Test bank cost accounting 14e by carter ch07

Spoilage occurs as a result of normal production shrinkage in a process cost system.. There was no beginning inventory, and lost units were a result of normal production shrinkage.. Of t

THE COST OF QUALITY AND ACCOUNTING FOR PRODUCTION LOSSES

MULTIPLE CHOICE

Question Nos 16, 17, 22, and 23 are AICPA adapted

Question No 24 is CIA adapted

A 1 The quality costs that are associated with materials and products that fail to

meet quality standards and result in manufacturing losses are known as:

A internal failure costs

B external failure costs

C prevention costs

D appraisal costs

E none of the above

D 2 The quality costs that are associated with designing, implementing, and

maintaining the quality system are known as:

A appraisal costs

B internal failure costs

C external failure costs

D prevention costs

E none of the above

C 3 The quality costs that are incurred to ensure that materials and products meet

quality standards are known as:

A external failure costs

B prevention costs

C appraisal costs

D internal failure costs

E none of the above

B 4 The quality costs that are incurred because inferior quality products are shipped

to customers are known as:

A internal failure costs

B external failure costs

C prevention costs

D appraisal costs

E none of the above

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D 5 All of the following are characteristics of total quality management except:

A the company's objective for all business activity is to serve its customers

B top management provides an active leadership role in quality improvement

C all employees are actively involved in quality improvement

D the company maintains a loosely defined system of identifying quality problems so as not to stifle employee creativity

E the company provides continuous training as well as recognition for

achievement

A 6 The best approach to quality improvement is to concentrate on:

A prevention

B detection

C appraisal

D increased production

E none of the above

C 7 A mathematical technique used to monitor production quality and reduce

product variability is:

A the method of least squares

B the statistical scattergraph method

C statistical process control

D linear programming

E none of the above

D 8 Appraisal costs include all of the following except:

A inspecting and testing materials

B inspecting products during and after production

C obtaining information from customers about product satisfaction

D designing quality into the product and the production process

E all of the above

B 9 Internal failure costs include all of the following except:

A the cost of the scrap

B the cost of warranty repairs and replacements

C rework

D downtime due to machine failures

E all of the above

E 10 All of the following accounts would be acceptable ones to credit at the time scrap

is sold except:

A Scrap Sales

B Cost of Goods Sold

C Factory Overhead Control

D Work in Process

E all of the above would be acceptable

C 11 Scrap includes all of the following except:

A the trimmings remaining after processing materials

B defective materials that cannot be used or returned to the vendor

C partially or fully completed units that are in some way defective

D broken parts resulting from employee or machine failures

E all of the above

A 12 When spoilage occurs because of some action taken by the customer, the

unrecoverable cost of the spoilage should be charged to:

A Work in Process

B Spoiled Goods Inventory

C Factory Overhead Control

D Applied Factory Overhead

E none of the above

C 13 When spoilage occurs because of some internal failure, the unrecoverable cost

should be charged to:

A Work in Process

B Spoiled Goods Inventory

C Factory Overhead Control

D Applied Factory Overhead

E none of the above

A 14 When rework occurs because of some action taken by the customer, the cost of

the rework should be charged to:

A Work in Process

B Spoiled Goods Inventory

C Factory Overhead Control

D Applied Factory Overhead

E none of the above

C 15 When rework occurs because of some internal failure, the cost of the rework

should be charged to:

A Work in Process

B Spoiled Goods Inventory

C Factory Overhead Control

D Applied Factory Overhead

E none of the above

C 16 Newman Company's Job 1865 for the manufacture of 2,200 coats was completed

during August at the unit costs presented below Due to an internal failure in the production process, 200 coats were found to be spoiled during final inspection that were sold to a jobber for $6,000

Direct materials $20

Direct labor 18

Factory overhead 18

$56 What would be the unit cost of good coats produced on Job 1865?

A $57.00

B $55.00

C $56.00

D $58.00

E none of the above

SUPPORTING CALCULATION: $20 + $18 + $18 = $56

A 17 During March, Vaughan Company incurred the following costs on Job 009 for the

manufacture of 200 motors:

Original cost accumulation:

Direct materials $ 660 Direct labor 800 Factory overhead (150% of direct labor) 1,200

$ 2,660 Direct costs of reworking 10 units:

Direct materials $100 Direct labor 160 $260 The rework costs were attributable to the exacting specifications of the customer What is the cost per finished unit of Job 009?

A $15.80

B $14.60

C $14.00

D $13.30

E none of the above

SUPPORTING CALCULATION:

$2,660 + $260 + (150% x $160) = $3,160  200 = $15.80

C 18 Spoilage occurs as a result of an internal failure in a process cost system Using

average costing, the number of equivalent units that production costs should be charged to would be based upon:

A spoiled units

B units transferred out and spoiled units

C units transferred out, spoiled units, and units in ending inventory

D units transferred out and units in ending inventory

E none of the above

D 19 Spoilage occurs as a result of normal production shrinkage in a process cost

system Using average costing, the number of equivalent units that production costs should be charged to would be based upon:

A spoiled units

B units transferred out and spoiled units

C units transferred out, spoiled units, and units in ending inventory

D units transferred out and units in ending inventory

E none of the above

C 20 In a process cost system, the cost of spoilage due to an internal production

failure should be recorded as:

A dr Work in Process; cr Finished Goods

B dr Work in Process; cr Factory Overhead Control

C dr Factory Overhead Control; cr Work in Process

D dr Materials; cr Factory Overhead

E dr Finished Goods; cr Work in Process

B 21 Gyro Products transferred 10,000 units to one department An additional 3,000

units of materials were added in the department At the end of the month, 7,000 units were transferred to finished goods; while 4,000 units remained in work in process inventory There was no beginning inventory, and lost units were a result of normal production shrinkage The production costs for the period in this department would be effectively allocated over:

A 12,000 units

B 11,000 units

C 10,000 units

D 7,000 units

E 13,000 units

SUPPORTING CALCULATION: 7,000 + 4,000 = 11,000

B 22 In manufacturing its products for the month of March, Leo Co incurred normal

production shrinkage of $10,000 and spoilage due to internal failure of $12,000 How much spoilage cost should Leo charge to Factory Overhead Control for the month of March?

A $22,000

B $12,000

C $10,000

D $0

E none of the above

C 23 Willis, Inc instituted a new process in October During October, 10,000 units

were started in Department A Of the units started, 1,000 were lost in the

process due to normal production shrinkage, 7,000 were transferred to

Department B, and 2,000 remained in work in process at October 31 The work

in process at October 31 was 100% complete as to materials costs and 50% complete as to conversion costs Materials costs of $27,000 and conversion costs of $40,000 were charged to Department A in October What were the total costs transferred to Department B?

A $46,900

B $53,600

C $56,000

D $57,120

E none of the above

SUPPORTING CALCULATION:

Materials: $27,000  (7,000 + 2,000) = $3

Conversion: $40,000  (7,000 + 1,000) = $5

Transferred costs: 7,000 x $8 = $56,000

D 24 A company that manufactures baseballs begins operations on January 1 Each

baseball requires three elements: a hard plastic core, several yards of twine that are wrapped around the plastic core, and a piece of leather to cover the

baseball The plastic core is started down a conveyor belt and is automatically wrapped with the twine to the approximate size of the baseball, at which time the leather cover is sewn to the wrapped twine Finished baseballs are

inspected, and the ones that are defective due to internal production failure are pulled out Defective baseballs cannot be economically salvaged and are

destroyed Cost and production reports for the first week of operations are: Raw material cost $ 840 Conversion cost 315 $ 1,155 During the week, 2,100 baseballs were completed; 2,000 passed inspection There was no ending work in process The cost of the spoilage charged to

Factory Overhead is:

A $33

B $22

C $1,100

D $55

E none of the above

SUPPORTING CALCULATION:

Materials: $840  (2,000 + 100) = $.40

Conversion: $315  (2,000 + 100) = $.15

Spoilage: 100 x $.55 = $55

A 25 In a process cost system, the cost of rework usually is debited to:

A Factory Overhead Control

B Applied Factory Overhead

C Spoiled Goods Inventory

D Work in Process

E none of the above

The following questions are based on the Appendix to the chapter:

D 26 If spoilage occurs as a result of an internal failure in a process cost system, using

fifo costing, the number of equivalent units that production costs should be charged to would be based upon:

A spoiled units

B units transferred out and spoiled units

C units transferred out, beginning inventory, and units in ending inventory

D units transferred out, spoiled units, units in ending inventory, and units in beginning inventory

E none of the above

C 27 If spoilage occurs as a result of normal production shrinkage in a process cost

system, using fifo costing, the number of equivalent units that production costs should be charged to would be based on:

A spoiled units

B units transferred out and spoiled units

C units transferred out, beginning inventory, and units in ending inventory

D units transferred out, spoiled units, units in ending inventory, and units in beginning inventory

E none of the above

B 28 Primo Products transferred 15,000 units to one department An additional 5,000

units were in beginning inventory in the department At the end of the month, 12,000 units were transferred to the next department, 6,000 units remained in work in process, 40% complete as to conversion costs and the remaining units were lost at the 75% stage of conversion Beginning inventory was 60%

complete as to conversion costs and lost units were the result of internal failure The equivalent units of conversion cost using fifo costing is:

A 14,400

B 12,900

C 13,900

D 13,400

E none of the above

SUPPORTING CALCULATION:

Equivalent units in beginning inventory (40% x 5,000) 2,000 Equivalent units started and completed during period

(12,000 - 5,000) 7,000 Equivalent units in ending inventory (40% x 6,000) 2,400 Equivalent units of spoilage (75% x 2,000) 1,500 Total equivalent units 12,900

A 29 Primo Products transferred 15,000 units to one department An additional 5,000

units were added in the department At the end of the month, 12,000 units were transferred to the next department, 6,000 units remained in work in process, 40% complete as to conversion costs and the remaining units were lost at the 75% stage of conversion Beginning inventory was 60% complete as to

conversion costs, and lost units were the result of normal production shrinkage The equivalent units of conversion cost using fifo is:

A 11,400

B 14,400

C 12,900

D 13,400

E none of the above

SUPPORTING CALCULATION:

Equivalent units in beginning inventory (40% x 5,000) 2,000 Equivalent units started and completed during period

(12,000 - 5,000) 7,000 Equivalent units in ending inventory (40% x 6,000) 2,400 Total equivalent units 11,400

PROBLEM

1

Journal Entries for Scrap Munoz Metal Products accumulates metal shavings from the

shop floor and sells them periodically to a nearby scrap dealer Scrap sales, on account, for the period just ended total $2,300

Required: Indicate the journal entries when:

(1)The scrap sales are viewed as additional revenue

(2)The scrap sales are viewed as a reduction of the cost of goods sold during the period (3)The scrap sales are viewed as a reduction of factory overhead

(4)The scrap sales are traceable to individual jobs and are viewed as a reduction in the cost

of materials used on the jobs

SOLUTION

(1) Accounts Receivable 2,300

Scrap Sales (or Other Income) 2,300 (2) Accounts Receivable 2,300

Cost of Goods Sold 2,300 (3) Accounts Receivable 2,300

Factory Overhead Control 2,300 (4) Accounts Receivable 2,300

Work in Process 2,300

PROBLEM

2

Spoilage in a Job Order Cost System Walker Inc manufactures custom wood

products During the current period, an order for 2,000 workbenches was begun on Job

1994 After the job was completed, the benches were inspected and 100 units were

determined to be defective The customer has agreed to accept the order with only 1,900 units instead of the quantity originally ordered The spoiled units can be sold as seconds for $25 each Spoiled goods are kept in a separate inventory account from finished goods Total costs charged to

Job 1994 follow:

Materials $ 5,100 Labor (200 hours x $15 per hour) 3,000 Factory overhead ($9.50 per labor hour) 1,900 Total cost charged to Job 1994 $ 10,000 Custom jobs are marked up 150 percent on cost

(1) Assuming that the defective units were the result of an internal failure (i.e., an

employee error or a machine failure), prepare the appropriate general journal entries

to record the transfer of the defective units to a separate inventory account and the completion and shipment of Job 1994 to the customer

(2) Assuming that the defective units were the result of a change in design specified by

the customer after the units were completed, prepare the appropriate general journal entries to record the transfer of the defective units to the separate inventory account and the completion and shipment of Job 1994 to the customer

SOLUTION

(1) Spoiled Goods Inventory (10 units x $25 salvage) 250

Factory Overhead Control 250

Work in Process (10 units x $50* cost) 500 Cost of Goods Sold 9,500

Work in Process ($10,000 - 500) 9,500 Accounts Receivable ($9,500 x 150%) 14,250

Sales 14,250 (2) Spoiled Goods Inventory (10 units x $25 salvage) 250

Work in Process 250 Cost of Goods Sold 9,750

Work in Process ($10,000 - $250) 9,750 Accounts Receivable ($9,750 x 150%) 14,625

Sales 14,625

unit per

$50

= job

on units 200

cost job total

$10,000

*

3

Entries for Charging Rework Costs Caused by Internal Failure and by Change in Customer Specification Albany Appliances manufactured 100 microwave ovens in a

recent production run and discovered that 10 ovens were defective and required reworking

as follows:

Rework cost per unit:

Materials $ 10

Labor 25

Factory overhead 25

Total $ 60

Normal production cost per unit: Materials $ 50

Labor 75

Factory overhead 75

Total 200$

Required: (1) Prepare the journal entries to record (a) the normal production costs, (b) the rework costs, and (c) the transfer of the job costs to Finished Goods assuming that rework costs were caused by an internal failure (2) Prepare the same journal entries as in (1), assuming that rework costs were caused by a change in customer specifications SOLUTION Debit Credit (1) (a) Work in Process 20,000 Materials 5,000 Payroll 7,500 Applied Factory Overhead 7,500 (b) Factory Overhead Control ($60 x 10) 600

Materials 100

Payroll 250

Applied Factory Overhead 250

(c) Finished Goods ($200 x 100) 20,000 Work in Process 20,000 (2) (a) Same as first entry in (1) (a) above (b) Work in Process 600

Materials 100

Payroll 250

Applied Factory Overhead 250 (c) Finished Goods 20,600

Work in Process 20,600