Chapter 7 - Barfield Solution

7/21/2019 Chapter 7 - Barfield Solution

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Chapter 7

Special Production Issues: Lost Units and Accretion

Questions

1. An accepted quality level (AQL) is the proportion of total units

to be produced in a process without defects as preestablished by

an appropriate minimum that is determined by management.

Alternatively, an AQL can be stated as the proportion of totalunits to be produced in a process that can be defective as

preestablished by an appropriate maximum determined by

management.

When the AQL is set at 100 percent for good production, then

the acceptable defect level is set at zero. In this case, the AQL

is set at a level of 100 percent and this is the same as a zero-

defects tolerance level.

2. Shrinkage refers to loss of inputs because of natural processes

such as evaporation or oxidation. Spoiled units cannot be

economically reworked to bring them up to standard. Defectiveunits can e economically reworked because the incremental revenue

exceeds the incremental cost of the rework. Both spoiled and

defective units do not meet quality specifications upon

inspection.

3. A tolerated loss level may be set because losses are inherent in

the production process (e.g., shrinkage) or there are known

defects in materials used or in production processes. For

example, management may know that a particular production process

performs within tolerances only 99.5 percent of the time.

Accordingly, management may allow for 5 defects out of every

1,000 units produced. Although management could invest in

technology that would reduce the level of defects, the new

technology may be too costly relative to the existing level of

defects. With this cost/benefit analysis, management has

concluded that a certain level of defects is preferred to no

defects.


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4. Examples of defective units include the following: a car that

has been painted the wrong color; the delivery of personal

possessions to the wrong address by a moving company; an

incorrectly mounted transmission in a new automobile; a piece

of lumber that has been cut too long for its intended

application; and a fishing reel that has been assembledwithout a required bearing.

Examples of spoiled products/services include the

following: a tire that that has treads which are irregularly

positioned on the tire (e.g., treads that would not be

parallel to the road); a tax return prepared by an accounting

firm that was audited by the IRS and determined to have large

errors; a cake that has been cut into pieces that are too

small; a tree that died because it was trimmed so severely by

a landscaping service; loss of a patients sight caused by a

surgeons error during an operation.

5. Normal loss refers to an expected reduction in production

quantity based on the production technology and production

practices of the company. Abnormal loss refers to a quantity

of loss above the normal loss quantity. Normal loss creates

an expected cost of production so the cost of such a loss is

inventoriable; abnormal spoilage cost is not expected, and,

thus, it is not inventoriable.

6. Abnormal losses would be more likely to be preventable than

normal losses because abnormal losses are less likely to becaused by factors that are inherent in the materials or

production methods. For example, a known amount of material

loss (waste) is to be expected if lower quality materials are

utilized. However, any loss beyond the expected amount would

likely be caused by other factors that are subject to

management control, e.g., production errors.

7. A continuous loss is one that occurs (more or less)

uniformly throughout the production process. A discrete

loss is one that occurs at a specific stage or in a specific

production process.

8. A discrete loss occurs at a specific point in the production

process. For accounting purposes, discrete loss is assumed

to occur immediately prior to inspection. In reality, the

loss could have occurred anywhere before the inspection

point and, thus, the lost units should have had no

additional conversion (and/or, possibly, materials) added to


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them. It is impossible to have continuous monitoring for

losses in most production processes, so conversion costs are

incurred until inspection and assigned to all units that

have passed the inspection point (even though some units

that have not reached the inspection point could also be

lost).


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9. Any time a decline in the value of an asset occurs that is

unexpected, it is considered a loss of the period. Abnormal

losses are unplanned for and are in excess of normal losses.

Therefore, the cost associated with them should not be

considered a product cost and should not be allocated to

good production. The units themselves have no value andcannot be considered assets, so their costs are expired and

belong on the income statement. The cost is removed by

debiting a loss account (such as "Loss from Abnormal

Spoilage") and crediting Work in Process Inventory.

10. The method of neglect requires no specific computations

regarding spoiled units; all costs are assigned to good

units. The cost of spoiled units that have been found at an

inspection point will be assigned to all units that have

passed the inspection point. Thus, the method of neglect

assigns spoilage costs by simply ignoring (neglecting) the

spoiled units.

The method of neglect is appropriate if loss is

considered to be incurred continuously and is considered

normal.

11. The method of neglect raises the cost per equivalent unit

because no costs are assigned to the spoiled units.

Therefore, good units bear all costs, including the costs of

producing the spoiled units.

12. If spoilage is incurred for all (or most) jobs in a job

order costing system, the estimate of overhead used in

setting the predetermined overhead rate should include an

amount for the net cost of spoilage. This will allow the

cost of normal, general spoilage to be spread over all jobs

produced. If spoilage is related to a single job, the cost

of that spoilage should be assigned to the job that gave

rise to it. If any abnormal spoilage is incurred in a job

order system, its cost should be assigned to the period as a

loss.

13. Accretion is an increase in the number of units or the

volume of a product that occurs through the addition of

materials (e.g., water or other fluids) or through

processing (e.g., heat causing expansion). Although the

total cost of the predecessor department is unaffected, the

cost per unit calculated by the predecessor department would

decline in the successor department because of the increase


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in units.

14. The cost per unit might have declined in the second

department because of an increase in the number of units

caused by the addition of materials or the expansion of the

units transferred in. If the company manufactures bread,the rising of the dough would cause an increase in the

volume of dough transferred in from the Mixing Department.


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15. If the defects are considered normal, the treatment of

rework costs depends on whether an actual or a normal cost

system is in effect. If an actual cost system is used, the

rework costs will be added to the component costs of the

period and be allocated to all units completed. In a normal

cost system, the rework costs will have been estimated andincluded in the development of the overhead application

rate; actual rework costs would be assigned to Manufacturing

Overhead.

If the defects are abnormal, the costs of production

and rework costs for the defective units should be

accumulated and assigned to a loss account.

16. The important managerial concern is to control spoilage and

defective work rather than to account for it. Measuring its

cost is the first step in controlling spoilage/defects.

Using the method of neglect or otherwise spreading the cost

of the lost units to good production minimizes the degree of

control that can be exerted by management.

17. Certain fluctuations occur in any production process.

Statistical process controls can be used to determine if

fluctuations in a process are within normal and tolerable

limits, or exceed tolerable limits. In short, the SPC

methods can be used to determine whether a process is in

control. SPC charts can also be used as indicators of the

points at which the process is out of control and thus helpsmanagers understand why fluctuations occur in a process so

that actions can be taken to reduce such fluctuations.

18. Each student will have a different answer. No solution

provided.

Exercises

19. a. 3

b. 8

c. 2d. 5

e. 7

f. 1

g. 6

h. 4


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20. a. Annual cost of spoilage = 200 50 $8.50 =

$85,000.

Alfred would be able to save up to $85,000 per year by

purchasing the regulator. The amount he would pay would be

based on the expected life of the regulator and (in a

discounted cash flow framework) on the cost of capital ofthe firm. In addition to these factors, Alfred would want

to consider how long the company intends to keep the

machinery that currently prints the packing boxes, the costs

of operating and installing the regulator, the costs of

training personnel to operate it and the utility and

maintenance costs for the machine (if different from those

currently experienced).

b. Good boxes = 600 50 = 550

Spoilage cost per setup = 50 $8.50 = $425

Increase in cost = $425 550 = $0.77 (rounded)

c. To obtain the correct 20 boxes in each batch,

WEBOXALL must first produce the 50 misprinted boxes.

Total Per Box

Costs of spoilage = 12 50 $8.50 = $5,100

$21.25

Cost of regulator 4,300

17.92

Net savings in cost $ 800 $3.33

Yes, Springtime Corporation would be willing to

purchase the regulator because it would result in

substantial cost savings. The cost of the regulator

would be recouped in less than one years volume of

purchases. However, an alternative for Springtime

would be to purchase all of its boxes in a single

transaction rather than in 12 different batches. In

such a case, the total spoilage cost incurred would

only be $425 (50 boxes $8.50).

d. The spoilage cost-per-box figures differ

substantially because of the number of units produced

in the batches. In part (b), the batch costs of

spoilage were spread over 550 good units; in part (c),

the costs of spoilage for each batch were spread over


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only 20 units.

21. a. 10,000 + 60,000 = 70,000 units

b. 60,000 0.05 = 3,000 units

c. Abnormal loss = Total units (Completed Units + EI

units

+ Normal loss) = 70,000 - (58,200 + 8,000 + 3,000)

= 70,000 69,200 = 800 units


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d. Units Material

Conversion

Beginning inventory (10%) 10,000

Units started 60,000

Units to account for 70,000

Transferred out 58,200 58,200

58,200

Ending inventory (60%) 8,000 8,000

4,800

Normal shrinkage 3,000

Abnormal shrinkage 800 800

800

Units accounted for 70,000 67,000

63,800

22. a - d. Units Material

Conversion

Beginning inventory (20%; 30%) 8,000

Gallons started 180,000

Gallons to account for 188,000

Beginning inventory completed 8,000 6,400

5,600

Gallons started and completed 174,600 174,600

174,600

Total gallons transferred 182,600Ending inventory (70%; 80%) 4,000 2,800

3,200

Normal spoilage(180,000 0.4%) 720 0

0

Abnormal spoilage 680 680

680

Gallons accounted for (FIFO EUP)188,000 184,480

184,480

e. Cost of normal spoilage is automatically spread

among all of the remaining units produced. This isdone by using the method of neglect and omitting these

spoiled units from the EUP calculations.

f. Cost of abnormal spoilage is treated as a period cost.

23. a. Units Material


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Conversion

Beginning inventory 40,000

Pounds started 425,000

Pounds to account for 465,000

BI completed 40,000 06,000

Started & completed 405,000 405,000

405,000

Ending inventory 10,000 10,000

2,500 Normal spoilage 2,000

Abnormal spoilage 8,000 8,000

5,600

Units accounted for 465,000 423,000

419,100

b. Ending inventory:

Material (10,000 $2.40) $24,000

Conversion (2,500 $4.70) 11,750

Total cost $35,750

c. Abnormal spoilage:

Material (8,000 $2.40) $19,200

Conversion (5,600 $4.70) 26,320

Total cost (treated as a loss) $45,520

24. a. Normal spoilage allowed = 30,000 pounds 8% = 2,400

pounds Units Material

Conversion


Pounds started 30,000

Pounds to account for 39,000

Beginning inventory completed 9,000 0

6,300

Pounds started and completed 22,500 22,500

22,500

Total pounds completed 31,500Ending inventory (20%) 5,400 5,400

1,080

Normal spoilage 2,100 0

0

Pounds accounted for (FIFO) 39,000 27,900

29,880


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b. Total Material Conversion

Beginning inventory cost $ 6,200

Current costs 18,729 $9,765 $8,964

Total costs $24,929

Divided by EUP 27,900 29,880

Cost per EUP $0.65 $0.35 $0.30

c. Cost Assignment

Transferred out:


Cost to complete (conversion: 6,300 $0.30) 1,890

Total cost of beginning inventory $ 8,090

Started & completed (22,500 $0.65) 14,625

$22,715

Ending inventory:

Material (5,400 $0.35) $ 1,890

Conversion (1,080 $0.30) 324

2,214

Total costs accounted for

$24,929

25. a. Normal spoilage = 20,000 20 = 1,000 units

Units Material Conversion


Started 20,000


Beginning inv. completed 4,000 4,000 4,000

Started & completed 16,000 16,000 16,000

Ending inventory 3,000 3,000 1,800

Normal spoilage 1,000 1,000 1,000

Units accounted for (WA) 24,000 24,000 22,800

b. Total Material Conversion

Beginning inventory $ 24,592 $ 12,252 $12,340

Current period 175,448 112,548 62,900Total costs $200,040 $124,800 $75,240


Cost per EUP $8.50 $5.20 $3.30


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Cost Assignment

Transferred out:

Good units (20,000 $8.50) $170,000

Normal spoilage (1,000 $8.50) 8,500 $178,500

Ending inventory:

Material (3,000 $5.20) $ 15,600Conversion (1,800 $3.30) 5,940 21,540

Total cost accounted for $200,040

26. Maximum normal spoilage = 13,500,000 12% = 1,620,000

a. & b. Units Material

Conversion


Pounds started 13,500,000

Pounds to account for 14,000,000

Beginning inventory 500,000 500,000 500,000

Pounds started and completed 10,900,000 10,900,000 10,900,000

Ending inventory (40%) 750,000 750,000

300,000

Abnormal spoilage* 230,000 230,000

115,000

Normal spoilage 1,620,000 1,620,000

810,000

Pounds accounted for (WA) 14,000,000 14,000,000

12,625,000

*To balance schedule

c. 1. The memo should address the fact that

additives such as water and preservatives would

cause accretion in the canning process.

2. The memo should discuss how evaporation would lead

to a loss of water content in the potato. Such

losses are very common in vegetable processing.

27. a. Units Material

Conversion

Beginning inventory 750

Started 17,250


Beginning inventory completed 750 750

750


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Units started and completed 14,250 14,250

14,250

Ending inventory 1,200 1,200

840

Defective units 1,800 1,800

1,800Units accounted for 18,000 18,000

17,640

b. Regular Pro- Rework Total Cost

duction Cost + Cost = Cost EUP = per

Unit

DM $126,000 $3,240 $129,240 18,000 $7.18

Conv. $41,013 $1,323 $42,336 17,640 $2.40

c. The actual costs of reworking would be charged to

manufacturing overhead and the overhead application

rate(s)would include a charge for rework.


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d. Abnormal rework costs are accumulated and assigned to a

loss account.

Regular Pro- Cost

duction Cost EUP per Unit

DM $126,000 18,000 $7.00Conv. $41,013 17,640 $2.325

28. a. Appraisal; the food can be compared to the

customers order before delivery to the table.

b. Prevention; this error could be prevented by marking an

invoice paid at the time a check is issued.

c. Prevention; only actions taken prior to the breakage

would be effective in minimizing the loss.

d. Although neither method would be entirely effective,

prevention measures could be taken such as using

technology that minimizes evaporation losses.

e. Prevention; all parts could be made such that only the

correct mates could be fastened together.

f. Appraisal; the error would be discovered by visual

inspection.

Problems

29. a. Total shrinkage = Total units to account for Units

transferred Ending inventory = (1,000 + 125,000)

110,000 3,000 = 126,000 113,000 = 13,000

b. Maximum normal shrinkage = 125,000 10% = 12,500

pounds. For accounting purposes, it is simply ignored,

which means its costs will be spread over all good

units produced.

c. Abnormal spoilage = 13,000 12,500 = 500 pounds.

Its costs will be treated as a loss of the period.

d.

Total Material

Conversion


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Started 125,000

To account for 126,000


Started and completed 109,000 109,000 109,000Ending inventory 3,000 3,000 900

Normal spoilage 12,500

Abnormal spoilage 500 500 500

Accounted for (WA) 126,000 113,500

111,400

Material Conversion

Total

Beginning WIP costs $ 1,020 $ 195 $ 1,215

Current costs 118,155 33,225 151,380

Total costs $119,175 $ 33,420 $152,595

Divide by EUP 113,500 111,400

Cost per EUP $1.05 $0.30 $1.35

Cost Assignment

Transferred out (110,000 $1.35) $148,500

Ending inventory:

Material (3,000 $1.05) $3,150

Conversion (900 $0.30) 270 3,420

Abnormal spoilage (500 $1.35) 675

Total cost accounted for $152,595

e. The easiest way to decrease shrinkage loss is to buy

higher quality material. Higher quality ground beef

would have a lower fat content and consequently would

shrink less. Although raw material prices would

increase, the cost of conversion per pound of finished

product would likely decline because of the reduced

loss.

30. a. Units completed = (BI + Started) EI Defects =

(5,000+ 70,000) 6,000 400 = 75,000 6,400 = 68,600

b. Maximum normal spoilage = 70,000 1% = 700 units

c. Total Material Boxes

Conversion



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Started 70,000


Beginning inventory 5,000 5,000 5,000 5,000

Started and completed 63,600 63,600 63,600 63,600

Ending inventory 6,000 6,000 0 4,200Normal spoilage 400 400 0 380

Abnormal spoilage 0 0 0 0

Accounted for (WA) 75,000 75,000 68,600

73,180

Material Boxes Conversion

Total

Beginning WIP costs $ 21,900 $ 0 $ 7,680 $

29,580 Current costs 315,600 75,460 270,404

661,464

Total costs $337,500 $75,460 $278,084

$691,044

Divide by EUP 75,000 68,600 73,180

Cost per EUP $4.50 $1.10 $3.80

$9.40


17/46

Good units completed (68,600 $9.40) $644,840

Normal spoilage

Material (400 $4.50) $1,800

Conversion (380 $3.80) 1,444 3,244

Total cost of good units $648,084

Cost per unit = $648,084 68,600 = $9.45 rounded

If there would have been no defective units, the cost would

have been $9.40 because the method of neglect would not have

been used.

d. Material (6,000 $4.50) $27,000

Conversion (4,200 $3.80) 15,960

Total cost of ending WIP $42,960

31. a.

Matthew Tools

Cost of Production Report

for August


Transferred in 50,800


Normal spoilage (650)

Abnormal spoilage (350)

Ending inventory (1,800)

Transferred out 49,000

Units Trans. In Material Labor OH

BI 1,000 1,000 1,000 1,000

1,000

Units S & C 48,000 48,000 48,000 48,000

48,000

Ending inventory 1,800 1,800 0 720

1,170

Normal spoilage 650 650 0 650

650


350Units accounted for 51,800 51,800 49,000 50,720

51,170

Total Trans. In Material Labor OH

BI cost $ 7,355 $ 6,050 $ 0 $ 325 $

980 Current costs 235,557 149,350 12,250 23,767


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50,190

Total costs $242,912 $155,400 $12,250 $24,092

$51,170

Divided by EUP 51,800 49,000 50,720

51,170

Cost per EUP $4.725 $3 $0.25 $0.475$1.00

Cost Assignment

Transferred out

Good units (49,000 $4.725) $231,525

Normal spoilage (650 $4.475) 2,909 $234,434

Ending inventory:

Transferred in (1,800 $3.00) $ 5,400

Labor (720 $0.475) 342

Overhead (1,170 $1.00) 1,170 6,912

Abnormal spoilage (350 $4.475) 1,566

Total costs accounted for $242,912

b. Loss on Abnormal Spoilage 1,566

Work in Process - Grinding 1,566

32.

Big Piney Furniture


for April 2003

Beginning inventory 2,000Transferred in 14,900







BI completed 2,000 2,000 2,000 2,000

2,000

Units S & C 11,300 11,300 11,300 11,30011,300

Ending inventory 3,000 3,000 0 1,200

600


200


60


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Units accounted for 16,900 16,900 13,500 14,820

14,160

Total Trans. In Material Labor OH

Beginning inv. $ 32,312 $ 15,020 $ 2,130 $ 4,118 $

11,044Current costs 310,714 137,080 13,800 46,270

113,564

Total $343,026 $152,100 $15,930 $50,388

$124,608

Divide by EUP 16,900 13,500 14,820

14,160

Cost per EUP $22.38 $9 $1.18 $3.40

$8.80

Cost Assignment

Transferred out

Good units (13,300 $22.38) $297,654

Normal spoilage (200 $22.38) 4,476 $302,130

Ending inventory:

Transferred in (3,000 $9) $ 27,000

Labor (1,200 $3.40) 4,080

Overhead (600 $8.80) 5,280 36,360

Abnormal spoilage

Transferred in (400 $9) $ 3,600

Labor (120 $3.40) 408

Overhead (60

$8.80) 528 4,536Total costs accounted for $343,026

Finished Goods Inventory 302,130

WIP Inventory-Lamination 302,130

Loss on Abnormal Spoilage 4,536



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33.

Big Piney Furniture


for April 2003


Transferred in 14,900Units to account for 16,900






BI completed 2,000 0 0 400

600

Units S & C 11,300 11,300 11,300 11,300

11,300


600


200


60


12,760

Total Trans. In Material Labor OHBeginning inv. $ 32,312

Current costs 310,714 $137,080 $13,800 $46,270

$113,564

Total $343,026

Divide by EUP 14,900 11,500 13,220

12,760

Cost per EUP $22.80 $9.20 $1.20 $3.50

$8.90

Cost Assignment

Transferred out Beginning inventory $ 32,312

Complete BI:

Labor (400 $3.50) 1,400

Overhead (600 $8.90) 5,340

S&C (11,300 $22.80) 257,640

Normal spoilage (200 $22.80) 4,560 $301,252

Ending inventory:


21/46

Transferred in (3,000 $9.20) $ 27,600

Labor (1,200 $3.50) 4,200

Overhead (600 $8.90) 5,340 37,140

Abnormal spoilage

Transferred in (400 $9.20) $ 3,680

Labor (120 $3.50) 420 Overhead (60 $8.90) 534 4,634


Finished Goods Inventory 301,252


Loss on Abnormal Spoilage 4,634



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34. Maximum normal spoilage = 70,000 3% = 2,100 units

Ronald Company


for May 2003


Beginning inventory 5,600Units started 74,400


BI completed 5,600 0 2,800

Units S & C 64,400 64,400 64,400

Total units completed 70,000



Abnormal spoilage* 400 400 400

Units accounted for 80,000 74,400 72,200*To balance schedule

Total Material Conversion

Beg. inventory cost $ 7,632

Current costs 106,168 $74,400 $31,768

Total costs $113,800


Cost per EUP $1.44 $1 $0.44

Cost Assignment

Transferred out: Beginning inventory cost $ 7,632

Cost to complete

Conversion (2,800 $0.44) 1,232

Total cost of BI $ 8,864

Started & comp. (64,400 $1.44) 92,736

Normal spoilage

DM: (2,100 $1) $2,100

CC: (2,100 $0.44) 924 3,024 $104,624

Ending inventory:

Material (7,500 $1) $7,500

Conversion (2,500 $0.44) 1,100 8,600Abnormal spoilage

Material (400 $1) $ 400

Conversion (400 $0.44) 176 576



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35. Maximum normal spoilage = 70,000 3% = 2,100 units

Ronald Company


for May 2003


Beginning inventory 5,600Units started 74,400


BI completed 5,600 5,600 5,600

Units S & C 64,400 64,400 64,400

Total units completed 70,000



Abnormal spoilage* 400 400 400

Units accounted for 80,000 80,000 75,000*To balance schedule

Total Material Conversion

Beg. inventory cost $ 7,632 $ 6,400 $ 1,232

Current costs 106,168 74,400 31,768

Total costs $113,800 $80,800 $33,000


Cost per EUP $1.45 $1.01 $0.44

Cost Assignment

Transferred out:Units completed (70,000 $1.45) $101,500

Normal spoilage

DM: (2,100 $1.01) $2,121

CC: (2,100 $0.44) 924 3,045 $104,545

Ending inventory:

Material (7,500 $1.01) $7,575

Conversion (2,500 $0.44) 1,100 8,675

Abnormal spoilage

Material (400 $1.01) $ 404

Conversion (400 $0.44) 176 580



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36. a. Total Material Conversion


Started 180,000


Beginning inventory 6,000 6,000 6,000Started and completed 146,000 146,000 146,000

Transferred out 152,000 152,000 152,000



Abnormal spoilage* 9,200 9,200 6,440

Accounted for 186,000 186,000 175,800*To balance schedule

b. Total Material

Conversion

BI $ 33,600

Current 1,224,330 $915,120

$342,810

Total costs $1,257,930

Divide by EUP 186,000 175,800

Cost per EUP $6.87 $4.92 $1.95

Cost of goods transferred before proration of normal

spoilage:

152,000 $6.87 = $1,044,240

Cost of ending inventory before proration of normal

spoilage:

Direct material (20,000 $4.92) $ 98,400

Conversion (14,000 $1.95) 27,300

Total $125,700

Proration:

Cost of normal spoilage:

Direct material (4,800 $4.92)

$23,616

Conversion (3,360 $1.95)6,552

Total cost

$30,168

Cost of transferred goods after proration of normal

spoilage:

Cost before normal spoilage


25/46

$1,044,240

Normal spoilage

DM: $23,616 .88

20,782

CC: $6,552 .92

6,028Total

$1,071,050

Cost of ending inventory after proration of normal spoilage:

Cost before normal spoilage

$125,700

Normal spoilage

DM: $23,616 .12

2,834

CC: $6,552 .08

524

Total

$129,058

Abnormal spoilage cost:

Direct material (9,200 $4.92)

$45,264

Direct labor (6,440 $1.95)

12,558

Total

$57,822


26/46

Total costs accounted for:

Transferred out $1,071,050

Ending inventory 129,058

Abnormal spoilage 57,822

Total $1,257,930

37. a. Abnormal spoilage = 2,100 1,680 = 420

Units Tran. in Material

Conversion


Started 42,000



4,200


29,400

Transferred out 33,600 33,600 33,600

33,600

Ending inventory* 10,500 10,500 10,500

4,200

Abnormal spoilage 420 420 420

420


1,680

Units accounted for 46,200 46,200 46,20039,900*To balance schedule

b.

Cost Assignment

Transferred out:

Good units (33,600 $9) $302,400

Normal spoilage (1,680 $9) 15,120

Total $317,520

c.Ending inventory:

Trans. in (10,500 $5) $52,500

Material (10,500 $1) 10,500

Conversion (4,200 $3) 12,600

Total $75,600

d. Total cost transferred in (46,200 $5) $231,000


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Cost of beginning inventory (18,900)

Cost transferred in this period $212,100

e. Abnormal spoilage: 420 $9 = $3,780; this cost

would be deducted as a period cost (loss) in May.

(CMA adapted)


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38. Maximum normal loss = 150,000 4% = 6,000 units

Abnormal loss = 9,000 6,000 = 3,000 units

Dept. 1 Units Material Conversion


Started 150,000Units to account for 156,000

BI completed 6,000 6,000 6,000


Transferred out 129,000 129,000 129,000


Normal spoilage (4%) 6,000 6,000 6,000

Abnormal spoilage 3,000 3,000 3,000

Units accounted for 156,000 156,000 148,800

Material Conversion Total

Beginning inventory $ 3,060 $ 2,328 $ 5,388

Current period 37,500 207,480 244,980

Total costs $40,560 $209,808 $250,368


Cost per EUP $0.26 $1.41 $1.67

Cost Assignment

Transferred out:

Good units (129,000 $1.67) $215,430

Normal spoilage (6,000

$1.67) 10,020 $225,450Ending inventory:

Material (18,000 $0.26) $ 4,680

Conversion (10,800 $1.41) 15,228 19,908

Abnormal spoilage (3,000 $1.67) 5,010


Dept. 2

Maximum normal loss = 129,000 8% = 10,320 units

Units Trans. In Material

ConversionBeginning inventory 3,000



BI completed 3,000 3,000 3,000 3,000

Units S & C 108,000 108,000 108,000 108,000

Transferred out 111,000 111,000 111,000 111,000



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Normal spoilage 6,000 6,000 0 3,600


Total Trans. In Material

Conversion

BI cost $ 8,436 $ 6,690 $ 0 $1,746

Current costs 281,810 230,910 740

50,160

Total costs $290,246 $237,600 $740

$51,906 Divided by EUP 132,000 111,000

126,600

Cost per EUP $2.22 $1.80 $0.01

$0.41

Cost Assignment

Transferred out

Good units (111,000 $2.22) $246,420

*Proration of normal spoilage 10,832 $257,252

Ending inventory:

Transferred in (15,000 $1.80) $27,000

Conversion (12,000 $0.41) 4,920

Total cost before proration $31,920

*Proration of normal spoilage 1,444 33,364

Total costs accounted for (with rounding error) $290,616

*Proration:Cost of normal spoilage:

Transferred in (6,000 $1.80) $10,800

Conversion (3,600 $0.41) 1,476

Total cost $12,276

Trans In Conversion

EUP % EUP %

Units transferred out* 111,000 88 111,000 90

Ending work in process 15,000 12 12,000 10

126,000 100 123,000 100

Note: Beginning inventory was not past inspection point and

must be included in the proration.

TO: TI $10,800 88% = $ 9,504

CC $ 1,476 90% = 1,328 $10,832

EI: TI $10,800 12% = $ 1,296


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CC $ 1,476 10% = 148 1,444


Abnormal loss = 9,000 6,000 = 3,000 units

Dept. 1 Units Material ConversionBeginning inventory 6,000

Started 150,000


BI completed 6,000 0 5,400


Transferred out 129,000 123,000 128,400


Normal spoilage (4%) 6,000 6,000 6,000

Abnormal spoilage 3,000 3,000 3,000



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Beginning inventory $ 5,388

Current period $37,500 $207,480 244,980



Cost per EUP $0.25 $1.40 $1.65

Cost Assignment

Transferred out:

Beginning WIP $ 5,388

Complete Beginning WIP

CC (5,400 $1.40) 7,560 $ 12,948

S & C (123,000 $1.65) 202,950

Normal spoilage (6,000 $1.65) 9,900 $225,798

Ending inventory:

Material (18,000 $0.25) $ 4,500

Conversion (10,800 $1.40) 15,120 19,620

Abnormal spoilage (3,000 $1.65) 4,950


Dept. 2

Maximum normal loss = 129,000 8% = 10,320 units


Conversion


Transferred in 129,000Units to account for 132,000

BI completed 3,000 0 3,000 1,800

Units S & C 108,000 108,000 108,000 108,000

Transferred out 111,000 108,000 111,000 109,800


Normal spoilage 6,000 6,000 0 3,600



ConversionBI cost $ 8,436

Current costs 281,810 $230,910 $740

$50,160



125,400

Cost per EUP $2.20 $1.79 $0.01


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$0.40


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Cost Assignment

Transferred out:


Complete Beginning WIP:

DM (3,000 $0.01) 30

CC (1,800 $0.40) 720 $ 9,186 S & C (108,000 $2.20) 237,600

*Proration of normal spoilage 10,747 $257,533

Ending inventory:

Transferred in (15,000 $1.79) $26,850

Conversion (12,000 $0.40) 4,800

Total cost before proration $31,650

*Proration of normal spoilage 1,433 33,083

Total costs accounted for (with rounding error) $290,616

*Proration:

Cost of normal spoilage:

Transferred in (6,000 $1.79) $10,740

Conversion (3,600 $0.40) 1,440

Total cost $12,180

Trans In Conversion

EUP % EUP %

Units transferred out* 111,000 88 111,000 90

Ending work in process 15,000 12 12,000 10

126,000 100 123,000 100

Note: Beginning inventory was not past inspection point andmust be included in the proration.

TO: TI $10,740 88% = $ 9,451

CC $ 1,440 90% = 1,296 $10,747

EI: TI $10,740 12% = $ 1,289

CC $ 1,440 10% = 144 1,433


Dept. 1 Units Material ConversionBeginning inventory 5,000

Started 125,000


Beginning inv. completed 5,000 0 1,750


Transferred out 110,000 105,000 106,750


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Normal spoilage 6,000 0 0



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Current period $190,400 $393,225 583,625



Cost per EUP $1.60 $3.50 $5.10

Cost Assignment

Transferred out:


Cost to complete (conv. 1,750 $3.50) 6,125

Total cost of beginning inventory $ 25,375

Started & completed (105,000 $5.10) 535,500

$560,875

Ending inventory:

Material (14,000 $1.60) $ 22,400

Conversion (5,600 $3.50) 19,600

42,000


$602,875

Dept. 2

Maximum normal loss = 110,000 5% = 5,500


Conversion

Beginning inventory 40,000Transferred in 110,000


BI completed 40,000 40,000 40,000

40,000

Units S & C 80,000 80,000 80,000

80,000

Transferred out 120,000 120,000 120,000

120,000

Ending inventory 22,500 22,500 0

4,500Normal spoilage 5,500 5,500 5,500

4,400

Abnormal spoilage* 2,000 2,000 2,000

1,600 Units accounted for 150,000 150,000 127,500

130,500*To balance schedule


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Conversion

BI cost $ 345,600 $204,000 $120,000 $21,600

Current costs 892,770 568,500 268,875 55,395

Total costs $1,238,370 $772,500 $388,875 $76,995

Divided by EUP 150,000 127,500 130,500Cost per EUP $8.79 $5.15 $3.05 $0.59


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Cost Assignment

Transferred out:

(120,000 $8.79) $1,054,800

Normal spoilage

Trans. In (5,500 $5.15) $28,325

Materials (5,500 $3.05) 16,775 Conversion (4,400 $0.59) 2,596 47,696

Total costs transferred out

$1,102,496 Ending inventory:

Trans. In (22,500 $5.15) $ 115,875

Conversion (4,500 $0.59) 2,655

118,530

Abnormal spoilage

Trans. In (2,000 $5.15) $ 10,300

Material (2,000 $3.05) 6,100

Conversion (1,600 $.59) 944

17,344


$1,238,370

41. a. Predetermined rate = $462,500 50,000 = $9.25 per MH

b. Units Material

Conversion

Transferred out 2,000,000 2,000,000

2,000,000

Ending inventory 75,000 75,00026,250

Defective units 40,000 40,000

40,000

Total 2,115,000 2,115,000

2,066,250

Total Material

Conversion

Costs $9,322,425 $3,743,550

$5,578,875

Divided by EUP 2,115,0002,066,250

Cost per EUP $4.47 $1.77

$2.70

c. The rework cost is debited to the manufacturing

overhead account since the company uses a predetermined


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rate to apply overhead.

Manufacturing Overhead 37,750

Various accounts 37,750

d. Normal production cost (40,000 $4.47) $178,800Cost of rework 37,750

Total cost of defective units $216,550

Total sales value of defective units

(40,000 $3.50)

(140,000)

Deficiency $ 76,550

Inventory - Irregulars 140,000

Work in Process Inventory 140,000

Cost of good pipe (2,000,000 $4.47) $8,940,000

Deficiency 76,550

Total cost $9,016,550

Divided by total good pipe 2,000,000

Revised cost per good pipe (rounded) $4.51

e. Inventory - Irregular 140,000

Loss from Defects 15,310*

Work in Process 155,310

*20% of deficiency; $76,550 20%

Cost of good pipe $8,940,000

Deficiency ($76,550 - $15,310) 61,240

Total cost $9,001,240

Divided by total good pipe 2,000,000

Revised cost per good foot of pipe (rounded) $4.50

42. a. WIP - Job BA468 850

Raw Materials Inventory 150

Wages Payable 700

b. Manufacturing Overhead 850Raw Materials Inventory 150

Wages Payable 700

c. Loss on Abnormal Rework 850

Raw Materials Inventory 150

Wages Payable 700


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Case

43. a. Beginning inventory 3,000




Ending inventory 4,000

Bikes lost 4,000

Units accounted for 48,000

(1) Bikes passing through Assembly

48,000

Less bikes not inspected during

current year:

Beginning WIP (inspected in prior

year - 80% complete) 3,000

Ending WIP(have not reached inspec-

tion point - 20% complete) 4,000

(7,000)

Bikes that reached inspection point

41,000

Normal defective rate

0.05

Normal number of defective bikes

2,050

(2) Total bikes lost 4,000

Normal number of defective bikes (2,050)

Abnormal number of defective bikes 1,950


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b. Units Trans. In Material Conversion

Transferred out 40,000 40,000 40,000 40,000

Ending inventory 4,000 4,000 2,000 800

Units lost 4,000 4,000 4,000 2,800


c. Trans. In Material Conversion Total

BI $ 82,200 $ 6,660 $ 11,930 $100,790

Current 1,237,800 96,840 236,590 1,571,230

Total cost $1,320,000 $103,500 $248,520 $1,672,020

Divided by EUP 48,000 46,000 43,600

Cost per EUP $27.50 $2.25 $5.70 $35.45

d. (1) Normal defective bikes:

Transferred in (2,050 $27.50) $ 56,375.00

Material (2,050 $2.25) 4,612.50

Conversion (1,435 $5.70) 8,179.50 $

69,167

(2) Abnormal defective bikes:

Transferred in (1,950 $27.50) $ 53,625.00

Material (1,950 $2.25) 4,387.50

Conversion (1,365 $5.70) 7,780.50

65,793

(3) Good bikes completed (40,000 $35.45)

1,418,000

(4) Ending WIP

Transferred in (4,000 $27.50) $110,000.00

Material (2,000 $2.25) 4,500.00

Conversion (800 $5.70) 4,560.00

119,060


$1,672,020

e. (1) The cost of the normal defective units of $69,167 would

be transferred to the Packing Department as a portionof the cost of the 40,000 good units transferred out.

Thus, this amount would be a portion of the Packing

Department's inventory account and/or cost of goods

sold amount depending on the proportion of the units in

the WIP inventory, FG inventory, and units sold during

the year.


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(2) The abnormal loss of $65,793 would appear as

period expense (loss) on the companys income

statement.

(3) The cost of the good units completed and

transferred to the Packing Department ($1,418,000)would be included in the Packing Departments

production costs. Thus, this amount would be a portion

of the Packing Department's inventory accounts and/or

cost of goods sold account depending on the proportion

of the units in WIP inventory, FG inventory, and units

sold during the year.


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(4) The Assembly Department's ending WIP inventory

($119,060) would be included in the inventory balance

on the Balance Sheet.

f. Normal spoilage cost is an expected cost of

producing good units. As such, it is not an extra costbut thought to be inherent in producing good units.

Normal spoilage may occur because of material or labor

quality, machine malfunctions, or human error.

Management should do cost=benefit studies to determine

if it is economically sensible to reduce spoilage.

Three questions should be addressed: (1) What does the

spoilage actually cost? (2) Why does it occur? (3) How

can it be controlled?

(CMA adapted)

Reality Check

44. a. Andrew Hill's considerations are determined

largely by his position as a cost accountant, with

responsibilities to Audio Spectrum, others in the

company, and himself. Hill's job involves collecting,

analyzing, and reporting operating information.

Although not responsible for product quality, Hill

should exercise initiative and good judgment in

providing management with information having potential

adverse economic impacts.

Hill should determine whether the controller'srequest violates his professional or personal

standards, or the company's code of ethics, if Audio

Spectrum has such a code. As Hill decides how to

proceed, he should protect any proprietary information

he has and should not violate the chain of command by

discussing this matter with the controller's superiors.

b. (1) The controller has reporting

responsibilities and should protect the overall

company interests by encouraging further study of

the problem by those in his department, byinforming his superiors in this matter, and by

working with others in the company to find

solutions.

(2) The quality control engineer has

responsibilities for product quality and should


43/46

protect the overall company interests by

continuing to study the quality of reworked

rejects, informing the plant manager and her staff

in this matter, and working with others in the

company to find solutions.


44/46

(3) The plant manager and her staff have

responsibilities for product quality and cost and

should protect the overall company interests by

exercising the stewardship expected of them.

Plant management should be sure that products meet

the quality standards. Absentee owners needinformation from management, and the plant manager

and her staff have a responsibility to inform the

board of directors elected by the owners of any

problems that could affect the well-being of Audio

Spectrum.

c. Andrew Hill needs to protect the interests of

Audio Spectrum, others in the company, and himself.

Hill is vulnerable if he conceals the problem and it

eventually surfaces. Hill must take some action to

reduce his vulnerability. One possible action that

Hill could take would be to obey the controller and

prepare the advance material for the board without

mentioning or highlighting the probable failure of

reworks. Because this differs from his long-standing

practice of highlighting information with potential

adverse economic impact, Hill should write a report to

the controller detailing the probable failure of

reworks, the analysis made by himself and the quality

control engineer, and the controller's instructions in

this matter. (CMA adapted)


provided.


provided.


provided.


provided.


provided.



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provided.


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Chapter 7 - Barfield Solution

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Transcript of Chapter 7 - Barfield Solution