500
70,000
ANSWER:
48.
c
EASY
Using weighted average, what are equivalent units for conversion costs?
a.
b.
c.
d.
80,600
78,100
83,100
75,600
ANSWER:
b
EASY
Chapter 7
49.
Special Production Issues: Lost Units and Accretion
What is the cost per equivalent unit for material using weighted average?
a.
b.
c.
d.
$1.72
$1.62
$1.77
$2.07
ANSWER:
50.
$4.62
$4.21
$4.48
$4.34
ANSWER:
MEDIUM
$31,000
$15,500
$30,850
none of the above
ANSWER:
d
EASY
Assume that the cost per EUP for material and conversion are $1.75 and $4.55,
respectively. What is the cost assigned to ending Work in Process?
a.
b.
c.
d.
$100,800
$87,430
$103,180
$71,680
ANSWER:
53.
c
What is the cost assigned to normal spoilage using weighted average?
a.
b.
c.
d.
52.
MEDIUM
What is the cost per equivalent unit for conversion costs using weighted average?
a.
b.
c.
d.
51.
a
d
EASY
Using FIFO, what are equivalent units for material?
a.
b.
c.
d.
75,000
72,500
84,500
70,000
ANSWER:
d
EASY
7–13
7–14
54.
Chapter 7
Using FIFO, what are equivalent units for conversion costs?
a.
b.
c.
d.
72,225
67,225
69,725
78,100
ANSWER:
55.
EASY
$1.42
$1.66
$1.71
$1.60
ANSWER:
c
EASY
Using FIFO, what is the cost per equivalent unit for conversion costs?
a.
b.
c.
d.
$4.46
$4.15
$4.30
$3.84
ANSWER:
57.
b
Using FIFO, what is the cost per equivalent unit for material?
a.
b.
c.
d.
56.
Special Production Issues: Lost Units and Accretion
a
EASY
Assume that the FIFO EUP cost for material and conversion are $1.50 and $4.75,
respectively. Using FIFO what is the total cost assigned to the units transferred out?
a.
b.
c.
d.
$414,194
$339,094
$445,444
$396,975
ANSWER:
a
DIFFICULT
Chapter 7
Special Production Issues: Lost Units and Accretion
7–15
Use the following information for questions 58–65.
T Co. has the following information for July:
Units started
Beginning Work in Process: (35% complete)
Normal spoilage (discrete)
Abnormal spoilage
Ending Work in Process: (70% complete)
Transferred out
Beginning Work in Process Costs:
Material
$15,000
Conversion
10,000
100,000
20,000
3,500
5,000
14,500
97,000
units
units
units
units
units
units
All materials are added at the start of the production process. T Co. inspects goods at 75 percent
completion as to conversion.
58.
What are equivalent units of production for material, assuming FIFO?
a.
b.
c.
d.
100,000
96,500
95,000
120,000
ANSWER:
59.
MEDIUM
What are equivalent units of production for conversion costs, assuming FIFO?
a.
b.
c.
d.
108,900
103,900
108,650
106,525
ANSWER:
60.
a
d
MEDIUM
Assume that the costs per EUP for material and conversion are $1.00 and $1.50,
respectively. What is the amount of the period cost for July using FIFO?
a.
b.
c.
d.
$0
$9,375
$10,625
$12,500
ANSWER:
c
MEDIUM
7–16
61.
Chapter 7
Assume that the costs per EUP for material and conversion are $1.00 and $1.50,
respectively. Using FIFO, what is the total cost assigned to the transferred-out units
(rounded to the nearest dollar)?
a.
b.
c.
d.
$245,750
$244,438
$237,000
$224,938
ANSWER:
62.
DIFFICULT
107,000
116,500
120,000
115,000
ANSWER:
c
EASY
What are equivalent units of production for conversion costs assuming weighted average
is used?
a.
b.
c.
d.
113,525
114,400
114,775
115,650
ANSWER:
64.
b
What are equivalent units of production for material assuming weighted average is used?
a.
b.
c.
d.
63.
Special Production Issues: Lost Units and Accretion
a
EASY
Assume that the costs per EUP for material and conversion are $1.00 and $1.50,
respectively. What is the cost assigned to normal spoilage, using weighted average, and
where is it assigned?
a.
b.
c.
d.
Value
$7,437.50
$7,437.50
$8,750.00
$8,750.00
ANSWER:
b
Assigned To
Units transferred out and EI
Units transferred out
Units transferred out and EI
Units transferred out
EASY
Chapter 7
65.
Special Production Issues: Lost Units and Accretion
Assume that the costs per EUP for material and conversion are $1.00 and $1.50,
respectively. Assuming that weighted average is used, what is the cost assigned to ending
inventory?
a.
b.
c.
d.
$29,725.00
$37,162.50
$38,475.00
$36,250.00
ANSWER:
66.
EASY
its minimum tolerance for defects.
its maximum tolerance for defects.
a decision to seek world-class status as a manufacturer.
its automated quality limits.
ANSWER:
b
EASY
World-class companies
a.
b.
c.
d.
believe that “Six-Sigma” is the best AQL to have.
have performed well if their defect percentage is greater than their AQL.
continuously attempt to raise their AQL.
all of the above.
ANSWER:
68.
a
A company’s AQL represents
a.
b.
c.
d.
67.
7–17
c
MEDIUM
Six Sigma translates into a rate of 3.4 defects per
a.
b.
c.
d.
million items processed.
billion items processed.
thousand items processed.
hundred items processed.
ANSWER:
a
EASY
7–18
69.
Chapter 7
The concept of Six Sigma is directly related to
a.
b.
c.
d.
Variation elimination
no
no
yes
yes
ANSWER:
70.
d
JIT Inventory
no
yes
yes
no
MEDIUM
Performing services with zero errors is viewed as a(an)
a.
b.
c.
d.
reasonable goal for all service organizations.
impossible goal for any service organization.
laudable goal for most service organizations.
goal equivalent to achieving Six-Sigma performance.
ANSWER:
71.
Special Production Issues: Lost Units and Accretion
c
MEDIUM
Which of the following would be the most likely cause of an increase in the number of
units in a department?
a.
b.
c.
d.
Bulk packaging
Expansion of material
Heat processing
All of the above
ANSWER:
b
MEDIUM
SHORT ANSWER/PROBLEMS
1.
How is the cost of reworking defective items accounted for?
ANSWER:
Reworked units are also known as defective units. These units can be
reprocessed and sold or sold as is as irregulars. Rework cost is classified as either a
product or period cost. If rework is considered normal and actual costing is used, the cost
is added to current Work in Process and is assigned to all units produced. If rework is
abnormal, the cost is allocated to a loss account for the period.
MEDIUM
Chapter 7
2.
Special Production Issues: Lost Units and Accretion
7–19
Discuss the accounting treatment of spoilage in a job order costing system.
ANSWER:
If the spoilage is common to all jobs, is normal, and can be estimated, the
net cost is applied to production using a predetermined overhead rate that was set by
including the spoilage estimate in estimated overhead. If spoilage pertains to a particular
job and is normal, the disposal value of the spoiled goods should be removed from that
particular job. If the spoilage is abnormal, the net cost should be charged to a loss account
and credited to the particular Work in Process job that created the spoilage.
MEDIUM
3.
Discuss why units are lost during production.
ANSWER:
In most production processes, losses are anticipated to a certain degree.
Losses may be classified as normal and abnormal depending on management’s
expectations. A normal loss is one that is expected, while an abnormal loss is one that
exceeds the normal loss. The losses may result in spoiled or defective units. Spoiled units
cannot be economically reworked; defective units can be. Losses can occur on a
continuous or a discrete basis. Quality control points are established at the end of and/or
within the process to inspect goods and remove from further processing those units that
are either spoiled or defective.
MEDIUM
4.
Discuss how spoilage is treated in EUP computations.
ANSWER:
If spoilage is normal and continuous, the calculations for EUP do not
include this spoilage (method of neglect), and the good units simply absorb the cost of
such spoilage. If spoilage is normal and discrete, the equivalent units are used in the EUP
calculations, and the spoilage cost is assigned to all units that passed through the
inspection point during the current period. If the spoilage is abnormal and either discrete
or continuous, the equivalent units are used in EUP calculations and costed at the cost per
EUP; the total cost is then assigned to a loss account.
MEDIUM
7–20
Chapter 7
Special Production Issues: Lost Units and Accretion
Use this data for questions 5 and 6.
The following information is available for Paas Co. for January 2001. All materials are added at
the start of production.
Beginning Work in Process: (80% complete)
Started
Normal spoilage (continuous)
Abnormal spoilage
Ending Work in Process: (55% complete)
Transferred out
Beginning Work in Process Costs:
Material
$ 14,000
Conversion
45,000
Current Costs:
Material
50,000
Conversion
175,000
Total Costs
$ 284,000
8,000
35,000
6,000
2,500
15,000
19,500
units
units
units
units
units
units
Chapter 7
5.
Special Production Issues: Lost Units and Accretion
7–21
Prepare a cost of production report for January using FIFO.
ANSWER:
BI 8,000 + Started 35,000 = Accountable for 43,000
Paas Co.
Cost Report
January 31, 2001
BWIP
S&C
EWIP
Norm
Abnorm.
Acctd. for
8,000
11,500
15,000
6,000
2,500
43,000
Material
0
11,500
15,000
0
2,500
29,000
Material: $50,000/29,000 = $1.72
Conversion Costs: $175,000/23,850 = $7.34
Cost Assignment:
Ending Work in Process
15,000 × $1.72 =
$ 25,800
8,250 × $7.34 =
60,555
Abnormal Spoilage
2,500 × $9.06 =
Cost Transferred Out
$284,000 – 86,355 – 22,650 =
Total costs accounted for
MEDIUM
$ 86,355
22,650
174,995
$ 284,000
CC
1,600
11,500
8,250
0
2,500
23,850
7–22
6.
Chapter 7
Special Production Issues: Lost Units and Accretion
Prepare the cost of production report assuming weighted average.
ANSWER:
BI 8,000 + Started 35,000 = Accountable for 43,000
Paas Company
Cost Report
January 31, 2001
TO
EWIP
Norm
Abnorm.
Acctd. for
19,500
15,000
6,000
2,500
43,000
Material
19,500
15,000
0
2,500
37,000
Material: $64,000/37,000 = $1.73
Conversion Costs: $220,000/30,250 = $ 7.27
Cost Assignment:
Ending Work in Process
15,000 × $1.73 =
8,250 × $7.27 =
Abnormal Spoilage
2,500 × $9.00 =
$25,950
59,978
Transferred Out
$284,000 – 85,928 – 22,500 =
Total costs accounted for
MEDIUM
$ 85,928
22,500
175,572
$ 284,000
CC
19,500
8,250
0
2,500
30,250
Chapter 7
7.
Special Production Issues: Lost Units and Accretion
7–23
MJ Company manufactures picture frames of all sizes and shapes and uses a job order
costing system. There is always some spoilage in each production run. The following costs
relate to the current run:
Estimated overhead (exclusive of spoilage)
Spoilage (estimated)
Sales value of spoiled frames
Labor hours
$160,000
$ 25,000
$ 11,500
100,000
The actual cost of a spoiled picture frame is $7.00. During the year 170 frames are
considered spoiled. Each spoiled frame can be sold for $4. The spoilage is considered a
part of all jobs.
a.
b.
c.
Labor hours are used to determine the predetermined overhead rate. What is the
predetermined overhead rate per direct labor hour?
Prepare the journal entry needed to record the spoilage.
Prepare the journal entry if the spoilage relates only to Job #12 rather than being a
part of all production runs.
ANSWER:
a.
$160,000 + $25,000 – $11,500 = $173,500
$173,500/100,000 = $1.735 per DLH
b.
Disposal Value of Spoiled Work
Manufacturing Overhead
Work in Process Inventory
680
510
Disposal Value of Spoiled Work
Work in Process Inventory—Job #12
680
c.
MEDIUM
1,190
680
7–24
8.
Chapter 7
Special Production Issues: Lost Units and Accretion
I Eat Yogurt Company produces yogurt in two departments—Mixing and Finishing. In
Mixing, all ingredients except fruit are added at the start of production. In Finishing, fruit
is added and then the mixture is placed into containers. Adding the fruit to the basic yogurt
mixture increases the volume transferred in by the number of gallons of fruit added.
Any spoilage that occurs is in the Finishing Department. Spoilage is detected just
before the yogurt is placed into containers or at the 98 percent completion point. All
spoilage is abnormal.
Finishing Department
BWIP (100% fruit, 0% container, 30% CC)
Gallons transferred in
Gallons of fruit added
EWIP (100% fruit, 0% container, 60% CC)
Gallons transferred out
Abnormal spoilage
BWIP Costs:
Transferred In
Fruit
CC
Current Costs:
Transferred In
Fruit
Containers
CC
Total Costs
$
5,000 gallons
5,500
1,200
1,700 gallons
9,000
1,000
9,700
10,500
15,000
12,400
54,000
11,000
98,000
$ 210,600
Prepare a cost of production report for September 2001. The company uses weighted
average.
Chapter 7
Special Production Issues: Lost Units and Accretion
ANSWER:
7–25
I Eat Yogurt Co.
Cost Report
September 30, 2001
BWIP
Trans. In
Fruit
Acctble. For
5,000
5,500
1,200
11,700
TO
EWIP
AS
TI
9,000
1,700
1,000
11,700
Fruit
9,000
1,700
1,000
11,700
Container
9,000
0
0
9,000
CC
9,000
1,020
980
11,000
TI
$ 9,700
12,400
$22,100
11,700
$1.89
Fruit
$10,500
54,000
$64,500
11,700
$5.51
Container
$
0
11,000
$11,000
9,000
$1.22
CC
$ 15,000
98,000
$113,000
11,000
$10.27
Costs:
BWIP
Current
EUP
Per unit
Cost Assignment:
EWIP
1,700 × $1.89 =
$ 3,213
1,700 × $5.51 =
9,367
1,020 × $10.27 =
10,475
Spoilage
1,000 × $1.89 =
$ 1,890
1,000 × $5.51 =
5,510
980 × $10.27 =
10,065
Transferred Out
$210,600 – 23,055 – 17,465 =
Total accounted for
MEDIUM
$ 23,055
17,465
170,080
$ 210,600
7–26
9.
Chapter 7
Special Production Issues: Lost Units and Accretion
In Dept 1 material is added at the beginning, in Dept 2 material is added at the end.
Normal losses in Department 1 should not exceed 5 percent of the units started; losses are
found at an inspection point located 70 percent of the way through the production
process. The normal loss in Department 2 is 3 percent of the units transferred in; losses
are determined at an inspection point at the end of the production process.
The following production and cost data are available for January 2001.
PRODUCTION RECORDS
(IN UNITS)
Beginning inventory
Started or transferred in
Ending inventory
Spoiled units
Transferred out
Dept. 1
6,000
150,000
18,000
9,000
?
Dept. 2
3,000
?
15,000
6,000
111,000
COST RECORD
Beginning inventory
Preceding department
Material
Conversion
Current period:
Preceding department
Material
Conversion
n/a
$3,000
2,334
$6,690
0
504
n/a
$36,000
208,962
$230,910*
740
52,920
*This is not the amount derived from your calculations. Use this amount so that you do
not carry forward any possible cost errors from Department 1.
The beginning and ending inventory units in Department 1 are, respectively, 10 percent
and 60 percent complete as to conversion. In Department 2, the beginning and ending
units are, respectively, 40 percent and 80 percent complete as to conversion.
Assume spoilage in Department 1 is continuous and discrete in Department 2. Use FIFO
in Department 1 and weighted average in Department 2.
Chapter 7
Special Production Issues: Lost Units and Accretion
7–27
ANSWER:
Complete
+ Equiv End
+ Abn Loss
– Equiv Beg
EP
Department 1
Mat
CC
129,000
129,000
18,000
10,800
1,500
1,050
148,500
140,850
(6,000 )
(600)
142,500
140,250
Unit Cost
+ Norm Loss
EP
Unit Cost
TI
TI
111,000
15,000
2,130
3,870
132,000
Department 2
.
Mat
CC
111,000 111,000
0
12,000
2,130
2,130
3,870
3,870
117,000 129,000
$6,690 + 230,910 = $1.80
132,000
Mat
$36,000 = $0.25
142,500
Mat
$740 = $0.01
117,000
CC
$208,962 = $1.49
140,250
CC
$504 + 52,920 = $0.41
129,000
End WIP
18,000 × $0.25 = $ 4 500
10,800 × $1.49 = 16,092
$20,592
End WIP
15,000 × $1.80 = $27,000
12,000 × $0.41 = 4,920
$31,920
ABN Loss
1,500 × $0.25 =
1,050 × $1.49 =
ABN Loss
2,130 × $2.22 =
$ 375
1,565
$1,940
COGM (Department 1)
$ 250,296 – 20,592 – 1,940 = $ 227,764
DIFFICULT
$4,729
COGM (Department 2)
$291,764 – $31,920 – $4,729 = $255,115
7–28
10.
Chapter 7
Special Production Issues: Lost Units and Accretion
All material is added at the beginning of the process.
Costs
Beginning inventory
Current period
Total costs
Material
$ 30,000
885,120
$915,120
UNITS
Beginning inventory (30% complete—conversion)
Started
Completed
Ending inventory (70% complete—conversion)
Normal spoilage
Conversion
$ 3,600
335,088
$338,688
Total
33,600
1,220,208
$1,253,808
$
6,000
180,000
152,000
20,000
4,800
units
units
units
units
units
Required: Find ending WIP inventory, abnormal loss, and COGM. Assume that, for
conversion costs, abnormal shrinkage is 60 percent.
Chapter 7
Special Production Issues: Lost Units and Accretion
7–29
ANSWER:
Units Complete
+ Equivalents Ending WIP
+ Abnormal Loss
= Equivalent Production—WA
= Equivalent Begin WIP
= Equivalent Production—FIFO
Mat
152,000
20,000
9,200
181,200
(6,000)
175,200
Unit Costs:
WA
Mat
$915,120 = $5.05
181,200
FIFO
Mat
CC
CC
$338,688 = $1.97
171,520
Ending WIP
Material 20,000 × $5.05
CC
14,000 × $1.97
Abnormal Spoilage
Material 9,200 × $5.05
CC
5,520 × $1.97
$101,000
27,580
$128,580
$ 46,460
10,874
$ 57,334
Cost of Good Transferred
$1,253,808 – 128,580 – 57,334 = $1,067,894
MEDIUM
CC
152,000
14,000
5,520 (9,200 × .6)
171,520
(1,800)
169,720
$885,120 = $5.05
175,200
$335,088 = $1.97
169,720
7–30
11.
Chapter 7
Special Production Issues: Lost Units and Accretion
Department 1 uses FIFO costing and Department 2 uses weighted average.
Units are introduced into the process in Department 1 (this is the only material added in
Department 1). Spoilage occurs continuously through the department and normal
spoilage should not exceed 10 percent of the units started.
Department 2 adds material (packaging) at the 75 percent completion point; this material
does not cause an increase in the number of units being processed. A quality control
inspection takes place when the goods are 80 percent complete. Spoilage should not
exceed 5 percent of the units transferred in from Department 1.
The following production cost data are applicable for operations for May 2001:
Department 1 Production Data
Beginning inventory (65% complete)
Units started
Units completed
Units in ending inventory (40% complete)
Department 1 Cost Data
Beginning inventory:
Material
Conversion
Current period:
Material
Conversion
Total costs to account for
Department 2 Production Data
Beginning inventory (90% complete)
Units transferred in
Units completed
Units in ending inventory (20% complete)
Department 2 Cost Data
Beginning inventory:
Transferred in
Material
Conversion
Current period:
Transferred in
Material`
1,000
25,000
22,000
2,800
$1,550
2,300
$3,850
$38,080
78,645
116,725
$120,575
8,000
22,000
24,000
4,500
$40,800
24,000
4,320
$113,700*
53,775
$ 69,120
Chapter 7
Special Production Issues: Lost Units and Accretion
Conversion
Total costs to account for
7–31
11,079
178,554
$247,674
*This may not be the same amount determined for Department 1; ignore any difference
and use this figure.
Required:
a.
Compute the equivalent units of production in each department.
b.
Determine the cost per equivalent unit in each department and compute the cost
transferred out, the cost in ending inventory, and the cost of spoilage (if necessary).
ANSWER:
a.
1
Mat
CC
Mat =
$38,080
23,800
=
$1.60
$78,645
22,470
Complete
+ End WIP
22,000
2,800
24,800
22,000
1,120 (2,800 × 4)
23,120
CC =
=
$3.50
– Beg WIP
(1,000 )
23,800
(650 ) (1,000 × .65)
22,470
End WIP = 2,800 × $1.60 =
= 1,120 × $3.50
$ 4,480
3.920
$ 8,400
COGM = $120,575 – 8,400 = $112,175
b.
2
Complete
+ End WIP
+ Normal
+ Abnormal
TI
Mat
CC
24,000
4,500
1,100
400
30,000
24,000
0
1,100
400
25,500
24,000
900
880
320
26,100
End WIP
4,500 × $5.15
900 × $0.59
$23,175
531
$23,706
COGM = $247,674 – 23,706 – 3,469 = $220,499
Mat =
$ 77,775
25,500
= $3.05
CC =
$ 15,399
26,100
= $0.59
TI =
$154,500
30,000
= $5.15
Abn Loss
400 × $3.05
320 × $0.59
400 × $5.15
$1,220
189
2,060
$3,469
7–32
MEDIUM
Chapter 7
Special Production Issues: Lost Units and Accretion
Chapter 7
12.
Special Production Issues: Lost Units and Accretion
7–33
Consider the following data for a cooking department for the month of January:
Physical
Units
Work in process, beginning inventory*
Started during current period
To account for
Good units completed and transferred out during current period:
From beginning work in process
Started and completed
Good units completed
Spoiled units
Work in process, ending inventory~
Accounted for
11,000
74,000
85,000
11,000
50,000
61,000
8,000
16,000
85,000
*Direct material, 100% complete; conversion costs, 25% complete
~Direct material, 100% complete; conversion costs, 75% complete
Inspection occurs when production is 100 percent completed. Normal spoilage is 11
percent of good units completed and transferred out during the current period.
The following cost data are available:
Work in process, beginning inventory:
Direct material
Conversion costs
Costs added during current period:
Direct material
Conversion costs
Costs to account for
$220,000
30,000
$ 250,000
1,480,000
942,000
$2,672,000
Required: Prepare a detailed cost of production report. Use the FIFO method.
Distinguish between normal and abnormal spoilage.
7–34
Chapter 7
Special Production Issues: Lost Units and Accretion
ANSWER:
Normal Sp = 11% × 61,000 = 6,710 units FIFO
Abnormal Sp = 8,000 – 6,710 = 1,290 units
Mat
Complete
+ End
+ Ab Sp
– Ave
– Beg
FIFO
61,000
16,000
1,290
78,290
(11,000)
67,290
CC
61,000
12,000
1,290
74,290
(2,750 )
71,540
Mat =
$1,480,000
67,290
= $22.00
CC =
$942,000
71,540
= 13.17
$35.17
WIP
Material 16,000 × $22.00
CC
12,000 × $13.17
Loss = 1,290 × $35.17
COGM = $2,672,000 – 510,040 – 45,369 = $2,116,591
MEDIUM
$352,000
158,040
$510,040
45,369
Chapter 7
13.
Special Production Issues: Lost Units and Accretion
7–35
In the Lamination Department, varnish is added when the goods are 60 percent complete
as to overhead. The units that are spoiled during processing are found upon inspection at
the end of production. Spoilage is considered discrete.
Production Data for March 2001
Beginning inventory (80% complete as to labor,
70% complete as to overhead)
Transferred in during month
Ending inventory (40% complete as to labor,
20% complete as to overhead)
Normal spoilage (found during final quality inspection)
1,000 units
7,450 units
1,500 units
100 units
Abnormal spoilage—found at 30% completion of direct labor and
15% of conversion; the sanding machine was misaligned and
scarred the chairs
200 units
All other units were transferred to finished goods
Cost Data for March 2001
Beginning work in process inventory:
Prior department costs
Varnish
Direct labor
Overhead
Current period costs:
Prior department costs
Varnish
Direct labor
Overhead
Total costs to account for
$7,510
950
2,194
5,522
$ 16,176
$68,540
7,015
23,000
56,782
155,337
$171,513
Required: Determine the proper disposition of the March costs for the Laminating
Department using the weighted average method.
7–36
Chapter 7
Special Production Issues: Lost Units and Accretion
ANSWER:
TI
6,650
1,500
100
200
8,450
Complete
+ end
+ normal
+ abnormal
Unit Cost
$76,050 = $9
8,450
End WIP
DL
MOH
TI
Abnormal Loss
DL
MOH
TI
MAT
6,650
0
100
0
6,750
MOH
6,650
300
100
30
7,080
$7,965 = $1.18 $25,194 = $3.40 $62,304 = $8.80
6,750
7,410
7,080
600 × $3.40
300 × $8.80
1,500 × $9.00
= $ 2,040
=
2,640
= 13,500
$18,180
60 × $3.40
30 × $8.80
200 × $9.00
= $ 204
=
264
=
1,800
$ 2,268
COGM = $171,513 – 18,180 – 2,268 = $151,065
MEDIUM
DL
6,650
600
100
60
7,410
Chapter 7
14.
Special Production Issues: Lost Units and Accretion
7–37
Tons of Shad employs a weighted average process costing system for its products. One
product passes through three departments (Molding, Assembly, and Finishing) during
production. The following activity took place in the Finishing Department during March
2001:
Units in beginning inventory
Units transferred in from Assembly
Units spoiled
Good units transferred out
4,200
42,000
2,100
33,600
The costs per equivalent unit of production for each cost failure area as follows:
Cost of prior departments
Raw material
Conversion
Total cost per EUP
$5.00
1.00
3.00
$9.00
Raw material is added at the beginning of the Finishing process without changing the
number of units being processed. Work in process inventory was 40 percent complete as
to conversion on March 31. All spoilage was discovered at final inspection. Of the total
units spoiled, 1,680 were within normal limits.
Required:
a.
Calculate the equivalent units of production
b.
Determine the cost of units transferred out of Finishing
c.
Determine the cost of ending Work in Process Inventory
d.
The portion of the total transferred in cost associated with beginning Work in
Process Inventory amounted to $18,900. What is the current period cost that was
transferred in from Assembly to Finishing?
e.
Determine the cost associated with abnormal spoilage for the month.
7–38
Chapter 7
Special Production Issues: Lost Units and Accretion
ANSWER:
a.
TI
33,600
10,500
1,680
420
46,200
Complete
+ Equiv WIP
+ Normal Sp
+ Abnor Sp
b.
33,600 × $9
1,680 × $9
$302,400
15,120
$317,520
c.
10,500 × $5
10,500 × $1
4,200 × $3
$52,500
10,500
12,600
$75,600
Mat
33,600
10,500
1,680
420
46,200
TC = 46,200 × $5
46,200 × $1
39,900 × $3
COGM = $396,900 – 75,600 – 3,780 = $317,520
d.
$5 = $18,900 + X
46,200
X = $231,000 – 18,900 = $212,100
e.
ABN = 420 × $9 = $3,780
420 × $9 = $3,780
MEDIUM
CC
33,600
4,200
1,680
420
39,900
$231,000
46,200
119,700
$396,900
Chapter 7
15.
Special Production Issues: Lost Units and Accretion
7–39
Department 2 adds new material to the units received from Department 1 at the end of
process. A normal loss occurs early in processing. Production and cost data for
Department 2 for the month of September are as follows:
Production record (in units):
In process, September 1—
75% complete for processing cost
Received from Department 1
Completed and transferred to finished goods
Lost in processing (normal)
In process, September 30—
2/3 complete for process cost
Cost Record:
Work in process inventory, September 1:
Preceding department cost
Processing cost
Cost from preceding department in September
Material cost for September
Processing cost for September
4,000
20,000
16,000
2,000
6,000
$ 620
2,000
$2,620
1,800
4,800
10,200
Required: Determine the following for Department 2 under (a) weighted average the
method of costing and (b) the FIFO method of costing: (1) unit costs for each cost
component, (2) cost of production transferred to finished goods, (3) cost of work in
process inventory of September 30.
7–40
Chapter 7
Special Production Issues: Lost Units and Accretion
ANSWER:
Equivalent production
Units complete
+ Equiv. ending WIP
= Equiv. prod. average
– Equiv. begin. WIP
= Equiv. prod. FIFO
Unit Cost Average
TI = $620 + 1,800
22,000
Mat = $4,800
16,000
CC = $2,000 + 10,200
20,000
End. WIP—WA
PD 6,000 × $0.11 =
CC 4,000 × $0.61 =
TI
16,000
6,000
22,000
(4,000 )
18,000
Material
16,000
0
16,000
0
16,000
Conv. cost
16,000
4,000
20,000
(3,000 )
17,000
= $0.11
Unit Cost FIFO
TI = $1,800
18,000
= $0.10
= $0.30
Mat = $4,800
16,000
= $0.30
= $0.61
CC = $10,200
17,000
= $0.60
$ 660.00
2,440.00
$3,100.00
End. WIP—FIFO
6,000 × $0.10 =
$ 600.00
4,000 × $0.60 =
2,400.00
$3,000.00
Cost of Goods Complete
WA
$19,420 – 3,100 =
MEDIUM
$16,320.00
FIFO
$19,420 – 3,000 = $16,420.00
Chapter 7
16.
Special Production Issues: Lost Units and Accretion
7–41
The formula for a chemical compound requires one pound of Chemical X and one pound
of Chemical Y. In the simplest sense, one pound of Chemical X is processed in
Department A and transferred to Department B for further processing where one pound of
Chemical Y is added when the process is 50 percent complete. When the processing is
complete in Department B, the finished compound is transferred to finished goods. The
process is continuous, operating 24 hours a day.
Normal spoilage occurs in Department A. Five percent of material is lost in the first
few seconds of processing. No spoilage occurs in Department B.
The following data are available for the month of October 2001:
Units in process, October 1
Stage of completion of beginning inventory
Units started or transferred in
Units transferred out
Units in process, October 31
Stage of completion of ending inventory
Units of Chemical Y added in Department B
Dept. A
8,000
3/4
50,000
46,500
?
1/3
Dept. B
10,000
3/10
?
?
?
1/5
44,500
Required:
a.
Prepare a schedule showing finished equivalents for Chemical X and for
conversion cost for Department A using the FIFO method.
b.
Determine for Department B the number of units of good product completed
during October and the number of units in process on October 31.
c.
Prepare a schedule for Department B showing finished equivalents for preceding
department cost, cost of Chemical Y, and conversion cost using the FIFO method.
7–42
Chapter 7
Special Production Issues: Lost Units and Accretion
ANSWER:
a.
c.
Mat
46,500
9,000
(8,000)
47,500
b.
CC
46,500
3,000
(6,000 )
43,500
PD
44,500
12,000
(10,000 )
46,500
Mat
44,500
0
0
44,500
CC
44,500
2,400
(3,000 )
43,900
Since the material in the second department goes in at the 50 percent point and the ending
WIP inventory is only at the 20 percent point, units complete is the same as the
equivalents of material 44,500, given that units started plus units in beginning WIP are
equal to units complete plus ending WIP 10,000 + 46,500 – 44,500 = 12,000 units in
ending WIP.
MEDIUM