When spoilage occurs because of some internal failure, the unrecoverable cost should be charged to

• 8/6/2019 39024936 Cost Accounting Review Questions

  Inhaltsverzeichnis Show

  • When rework occurs because of some internal failure the cause of the rework should be charged to?
  • What is the cost of internal failure?
  • Which cost items would be classified as an internal failure cost?
  • What are the two types of failure costs?

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  PROCESS COSTING- W.A. & FIFO

  1. Chicago Processing Co. uses the average costing method and reported a beginninginventory of 5,000 units that were 20% complete with respect to materials in onedepartment. During the month, 11,000 units were started; 8,000 units were finished;ending inventory amounted to 8,000 units that were 60% complete with respect tomaterials. Total materials cost during the period for work in process should bespread over:

  A. 7,200 unitsB. 16,000 unitsC. 11,200 unitsD. 13,200 unitsE. 12,800 units

  SUPPORTING CALCULATION: 8,000 + .60(8,000) = 12,800 units

  2. Beginning work in process was 60% complete as to conversion costs, and endingwork in process was 45% complete as to conversion costs. The dollar amount of theconversion cost included in ending work in process (using the average cost method)is determined by multiplying the average unit conversion costs by what percentage

  of the total units in ending work in process?A. 60%B. 55%C. 45%D. 522%E. 100%

  Answer: C

  3. Goode Manufacturing has three producing departments in its factory. The endinginventory in the Milling Department consisted of 3,000 units. These units were 60%complete with respect to labor and factory overhead. Materials are applied at theend of the milling process. Unit costs for the complete process in the Milling

  Department are: materials, P1; labor, P2; and factory overhead, P3. The appropriateunit cost for each unit in the ending inventory is:A. P2B. P5C. P3D. P6E. P4

  SUPPORTING CALCULATION: 60% (P2 + P3) = P3

  4. Gyro Products transferred 10,000 units to one department. An additional 3,000 unitsof materials were added in the department. At the end of the month, 7,000 unitswere transferred to the next department. There was no beginning inventory. The

  costs for units transferred in would be effectively allocated over:A. 17,000 unitsB. 3,000 unitsC. 10,000 unitsD. 7,000 unitsE. 13,000 units

  SUPPORTING CALCULATION: 7,000 units transferred out + 6,000 units in endinginventory = 13,000 units

  5. Read, Inc. instituted a new process in October. During October, 10,000 units werestarted in Department A. Of the units started, 7,000 were transferred to Department

  B, and 3,000 remained in work in process at October 31. The work in process atOctober 31 was 100% complete as to material costs and 50% complete as toconversion costs. Materials costs of P27,000 and conversion costs of P39,950 were

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  Materials unit cost = P27,000 ) (7,000 + 3,000) = P2.70

  Conversion unit cost = P39,950 ) [7,000 + 50%(3,000)] = P4.70Costs transferred = 7,000(P2.70 + P4.70) = P51,800

  C 6. Dover Corporation's production cycle starts in the Mixing Department. The followinginformation is available for April:

  UnitsWork in process, April 1 (50% complete)........................................... 40,000Started in April................................................................................... 240,000Work in process, April 30 (60% complete)......................................... 25,000

  Materials are added at the beginning of the process in the Mixing Department. Usingthe average cost method, what are the equivalent units of production for the monthof April?

  Materials ConversionA. 255,000 255,000B. 270,000 280,000C. 280,000 270,000

  D. 305,000 275,000E. 240,000 250,000

  SUPPORTING CALCULATION:

  Materials = 40,000 + 240,000 = 280,000Conversion = (280,000 - 25,000) + .6(25,000) = 270,000

  B 7. Information concerning Department A of Neeley Company for June is as follows:

  MaterialsUnits Costs

  Beginning work in process.............................................. 17,000 P12,800Started in June................................................................ 82,000 69,700Units completed.............................................................. 85,000Ending work in process................................................... 14,000

  All materials are added at the beginning of the process. Using the average costmethod, the cost per equivalent unit for materials is:A. P0.825B. P0.833C. P0.85D. P0.97E. P1.01

  SUPPORTING CALCULATION: (P12,800 + P69,700) ) (85,000 + 14,000) = P.833

  B 8. Kennedy Company adds materials in the beginning of the process in the FormingDepartment, which is the first of two stages of its production cycle. Informationconcerning the materials used in the Forming Department in October is as follows:

  MaterialsUnits Costs

  Work in process, October 1............................................. 6,000 P 3,000Units started................................................................... 50,000 25,560Units completed and transferred out.............................. 44,000

  Using the average cost method, what was the materials cost of work in process at

  October 31?A. P3,000B. P6,120

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  A 9. Connor Company computed the flow of physical units completed forDepartment M for the month of March as follows:

  Units completed:From work in process on March 1................................................... 15,000From March production................................................................... 45,000

  Total.......................................................................................... 60,000

  Materials are added at the beginning of the process. The 12,000 units of work inprocess at March 31 were 80% complete as to conversion costs. The work in processat March 1 was 60% complete as to conversion costs. Using the fifo method, theequivalent units for March conversion costs were:A. 60,600B. 55,200C. 57,000D. 54,600E. 63,600

  SUPPORTING CALCULATION: (15,000 x .4) + 45,000 + (12,000 x .8) = 60,600

  D 10. The Hilo Company computed the physical flow of units for Department A for the

  month of April as follows:

  Units completed:From work in process on April 1...................................................... 10,000From April production..................................................................... 30,000

  Total.......................................................................................... 40,000

  Materials are added at the beginning of the process. Units of work in process at April30 were 8,000. The work in process at April 1 was 80% complete as to conversioncosts, and the work in process at April 30 was 60% complete as to conversion costs.What are the equivalent units of production for the month of April using the fifomethod?

  Materials Conversion CostsA. 48,000 48,000B. 40,000 47,600C. 36,800 38,000D. 38,000 36,800E. 48,000 44,800

  SUPPORTING CALCULATION:

  Materials = 30,000 + 8,000 = 38,000Conversion = (10,000 x .2) + 30,000 + (8,000 x .6) = 36,800

  E 11. Department A is the first stage of Mann Company's production cycle. The following

  information is available for conversion costs for the month of April:

  ................................................................................................... UnitsBeginning work in process (60% complete)......................................... 20,000Started in April.................................................................................... 340,000Completed in April and transferred to Department B.......................... 320,000Ending work in process (40% complete).............................................. 40,000

  Using the fifo method, the equivalent units for the conversion cost calculation are:A. 336,000B. 360,000C. 328,000D. 320,000

  E. 324,000

  SUPPORTING CALCULATION:

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  C. Factory Overhead ControlD. Work in ProcessE. all of the above would be acceptable

  C 13. Scrap includes all of the following except:A. the trimmings remaining after processing materialsB. defective materials that cannot be used or returned to the vendorC. partially or fully completed units that are in some way defective

  D. broken parts resulting from employee or machine failuresE. all of the above

  A 14. When spoilage occurs because ofsome action taken by the customer, theunrecoverable cost of the spoilage should be charged to:A. Work in ProcessB. Spoiled Goods InventoryC. Factory Overhead ControlD. Applied Factory OverheadE. none of the above

  C 15. When spoilage occurs because ofsome internal failure, the unrecoverable costshould be charged to:

  A. Work in ProcessB. Spoiled Goods InventoryC. Factory Overhead ControlD. Applied Factory OverheadE. none of the above

  A 16. When rework occurs because ofsome action taken by the customer, the cost ofthe rework should be charged to:A. Work in ProcessB. Spoiled Goods InventoryC. Factory Overhead ControlD. Applied Factory OverheadE. none of the above

  C 17. When rework occurs because ofsome internal failure, the cost of the reworkshould be charged to:A. Work in ProcessB. Spoiled Goods InventoryC. Factory Overhead ControlD. Applied Factory OverheadE. none of the above

  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 shouldbe charged to would be based upon:

  A. spoiled unitsB. units transferred out and spoiled unitsC. units transferred out, spoiled units, and units in ending inventoryD. units transferred out and units in ending inventoryE. none of the above

  D 19. Spoilage occurs as a result ofnormal production shrinkage in a process costsystem. Using average costing, the number of equivalent units that productioncosts should be charged to would be based upon:A. spoiled unitsB. units transferred out and spoiled unitsC. units transferred out, spoiled units, and units in ending inventoryD. 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 failureh ld b d d

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  process inventory. There was no beginning inventory, and lost units were a result ofnormal production shrinkage. The production costs for the period in thisdepartment would be effectively allocated over:A. 12,000 unitsB. 11,000 unitsC. 10,000 unitsD. 7,000 unitsE. 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 normalproduction shrinkage of P10,000 and spoilage due to internal failure of P12,000.How much spoilage cost should Leo charge to Factory Overhead Control for themonth of March?A. P22,000B. P12,000C. P10,000D. P0E. none of the above

  C 23. Willis, Inc. instituted a new process in October. During October, 10,000 units werestarted in Department A. Of the units started, 1,000 were lost in the process due tonormal production shrinkage, 7,000 were transferred to Department B, and 2,000remained in work in process at October 31. The work in process at October 31 was100% complete as to materials costs and 50% complete as to conversion costs.Materials costs of P27,000 and conversion costs of P40,000 were charged toDepartment A in October. What were the total costs transferred to Department B?A. P46,900B. P53,600C. P56,000D. P57,120E. none of the above

  SUPPORTING CALCULATION:

  Materials: P27,000 ) (7,000 + 2,000) = P3

  Conversion: P40,000 ) (7,000 + 1,000) = P5Transferred costs: 7,000 x P8 = P56,000

  D 24. A company that manufactures baseballs begins operations on January 1. Eachbaseball requires three elements: a hard plastic core, several yards of twine that arewrapped around the plastic core, and a piece of leather to cover the baseball. Theplastic core is started down a conveyor belt and is automatically wrapped with thetwine to the approximate size of the baseball, at which time the leather cover issewn to the wrapped twine. Finished baseballs are inspected, and the ones that are

  defective due to internal production failure are pulled out. Defective baseballscannot be economically salvaged and are destroyed. Cost and production reportsfor the first week of operations are:

  Raw material cost.................................................................................. P 840Conversion cost...................................................................................... 315

  ...................................................................................................... P 1,155

  During the week, 2,100 baseballs were completed; 2,000 passed inspection. Therewas no ending work in process. The cost of the spoilage charged to FactoryOverhead is:A. P33B. P22

  C. P1,100D. P55E. none of the above

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  B. Applied Factory OverheadC. Spoiled Goods InventoryD. Work in ProcessE. none of the above

  D 26. If spoilage occurs as a result of an internal failure in a process cost system, using fifocosting, the number of equivalent units that production costs should be charged towould be based upon:

  A. spoiled unitsB. units transferred out and spoiled unitsC. units transferred out, beginning inventory, and units in ending inventoryD. units transferred out, spoiled units, units in ending inventory, and units in

  beginning inventoryE. none of the above

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  C 27. If spoilage occurs as a result of normal production shrinkage in a process costsystem, using fifo costing, the number of equivalent units that production costsshould be charged to would be based on:A. spoiled unitsB. units transferred out and spoiled unitsC. units transferred out, beginning inventory, and units in ending inventoryD. units transferred out, spoiled units, units in ending inventory, and units in

  beginning inventoryE. none of the above

  B 28. Primo Products transferred 15,000 units to one department. An additional 5,000units 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 inwork in process, 40% complete as to conversion costs and the remaining unitswere 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. 14,400B. 12,900C. 13,900

  D. 13,400E. none of the above

  SUPPORTING CALCULATION:

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

  (12,000 - 5,000)............................................................................. 7,000Equivalent units in ending inventory (40% x 6,000)............................. 2,400Equivalent 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 weretransferred 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 conversioncosts, and lost units were the result ofnormal production shrinkage. Theequivalent units of conversion cost using fifo is:A. 11,400B. 14,400C. 12,900D. 13,400E. none of the above

  SUPPORTING CALCULATION:

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

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

  Total equivalent units........................................................................... 11,400

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  COSTING BY-PRODUCTS AND JOINT PRODUCTS

  D 30. The Hovart Corporation manufactures two products out of a joint process-Compodand Ultrasene. The joint (common) costs incurred are P250,000 for a standardproduction run that generates 120,000 gallons of Compod and 80,000 gallons ofUltrasene. Compod sells for P2.00 per gallon, while Ultrasene sells for P3.25 per

  gallon. If there are no additional processing costs incurred after the split-off point,the amount of joint cost of each production run allocated to Compod by thequantitative unit method is:A. P100,000B. P120,000C. P130,000D. P150,000E. some amount other than those given above

  SUPPORTING CALCULATION:

  $150,000=$250,000_80,000+120,000

  120,000

  A 31. Ace Company produced 20,000 units of Clubs, 15,000 units of Diamonds, and10,000 units of Hearts. If the company uses the average unit cost method ofallocating joint production costs, which were P120,000 for the period, the jointcosts allocated to Diamonds would be:A. P40,000B. P20,000C. P80,000D. P45,000E. none of the above

  SUPPORTING CALCULATION:

  C 32. A company uses the weighted average method to assign joint products. Weightfactors used to assign joint costs to its three joint products were: Product A, 4points; Product B, 7 points; and Product C, 8 points. Units produced were:Product A, 10,000; Product B, 5,000; and Product C, 3,125. The amount of the

  joint costs of P100,000 that would be allocated to Product C are:A. P42,105B. P17,241

  C. P25,000D. P30,000E. none of the above

  D 33. Tobin Company manufactures products S and T from a joint process. The marketvalue at split-off was P50,000 for 6,000 units of Product S and P50,000 for 2,000units of Product T. Assuming that the portion of the total joint cost properlyallocated to Product S using the market value method was P30,000, the total jointcost was:

  $40,000=$120,000_10,000+15,000+20,000

  15,000

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  A. P40,000B. P42,500C. P45,000D. P60,000E. P75,000

  SUPPORTING CALCULATION:

  $60,000=.5

  $30,000

  .5=$50,000+$50,000

  $50,000

  D 34. Alphabet Company manufactures Products A and B from a joint process that alsoyields a by-product, X. Alphabet accounts for the revenues from its by-productsales as a deduction from the cost of goods sold of its main products. Additionalinformation is as follows:

  A B X TotalUnits produced.................... 15,000 9,000 6,000 30,000

  Joint costs............................ P264,000Market value at split-off....... P290,000 P150,000 P 10,000 P450,000

  Assuming that joint product costs are allocated using the market value at thesplit-off approach, the joint cost allocated to Product B would be:A. P136,540

  B. P79,200C. P88,000D. P86,591E. P99,000

  SUPPORTING CALCULATION:

  $86,591=$10,000)($264,000_$150,000+$290,000

  $150,000

  D 35. Idaho Corporation manufactures liquid chemicals A and B from a joint process.Joint costs are allocated on the basis of relative market value at split-off. It costsP4,560 to process 500 gallons of Product A and 1,000 gallons of Product B to thesplit-off point. The market value at split-off is P10 per gallon for Product A and

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  P14 for Product B. Product B requires an additional process beyond split-off at acost of P2 per gallon before it can be sold. What is Idaho's cost to produce 1,000gallons of Product B?A. P5,040B. P4,360C. P4,860

  D. P5,360E. P3,360

  36.Determination of Ending Inventory; Hypothetical Market Value Method. Macho Inc.manufactures two beveragesCRed Eye and Tornado. The production process is such thatboth beverages are jointly processed in the Basic Blending Department. At the end of thebasic blending process, Red Eye is sold at P10 per gallon, but Tornado must be processed ata further cost of P7 per gallon before it can be sold at P15 per gallon. In June, the total jointcost amounted to P96,000, while 5,000 gallons of Red Eye and 12,500 gallons of Tornadowere produced. There were no beginning inventories. At the end of June, there were 1,500gallons of Red Eye and 2,000 gallons of Tornado on hand.

  Required: Calculate the ending inventory costs for Red Eye and Tornado, using thehypothetical market value method.SOLUTION

  EndingInventory Unit Costs Total

  Product (Units) (per Schedule) CostsRed Eye................................................................... 1,500 P 6.40 P 9,600

  Tornado................................................................... 2,000 12.12 24,240Ending inventory............................................... P 33,840

  Ultimate Ultimate Processing)Market Value Units Market Costs After)

  Product per Unit Produced Value Split-Off )Red Eye............................................... P10 5,000 P 50,000 0 )

  Tornado............................................... 15 12,500 187,500 P87,5001 )P 237,500 P87,500 )

  ( Total( Hypothetical Joint Cost Production( Market Value Allocation2 Cost Unit Cost( P 50,000 P32,000 P 32,000 P 6.40( 100,000 64,000 151,500 12.12( P 150,000 P96,000 P 183,500

  112,500 units x P7 = P87,5002P96,000/P150,000 = 64%, percentage to allocate joint cost

  COST OF QUALITY

  A 37. The quality costs that are associated with materials and products that fail to meetquality standards and result in manufacturing losses are known as:A. internal failure costsB. external failure costsC. prevention costsD. appraisal costsE. none of the above

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  D 38. The quality costs that are associated with designing, implementing, andmaintaining the quality system are known as:A. appraisal costsB. internal failure costsC. external failure costsD. prevention costs

  E. none of the above

  C 39. The quality costs that are incurred to ensure that materials and products meetquality standards are known as:A. external failure costsB. prevention costsC. appraisal costsD. internal failure costsE. none of the above

  B 40. The quality costs that are incurred because inferior quality products are shippedto customers are known as:A. internal failure costsB. external failure costsC. prevention costsD. appraisal costsE. none of the above

  D 41. All of the following are characteristics of total quality management except:A. the company's objective for all business activity is to serve its customersB. top management provides an active leadership role in quality improvementC. all employees are actively involved in quality improvementD. the company maintains a loosely defined system of identifying quality

  problems so as not to stifle employee creativityE. the company provides continuous training as well as recognition for

  achievement

  A 42. The best approach to quality improvement is to concentrate on:A. preventionB. detectionC. appraisalD. increased productionE. none of the above

  C 43. A mathematical technique used to monitor production quality and reduce productvariability is:A. the method of least squaresB. the statistical scattergraph methodC. statistical process controlD. linear programming

  E. none of the above

  D 44. Appraisal costs include all of the following except:A. inspecting and testing materialsB. inspecting products during and after productionC. obtaining information from customers about product satisfactionD. designing quality into the product and the production processE. all of the above

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  B 45. Internal failure costs include all of the following except:A. the cost of the scrapB. the cost of warranty repairs and replacementsC. reworkD. downtime due to machine failuresE. all of the above

  THEORY OF CONSTRAINTS

  C 46. A specialized version of direct costing for short-run optimization is :A. learning theoryB. absorption costingC. the theory of constraintsD. variable costingE. none of the above

  D 47. The theory of constraints uses which of the following basic measures :A. throughput

  B. operating expenseC. assetsD. all of the aboveE. none of the above

  B 48. The practice of improving a reported volume or idle capacity variance byproducing more than is currently needed is viewed by the theory of constraints as:A. a benefit with no cost increaseB. a cost increase with no benefitC. both a cost increase and a benefitD. worthwhile from a cost/benefit perspectiveE. none of the above

  E 49. The theory of constraints is a short-run optimization technique that views whichof the following as relatively constant :A. resourcesB. technologyC. product linesD. demandE. all of the above

  A 50. The theory of constraints is primarily useful for :A. short-run decisionsB. medium range decisionsC. long-run decisions

  D. both short-run and long-run decisionsE. medium range to long-run decisions

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When rework occurs because of some internal failure the cause of the rework should be charged to?

What is the cost of internal failure?

Which cost items would be classified as an internal failure cost?

What are the two types of failure costs?