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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:

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.

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:

EASY

71

72

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

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.

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

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:

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.

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:

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.

Which of the following would be considered a discrete loss in a production process?


a.
b.
c.
d.

11.

73

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:

EASY

74

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:

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.

Normal spoilage is
a.
b.
c.
d.

16.

Special Production Issues: Lost Units and Accretion

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:

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

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.

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.

75

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:

EASY

76

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:

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.

Abnormal spoilage is
a.
b.
c.
d.

24.

Special Production Issues: Lost Units and Accretion

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:

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

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.

discrete
no
no
yes
yes

The cost of abnormal discrete units must be assigned to


a.
b.
c.
d.

28.

77

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:

MEDIUM

78

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:

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.

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

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:

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:

EASY

Use the following information for questions 3546.


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.

79

What are equivalent units of production for material using FIFO?


a.
b.
c.
d.

80,000
79,100
78,900
87,500

ANSWER:

MEDIUM

710

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.

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:

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.

What are equivalent units of production for material using weighted average?
a.
b.
c.
d.

38.

Special Production Issues: Lost Units and Accretion

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:

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:

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.

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.

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:

MEDIUM

711

712

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:

DIFFICULT

Use the following for questions 4757.


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.

EASY

Using weighted average, what are equivalent units for conversion costs?
a.
b.
c.
d.

80,600
78,100
83,100
75,600

ANSWER:

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:

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.

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.

EASY

Using FIFO, what are equivalent units for material?


a.
b.
c.
d.

75,000
72,500
84,500
70,000

ANSWER:

EASY

713

714

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:

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.

Using FIFO, what is the cost per equivalent unit for material?
a.
b.
c.
d.

56.

Special Production Issues: Lost Units and Accretion

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:

DIFFICULT

Chapter 7

Special Production Issues: Lost Units and Accretion

715

Use the following information for questions 5865.


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.

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:

MEDIUM

716

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:

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.

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

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:

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:

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 companys AQL represents


a.
b.
c.
d.

67.

717

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:

EASY

718

69.

Chapter 7

The concept of Six Sigma is directly related to


a.
b.
c.
d.

Variation elimination
no
no
yes
yes

ANSWER:
70.

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

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:

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

719

Discuss the accounting treatment of spoilage in a job order costing system.


ANSWER:
If the spoilage is common to all jobs, is normal, and can be estimated, the
net cost is applied to production using a predetermined overhead rate that was set by
including the spoilage estimate in estimated overhead. If spoilage pertains to a particular
job and is normal, the disposal value of the spoiled goods should be removed from that
particular job. If the spoilage is abnormal, the net cost should be charged to a loss account
and credited to the particular Work in Process job that created the spoilage.
MEDIUM

3.

Discuss why units are lost during production.


ANSWER:
In most production processes, losses are anticipated to a certain degree.
Losses may be classified as normal and abnormal depending on managements
expectations. A normal loss is one that is expected, while an abnormal loss is one that
exceeds the normal loss. The losses may result in spoiled or defective units. Spoiled units
cannot be economically reworked; defective units can be. Losses can occur on a
continuous or a discrete basis. Quality control points are established at the end of and/or
within the process to inspect goods and remove from further processing those units that
are either spoiled or defective.
MEDIUM

4.

Discuss how spoilage is treated in EUP computations.


ANSWER:
If spoilage is normal and continuous, the calculations for EUP do not
include this spoilage (method of neglect), and the good units simply absorb the cost of
such spoilage. If spoilage is normal and discrete, the equivalent units are used in the EUP
calculations, and the spoilage cost is assigned to all units that passed through the
inspection point during the current period. If the spoilage is abnormal and either discrete
or continuous, the equivalent units are used in EUP calculations and costed at the cost per
EUP; the total cost is then assigned to a loss account.
MEDIUM

720

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

721

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

722

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

723

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 InventoryJob #12

680

c.

MEDIUM

1,190
680

724

8.

Chapter 7

Special Production Issues: Lost Units and Accretion

I Eat Yogurt Company produces yogurt in two departmentsMixing and Finishing. In


Mixing, all ingredients except fruit are added at the start of production. In Finishing, fruit
is added and then the mixture is placed into containers. Adding the fruit to the basic yogurt
mixture increases the volume transferred in by the number of gallons of fruit added.
Any spoilage that occurs is in the Finishing Department. Spoilage is detected just
before the yogurt is placed into containers or at the 98 percent completion point. All
spoilage is abnormal.
Finishing Department
BWIP (100% fruit, 0% container, 30% CC)
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:

725

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

726

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

727

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

728

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% completeconversion)
Started
Completed
Ending inventory (70% completeconversion)
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

729

ANSWER:
Units Complete
+ Equivalents Ending WIP
+ Abnormal Loss
= Equivalent ProductionWA
= Equivalent Begin WIP
= Equivalent ProductionFIFO

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

730

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

731

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

732

MEDIUM

Chapter 7

Special Production Issues: Lost Units and Accretion

Chapter 7

12.

Special Production Issues: Lost Units and Accretion

733

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.

734

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

735

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 spoilagefound 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.

736

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

737

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.

738

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

739

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.

740

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. WIPWA
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. WIPFIFO
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

741

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.

742

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