Assignment Material

Questions

1. 19-1. Why is there an unmistakable trend in manufacturing to improve quality? 
2. 19-2. Distinguish among spoilage, rework, and scrap. 
3. 19-3. “Normal spoilage is planned spoilage.” Discuss. 
4. 19-4. “Costs of abnormal spoilage are losses.” Explain. 
5. 19-5. “What has been regarded as normal spoilage in the past is not necessarily acceptable as normal spoilage in the present or future.” Explain. 
6. 19-6. “Units of abnormal spoilage are inferred rather than identified.” Explain. 
7. 19-7. “In accounting for spoiled units, we are dealing with cost assignment rather than cost incurrence.” Explain. 
8. 19-8. “Normal spoilage rate is computed by dividing the units of normal spoilage by total actual units started in production.” Do you agree? Explain. 
9. 19-9. “The inspection point is key to the allocation of spoilage costs.” Do you agree? Explain. 
10. 19-10. “The unit cost of normal spoilage is the same as the unit cost of abnormal spoilage.” Do you agree? Explain. 
11. 19-11. “In job costing, the costs of normal spoilage that occur while a specific job is being done are charged to the specific job.” Do you agree? Explain. 
12. 19-12. “The costs of rework are always charged to the specific jobs in which the defects were originally discovered.” Do you agree? Explain. 
13. 19-13. “Abnormal rework costs should be charged to a loss account, not to manufacturing overhead.” Do you agree? Explain. 
14. 19-14. When is a company justified in inventorying scrap? 
15. 19-15. How do managers use information about scrap?

Multiple-Choice Questions

1. 19-16. All of the following are accurate regarding the treatment of normal or abnormal spoilage by a firm with the exception of 
   1. a. Abnormal spoilage is excluded in the standard cost of a manufactured product. 
   2. b. Normal spoilage is capitalized as part of inventory cost. 
   3. c. Abnormal spoilage has no financial statement impact. 
   4. d. Normal and abnormal spoilage units affect the equivalent units of production. 
2. 19-17. Which of the following is a TRUE statement regarding the treatment of scrap by a firm? 
   1. a. Scrap is always allocated to a specific job. 
   2. b. Scrap is separated between normal and abnormal scrap. 
   3. c. When scrap is material and specific to a job, the accounting for scrap lowers the total costs for that job. 
   4. d. There are costs assigned to scrap. 
3. 19-18. Healthy Dinners Co. produces frozen dinners for the health conscious consumer. During the quarter ended September 30, the company had the following cost data:

1. Based on the above, what is the total amount of period expenses reflected in the company’s income statement for the quarter ended September 30? 
   1. a. $200,000
   2. b. $240,000
   3. c. $290,000
   4. d. $300,000 
2. 19-19. Fresh Products, Inc. incurred the following costs during December related to the production of its 162,500 frozen ice cream cone specialty items:

1. What is the December per-unit inventory cost allocated to the company’s frozen ice cream cone specialty items? 
   1. a. $3.18
   2. b. $3.20
   3. c. $3.22
   4. d. $3.26 
2.  ©2016 DeVry/Becker Educational Development Corp. All Rights Reserved. 

Exercises

1. 19-20. NORMAL AND ABNORMAL SPOILAGE IN UNITS. The following data, in physical units, describe a grinding process for January:

1. Inspection occurs at the 100% completion stage. Normal spoilage is 5% of the good units passing inspection.
   1. Required
   2. 1. Compute the normal and abnormal spoilage in units.
   3. 2. Assume that the equivalent-unit cost of a spoiled unit is $8. Compute the amount of potential savings if all spoilage were eliminated, assuming that all other costs would be unaffected. Comment on your answer.
2. 19-21. WEIGHTED-AVERAGE METHOD, SPOILAGE, EQUIVALENT UNITS. (CMA, adapted) Consider the following data for November 2020 from MacLean Manufacturing Company, which makes silk pennants and uses a process-costing system. All direct materials are added at the beginning of the process and conversion costs are added evenly during the process. Spoilage is detected upon inspection at the completion of the process. Spoiled units are disposed of at zero net disposal value. MacLean Manufacturing Company uses the weighted-average method of process costing.

1. Required
2. Compute equivalent units for direct materials and conversion costs. Show physical units in the first column.
3. 19-22. WEIGHTED-AVERAGE METHOD, ASSIGNING COSTS (CONTINUATION OF 19-21).
4. Required
5. For the data in Exercise 19-21, summarize total costs to account for; calculate cost per equivalent unit for direct materials and conversion costs; and assign costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work-in-process inventory.
6. 19-23. FIFO METHOD, SPOILAGE, EQUIVALENT UNITS (CONTINUATION OF 19-21). Refer to the information in Exercise 19-21. Suppose MacLean Manufacturing Company uses the FIFO method of process costing instead of the weighted-average method..
7. Required
8. Compute equivalent units for direct materials and conversion costs. Show physical units in the first column.
9. 19-24. FIFO METHOD, ASSIGNING COSTS (CONTINUATION OF 19-23).
10. Required
11. For the data in Exercise 19-21, use the FIFO method to summarize total costs to account for; calculate cost per equivalent unit for direct materials and conversion costs; and assign costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process inventory.

1. 19-25. WEIGHTED-AVERAGE METHOD, SPOILAGE. LaCroix Company produces handbags from leather of moderate quality. It distributes the product through outlet stores and department store chains. At LaCroix’s facility in northeast Ohio, direct materials (primarily leather hides) are added at the beginning of the process, while conversion costs are added evenly during the process. Spoiled units are detected upon inspection at the end of the process and are discarded at a net disposal value of zero.
2. LaCroix uses the weighted-average method of process costing. Summary data for April 2020 are shown below:

1. 1. Required 
   2. 1. For each cost category, calculate equivalent units. Show physical units in the first column.
   3. 2. Summarize total costs to account for; calculate cost per equivalent unit for each cost category; and assign costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process inventory.
2. 19-26. FIFO METHOD, SPOILAGE (CONTINUATION OF 19-25).
   1. Required 
   2. 1. Do Exercise 19-25 using the FIFO method.
   3. 2. What are the managerial issues involved in selecting or reviewing the percentage of spoilage considered normal? How would your answer to requirement 1 differ if all spoilage were viewed as normal?
3. 19-27. SPOILAGE, JOURNAL ENTRIES. Mason produces small machined parts. Mason uses a job-costing system. The nature of its process is such that management expects normal spoilage at a rate of 2% of good parts. Data for last quarter are shown below:

1. The spoiled parts were identified after 100% of the direct material cost was incurred. The disposal value is $0.20/part.
   1. Required 
   2. 1. Record the journal entries if the spoilage was (a) job specific or (b) common to all jobs.
   3. 2. Comment on the differences arising from the different treatment for these two scenarios. 
2. 19-28. RECOGNITION OF LOSS FROM SPOILAGE. Southwest Toys manufactures globes at its San Fernando facility. The company uses job costing and provides you with the following information regarding operations for April 2020:

1. Assume the spoiled units have no disposal value.
   1. Required 
   2. 1. What is the unit cost of making the 35,000 globes?
   3. 2. What is the total cost of the 850 spoiled units?
   4. 3. If the spoilage is considered normal, what is the increase in the unit cost of good globes manufactured as a result of the spoilage?
   5. 4. If the spoilage is considered abnormal, prepare the journal entries for the spoilage incurred.
2. 19-29. WEIGHTED-AVERAGE METHOD, SPOILAGE. LogicCo is a fast-growing manufacturer of computer chips. Direct materials are added at the start of the production process. Conversion costs are added evenly during the process. Some units of this product are spoiled as a result of defects not detectable before inspection of finished goods. Spoiled units are disposed of at zero net disposal value. LogicCo uses the weighted-average method of process costing.
3. Summary data for September 2020 are shown below:

1. Required 
   1. 1. For each cost category, compute equivalent units. Show physical units in the first column.
   2. 2. Summarize total costs to account for; calculate cost per equivalent unit for each cost category; and assign costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process inventory.
2. 19-30. FIFO METHOD, SPOILAGE (CONTINUATION OF 19-29). Refer to the information in Exercise 19-29.
   1. Required 
   2. 1. Do Exercise 19-29 using the FIFO method of process costing.
   3. 2. Should LogicCo’s managers choose the weighted-average method or the FIFO method? Explain.
3. 19-31. STANDARD-COSTING METHOD, SPOILAGE (CONTINUATION OF 19-29). Refer to the information in Exercise 19-29. Suppose LogicCo determines standard costs of $215 per equivalent unit for direct materials and $92 per equivalent unit for conversion costs for both beginning work in process and work done in the current period.
   1. Required 
   2. 1. Do Exercise 19-29 using the standard-costing method.
   3. 2. What issues should the manager focus on when reviewing the equivalent units calculations?
4. 19-32. SPOILAGE AND JOB COSTING. (L. Bamber) Barrett Kitchens produces a variety of items in accordance with special job orders from hospitals, plant cafeterias, and university dormitories. An order for 2,100 cases of mixed vegetables costs $9 per case: direct materials, $4; direct manufacturing labor, $3; and manufacturing overhead allocated, $2. The manufacturing overhead rate includes a provision for normal spoilage. Consider each requirement independently.
   1. Required 
   2. 1. Assume that a laborer dropped 420 cases. Suppose part of the 420 cases could be sold to a nearby prison for $420 cash. Prepare a journal entry to record this event. Calculate and explain briefly the unit cost of the remaining 1,680 cases.
   3. 2. Refer to the original data. Tasters at the company reject 420 of the 2,100 cases. The 420 cases are disposed of for $840. Assume that this rejection rate is considered normal. Prepare a journal entry to record this event, and do the following:
      1. a. Calculate the unit cost if the rejection is attributable to exacting specifications of this particular job.
      2. b. Calculate the unit cost if the rejection is characteristic of the production process and is not attributable to this specific job.
      3. c. Are unit costs the same in requirements 2a and 2b? Explain your reasoning briefly.
   4. 3. Refer to the original data. Tasters rejected 420 cases that had insufficient salt. The product can be placed in a vat, salt can be added, and the product can be reprocessed into jars. This operation, which is considered normal, will cost $420. Prepare a journal entry to record this event and do the following:
      1. a. Calculate the unit cost of all the cases if this additional cost was incurred because of the exacting specifications of this particular job.
      2. b. Calculate the unit cost of all the cases if this additional cost occurs regularly because of difficulty in seasoning.
      3. c. Are unit costs the same in requirements 3a and 3b? Explain your reasoning briefly.
5. 19-33. REWORKED UNITS, COSTS OF REWORK. Heyer Appliances assembles dishwashers at its plant in Tuscaloosa, Alabama. In February 2020, 60 circulation motors that cost $110 each (from a new supplier that subsequently went bankrupt) were defective and had to be disposed of at zero net disposal value. Heyer Appliances was able to rework all 60 dishwashers by substituting new circulation motors purchased from one of its existing suppliers. Each replacement motor cost $125.
   1. Required 
   2. 1. What alternative approaches are there to account for the materials cost of reworked units?
   3. 2. Should Heyer Appliances use the $110 circulation motor or the $125 motor to calculate the cost of materials reworked? Explain.
   4. 3. What other costs might Heyer Appliances include in its analysis of the total costs of rework due to the circulation motors purchased from the (now) bankrupt supplier?
6. 19-34. SCRAP, JOB COSTING. The Russell Company has an extensive job-costing facility that uses a variety of metals. Consider each requirement independently.
   1. Required 
   2. 1. Job 372 uses a particular metal alloy that is not used for any other job. Assume that scrap is material in amount and sold for $480 quickly after it is produced. Prepare the journal entry.
   3. 2. The scrap from Job 372 consists of a metal that can be used by many other jobs. No record is maintained of the scrap generated by individual jobs. Scrap is accounted for at the time of its sale. Scrap totaling $4,500 is sold. Prepare two alternative journal entries that could be used to account for the sale of scrap.
   4. 3. Suppose the scrap generated in requirement 2 is returned to the storeroom for future use, and a journal entry is made to record the scrap. A month later, the scrap is reused as direct material on a subsequent job. Prepare the journal entries to record these transactions.

Problems

1. 19-35. WEIGHTED-AVERAGE METHOD, SPOILAGE. World Class Steaks is a meat-processing firm based in Texas. It uses the weighted-average method of process costing and has two departments: preparation (prep) and shipping. For the prep department, conversion costs are added evenly during the process, and direct materials are added at the beginning of the process. Spoiled units are detected upon inspection at the end of the prep process and are disposed of at zero net disposal value. All completed work is transferred to the shipping department. Summary data for May follow on the next page:

1. Required 
2. For the prep department, summarize total costs to account for and assign those costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process inventory. (Problem 19-37 explores additional facets of this problem.)
3. 19-36. FIFO METHOD, SPOILAGE (CONTINUATION OF 19-35). Refer to the information in Problem 19-35.
4. Required 
5. Do Problem 19-35 using the FIFO method of process costing. (Problem 19-38 explores additional facets of this problem.)
6. 19-37. WEIGHTED-AVERAGE METHOD, SHIPPING DEPARTMENT (CONTINUATION OF 19-35). In the shipping department of World Class Steaks, conversion costs are added evenly during the process and direct materials are added at the end of the process. Spoiled units are detected upon inspection at the end of the process and are disposed of at zero net disposal value. The transferred-in costs for May equal the total cost of good units completed and transferred out in May from the prep department, calculated in Problem 19-35 using the weighted-average method of process costing. Summary data for May follow:

1. Required 
2. For the shipping department, use the weighted-average method to summarize total costs to account for and assign those costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process inventory.
3. 19-38. FIFO METHOD, SHIPPING DEPARTMENT (CONTINUATION OF 19-36). Refer to the information in Problem 19-37 except that transferred-in costs of beginning work in process on May 1 are $66,180 (instead of $67,397). Transferred-in costs for May equal the total cost of good units completed and transferred out in May from the prep department, as calculated in Problem 19-36 using the FIFO method of process costing.
4. Required 
5. For the shipping department, use the FIFO method to summarize total costs to account for and assign those costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process inventory.

1. 19-39. PHYSICAL UNITS, INSPECTION AT VARIOUS LEVELS OF COMPLETION, WEIGHTED-AVERAGE PROCESS COSTING. Jiminy Jacks produces jacks that are used in many types of automobiles. In the assembly department, materials are added at the beginning of the process and conversion costs are added evenly during the process.
2. At the start of April 2020, Jiminy Jacks assembly department had 2,500 jacks in beginning work-in-process inventory that were 100% complete for materials and 50% complete for conversion costs.
3. An additional 14,000 jacks were started in April and 3,500 remain in work-in-process at the end of the month. The unfinished units are 100% complete for materials and 80% complete for conversion costs.
4. The assembly department had 2,000 spoiled units in April. The rate of normal spoilage is 10% of good units.
5. Required
6.  1. Using the format on page 760, compute the normal and abnormal spoilage in units for April, assuming the inspection point is at (a) the 40% stage of completion, (b) the 70% stage of completion, and (c) the 100% stage of completion.
7. 2. Refer to your answer in requirement 1. Why are there different amounts of normal and abnormal spoilage at different inspection points?
8. 19-40. SPOILAGE IN JOB COSTING. Paradise Bay Shop is a manufacturer of golf carts.
   1. Peter Cranston, the plant manager of Paradise Bay, obtains the following information for Job #22 in August 2020. A total of 23 units were started, and 3 spoiled units were detected and rejected at final inspection, yielding 20 good units. The spoiled units were considered to be normal spoilage. Costs assigned prior to the inspection point are $1,300 per unit. The current disposal price of the spoiled units is $215 per unit. When the spoilage is detected, the spoiled goods are inventoried at $215 per unit.
9. Required
10.  1. What is the normal spoilage rate?
11. 2. Prepare the journal entries to record the normal spoilage, assuming the following:
    1. a. The spoilage is related to a specific job.
    2. b. The spoilage is common to all jobs.
    3. c. The spoilage is considered to be abnormal spoilage.
    4. 19-41. REWORK IN JOB COSTING, JOURNAL ENTRY (CONTINUATION OF 19-40). Assume that the 3 spoiled units of Paradise Bay Shop’s Job #22 can be reworked for a total cost of $2,200. A total cost of $3,900 associated with these units has already been assigned to Job #22 before the rework.
    5. Required
    6. Prepare the journal entries for the rework, assuming the following:
       1. a. The rework is related to a specific job.
       2. b. The rework is common to all jobs.
       3. c. The rework is considered to be abnormal.
    7. 19-42. SCRAP AT TIME OF SALE OR AT TIME OF PRODUCTION, JOURNAL ENTRIES (CONTINUATION OF 19-40). Assume that Job #22 of Paradise Bay Shop generates scrap with a total sales value of $400 (it is assumed that scrap returned to the storeroom is sold quickly).
    8. Required
    9. Prepare journal entries for the recognition of scrap, assuming the following:
       1. a. The value of scrap is immaterial and scrap is recognized at the time of sale.
       2. b. The value of scrap is material, is related to a specific job, and is recognized at the time of sale.
       3. c. The value of scrap is material, is common to all jobs, and is recognized at the time of sale.
       4. d. The value of scrap is material, is recognized as inventory at the time of production, and is recorded at its net realizable value.
    10. 19-43. PHYSICAL UNITS, INSPECTION AT VARIOUS STAGES OF COMPLETION. Chemet manufactures chemicals in a continuous process. The company combines various materials in a machine at the beginning of the process, and conversion costs are added evenly during the process. Occasionally, the chemical reactions among the materials do not work as expected and the output is spoiled. Normal spoilage is 4% of good units that pass inspection. The following information pertains to March 2020:

1. Required
2. Using the format on page 760, compute normal and abnormal spoilage in units, assuming the inspection point is at the (1) 20% stage of completion, (2) 45% stage of completion, and (3) 100% stage of completion.
3. 19-44. WEIGHTED-AVERAGE METHOD, INSPECTION AT 80% COMPLETION. (A. Atkinson) The Horsheim Company manufactures furniture in two departments: molding and finishing. The company uses the weighted-average method of process costing. August data for the finishing department are as follows:

1. Conversion costs are added evenly during the process. Direct material costs are added when production is 90% complete. The inspection point is at the 80% stage of production. Normal spoilage is 10% of all good units that pass inspection. Spoiled units are disposed of at zero net disposal value.
   1. Required 
   2. 1. For August, summarize total costs to account for and assign these costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process inventory.
   3. 2. What are the managerial issues involved in determining the percentage of spoilage considered normal? How would your answer to requirement 1 differ if all spoilage were treated as normal?
2. 19-45. JOB COSTING, CLASSIFYING SPOILAGE, ETHICS. Flextron Company is a contract manufacturer for a variety of pharmaceutical and over-the-counter products. Lynn Sanger, one of Flextron’s quality control managers, obtains the following information for Job No. M102. The order was completed recently, just before the close of Flextron’s fiscal year. The units will be delivered early in the next accounting period. A total of 128,500 units were started, and 6,000 spoiled units were rejected at final inspection, yielding 122,500 good units. Normal spoilage is 2,500 units. Spoiled units were sold at $4 per unit. Sanger indicates that all spoilage was related to this specific job.
3. The total costs for all 128,500 units of Job No. M102 follow. The job has been completed, but the costs are yet to be transferred to Finished Goods.

1. 1. Required 
   2. 1. Calculate the unit quantities of normal and abnormal spoilage.
   3. 2. Prepare journal entries to account for Job No. M102, including spoilage, disposal of spoiled units, and transfer of costs to the Finished Goods account.
   4. 3. Flextron’s controller, Vince Chadwick, tells Marta Suarez, the management accountant responsible for Job No. M102, the following: “This was an unusual job. I think all 6,000 spoiled units should be considered normal.” Suarez knows that the work involved in Job No. M102 was typical and that normal spoilage is 2,500 units. She feels Chadwick made these comments because he wants to show a higher operating income for the year.
      1. a. Prepare journal entries, similar to requirement 2, to account for Job No. M102 if all spoilage were considered normal. How will operating income be affected if all spoilage is considered normal?
      2. b. What should Suarez do in response to Chadwick’s comment?