Answer the following questions using the information below: Samantha's Office Supplies manufactures desk organizers in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to nondetectible material defects. Spoiled units generally constitute 3% of the good units. Data provided for February 2015 are as follows: $\begin{array} { l } \text { WIP, beginuing inventory } 2 / 1 / 2015&51,000 \text { units } \\ \text {Direct materials ( \( 100 \% $ complete) }\\ \text {Conversion costs ( $ 50 \% $ complete) }\\\\ \text { Started during February } & 170,000 \text { units } \\ \text { Completed and transferred out } & 180,000 \text { units } \\\\ \text { WIP, ending inventory } 2 / 28 / 2015 & 26,000 \text { units }\\ \text {Direct materials ( $ 100 \% $ complete) }\\ \text { Conversion costs ( $ 25 \% $ complete)}\\\\ \text { Costs: }\\\text { WIP, beginning inventory: }\\ \text { Direct materials } & \$ 280,000 \\ \text { Conversion costs } & 80,000 \\ \text { Direct materials added } & 408,000 \\ \text { Conversion costs added } & 264,000 \end{array}\) -What costs are allocated to the ending work-in-process inventory for direct materials and conversion costs,respectively,using the FIFO method of process costing?

A) $66,500; $10,700 B) $60,000; $40,200 C) $62,400; $9,750 D) $39,000; $15,600 A) $66,500; $10,700 B) $60,000; $40,200 C) $62,400; $9,750 D) $39,000; $15,600

Answer the following questions using the information below: Verer Custom Carpentry manufactures chairs in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to nondetectible material defects. Spoiled units generally constitute 4% of the good units. Data provided for March 20X5 are as follows: $\begin{array}{ll} (\text { WIP, beginuing inventory } 3 / 1 / 20 \times 5&32,000 \text { units }\\ \text { Direct materials ( } 100 \% \text { complete) }\\ \text { Conversion costs ( } 85 \% \text { complete) }\\\\ \text { Started during March } & 70,000 \text { units } \\ \text { Completed and transferred out } & 80,000 \text { units } \\\\ \text { WIP, ending inwentory } 3 / 31 / 20 \times 5 & 18,000 \text { units }\\\text { Direct materials ( } 100 \% \text { complete) }\\\text { Conversion costs ( } 80 \% \text { complete) }\\\\ \text { Costs: }\\ \text { WIP, beginning inventory: }\\ \hline \text { Direct materials } & \$ 70,000 \\ \quad \text { Conversion costs } & 40,000 \\ \text { Direct materials added } & 105,000 \\ \text { Conversion costs added } & 128,160 \end{array}$ -What costs are allocated to the ending work-in-process inventory for direct materials and conversion costs,respectively,using the FIFO method of process costing?

A) $28,250; $24,850 B) $27,000; $25,920 C) $40,000; $25,590 D) $27,500; $23,600 A) $28,250; $24,850 B) $27,000; $25,920 C) $40,000; $25,590 D) $27,500; $23,600

Answer the following questions using the information below: Outose Concept manufactures small tables in its Processing Department. Direct materials are added at the initiation of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Before inspection, some units are spoiled due to nondetectible materials defects. Inspection occurs when units are 50% converted. Spoiled units generally constitute 4% of the good units. Data for December 2015 are as follows: $\begin{array}{ll} \text { WIP, beginuing inventory } 12 / 1 / 2015&22,000 \text { units }\\ \text { Direct materials ( } 100 \% \text { complete) }\\ \text { Conversion costs ( } 75 \% \text { complete) }\\ \text { Started during December } & 76,000 \text { units } \\ \text { Completed and transferred out } 12 / 31 / 2015 & 72,000 \text { units } \\ \text { WIP, ending inventory } 12 / 31 / 2015 & 18,000 \text { units }\\\text { Direct materials ( } 100 \% \text { complete) }\\\text { Conversion costs ( } 65 \% \text { complete) }\\\\\text { Costs for December: }\\ \text { WIP, beginuning Inventory: }\\\text { Direct materials } & \$ 150,000 \\ \text { Conversion costs } & 76,800 \\ \text { Direct materials added } & 222,400 \\ \text { Conversion costs added } & 290,000 \end{array}$ -Abnormal spoilage totals ________.

A) 3,200 units B) 8,000 units C) 5,120 units D) 2,880 units A) 3,200 units B) 8,000 units C) 5,120 units D) 2,880 units

Exam 18: Spoilage, rework, and Scrap

Venosis Sports is a manufacturer of sportswear.It produces all of its products in one department.The information for the current month is as follows: Beginning work in process 22,000 units Units started 44,000 units Units completed 55,000 units Ending work in process 10,000 units Spoilage 1,000 units Beginning work-in-process direct materials \ 15,000 Beginning work-in-process conversion \ 6,000 Direct materials added during month \ 70,800 Direct manufacturing labor during month \ 37,400 Beginning work in process was half complete as to conversion.Direct materials are added at the beginning of the process.Factory overhead is applied at a rate equal to 50% of direct manufacturing labor.Ending work in process was 60% complete.All spoilage is normal and is detected at end of the process. Required: Prepare a production cost worksheet if spoilage is recognized and the weighted-average method is used.

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Question 1

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$\text { PRODUCTION COST WORKSHEET }$
$\begin{array}{ll}\text { Flow of Production }& \text { Physical units }& \text { Direct materials }& \text {Conversion }\\\text { Work in process, beginning } & 22,000 \\\text { Started during period } & \underline{44,000} \\\text { To account for } & 66,000\\\\\text { Good units completed } & 55,000 & 55,000 & 55,000 \\\text { Normal spoilage } & 1,000 & 1,000 & 1,000 \\\text { Work in process, ending } & 10,000 & 10,000 & 6,000\\\text { Accounted for } & 66,000 & 66,000 & 62,000\end{array}$
$\begin{array}{lrrr}\text { Costs }& \text { Totals }& \underline{\text { Direct Materials }} &\text { Conversion }\\\text { Work in process, beginning } & \$ 21,000 & \$ 15,000 & \$ 6,000 \\\text { Costs added during period } & \underline{108,200} & \underline{70,800} & \underline{37,400}\\\\\text { Total costs to account for } & 129,200 & 85,800 & 43,400 \\\text { Divided by equivalent units } & & \underline{66,000} & \underline{62,000} \\\quad \text { Equivalent unit costs } & \$ 2,00 & \$ 1,30 & \$ 0,70\end{array}$
$\begin{array}{lr}\text { Assignment of costs }\\\text { Costs transferred out }(55,000 \times \$ 2.00) & \$ 110,000 \\\text { Normal spoilage }(1,000 \times \$ 2.00) & 2,000 \\\text { Work in process, ending } & 13,000 \\\text { Direct materials }(10,000 \times \$ 1.30) & 4,200 \\\text { Conversion }(10,000 \times \$ 0.60 \times 0.70) & \$ 1\\\\\text { Costs accounted for }&\$129,200\end{array}$

What is the advantage and disadvantage of early inspections?

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Question 2

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Early inspections can help prevent any further costs being wasted on units that are already
spoiled.But conducting inspections at too early stages can result in instances of spoiled units may go undetected at later stages of the process.

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

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Question 3

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False

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

(True/False)

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Question 4

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

(Multiple Choice)

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Question 5

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

(True/False)

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Question 6

Answer the following questions using the information below: Samantha's Office Supplies manufactures desk organizers in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to nondetectible material defects. Spoiled units generally constitute 3% of the good units. Data provided for February 2015 are as follows: WIP, beginuing inventory 2/1/2015 51,000 units Direct materials ( 100 \% complete) Conversion costs ( 50\% complete) Started during February 170,000 units Completed and transferred out 180,000 units WIP, ending inventory 2/28/2015 26,000 units Direct materials ( 100\% complete) Conversion costs ( 25\% complete) Costs: WIP, beginning inventory: Direct materials \ 280,000 Conversion costs 80,000 Direct materials added 408,000 Conversion costs added 264,000 -What costs are allocated to the ending work-in-process inventory for direct materials and conversion costs,respectively,using the FIFO method of process costing?

(Multiple Choice)

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Question 7

Spoilage can be considered either normal or abnormal.

(True/False)

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Question 8

If scrap,common to all jobs,is returned to the storeroom and the time between the scrap being inventoried and its disposal is quite lengthy,the journal entry is ________.

(Multiple Choice)

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Question 9

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

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Question 10

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

(True/False)

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Question 11

When spoiled goods have a disposal value,the net cost of spoilage is computed by adding the disposal value to the costs of the spoiled goods accumulated to the inspection point.

(True/False)

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Question 12

Normal spoilage rates are computed by ________.

(Multiple Choice)

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Question 13

The Peric Manufacturing Shop produces motorcycle parts.Typically,12 pieces out of a job lot of 1,000 parts are spoiled.Costs are assigned at the inspection point,$40.00 per unit.Spoiled pieces may be disposed at $8.00 per unit.The spoiled goods must be inventoried appropriately when the normal spoilage is detected.The current job requires the production of 3,000 good parts. Which of the following journal entries properly reflects the recording of spoiled goods?

(Multiple Choice)

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Question 14

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

(True/False)

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Question 15

A production process which involves spoilage and rework occurs in ________.

(Multiple Choice)

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Question 16

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

(True/False)

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Question 17

Answer the following questions using the information below: Verer Custom Carpentry manufactures chairs in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to nondetectible material defects. Spoiled units generally constitute 4% of the good units. Data provided for March 20X5 are as follows: ( WIP, beginuing inventory 3/1/20\times5 32,000 units Direct materials ( 100\% complete) Conversion costs ( 85\% complete) Started during March 70,000 units Completed and transferred out 80,000 units WIP, ending inwentory 3/31/20\times5 18,000 units Direct materials ( 100\% complete) Conversion costs ( 80\% complete) Costs: WIP, beginning inventory: Direct materials \ 70,000 Conversion costs 40,000 Direct materials added 105,000 Conversion costs added 128,160 -What costs are allocated to the ending work-in-process inventory for direct materials and conversion costs,respectively,using the FIFO method of process costing?

(Multiple Choice)

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Question 18

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

(True/False)

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Question 19

Answer the following questions using the information below: Outose Concept manufactures small tables in its Processing Department. Direct materials are added at the initiation of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Before inspection, some units are spoiled due to nondetectible materials defects. Inspection occurs when units are 50% converted. Spoiled units generally constitute 4% of the good units. Data for December 2015 are as follows: WIP, beginuing inventory 12/1/2015 22,000 units Direct materials ( 100\% complete) Conversion costs ( 75\% complete) Started during December 76,000 units Completed and transferred out 12/31/2015 72,000 units WIP, ending inventory 12/31/2015 18,000 units Direct materials ( 100\% complete) Conversion costs ( 65\% complete) Costs for December: WIP, beginuning Inventory: Direct materials \ 150,000 Conversion costs 76,800 Direct materials added 222,400 Conversion costs added 290,000 -Abnormal spoilage totals ________.

(Multiple Choice)

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Question 20

What is the advantage and disadvantage of early inspections?

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

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

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

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

Spoilage can be considered either normal or abnormal.

If scrap,common to all jobs,is returned to the storeroom and the time between the scrap being inventoried and its disposal is quite lengthy,the journal entry is ________.

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

When spoiled goods have a disposal value,the net cost of spoilage is computed by adding the disposal value to the costs of the spoiled goods accumulated to the inspection point.

Normal spoilage rates are computed by ________.

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

A production process which involves spoilage and rework occurs in ________.

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

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

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

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