Finco Man

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CHAPTER 18
SPOILAGE, REWORK, AND SCRAP

TRUE/FALSE

1.Reducing defects helps to reduce costs, but it does not make the business more competitive.

2.Scrap and rework are considered to be the same thing by managerial accountants.

3.Spoilage can be considered either normal or abnormal.

4.Counting spoiled units as part of output units in a process-costing system usually results in a higher cost per unit.

5.Under the FIFO method, all spoilage costs are assumed to be related to the units completed during this period using the unit costs of the current period.

6.Under standard costing, there is no need to calculate a cost per equivalent unit.

7.Abnormal spoilage costs are not considered inventoriable costs under a job-costing system.

8.Costs are assigned to scrap only if it is normal scrap.

MULTIPLE CHOICE

1.Managers often cite reductions in the costs of spoilage as a(n):
a.major justification for implementing a just-in-time production system
b.measurement of improved output quality
c.immaterial item that is not to be tracked
d.indication of improvement in the accounting system

2.Material left over when making a product is referred to as:
a.reworked units
b.spoilage
c.scrap
d.defective units

3.Costs of normal spoilage are usually accounted for as:
a.part of the cost of goods sold
b.part of the cost of goods manufactured
c.a separate line item in the income statement
d.an asset in the balance sheet

4.Companies that attempt to achieve zero defects in the manufacturing process treat spoilage as:
a.scrap
b.reworked units
c.abnormal spoilage
d.normal spoilage

5.Recognition of spoiled units when computing output units:
a.highlights the costs of normal spoilage to management
b.distorts the accounting data
c.focuses management's attention on reducing spoilage
d.Both a and c are correct.
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 6 THROUGH 7:
Craft 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 5% of the good units. Data for December 20X5 are as follows:

WIP, beginning inventory 12/1/20X510,000 units
Direct materials (100% complete)
Conversion costs (75% complete)
Started during December40,000 units
Completed and transferred out 12/31/20X538,400 units
WIP, ending inventory 12/31/20X58,000 units
Direct materials (100% complete)
Conversion costs (65% complete)

Costs for December:
WIP, beginning Inventory:
Direct materials$ 50,000
Conversion costs30,000
Direct materials added100,000
Conversion costs added140,000

6.What is the number of total spoiled units?
a.1,600 units
b.2,000 units
c.2,700 units
d.3,600 units

7.Abnormal spoilage totals:
a.1,600 units
b.2,000 units
c.1,680 units
d.1,920 units

8.The cost per good unit in the weighted-average method is equal to the:
a.total cost of direct materials and conversion costs per equivalent unit, plus a share of normal spoilage
b.sum of the costs per equivalent unit of direct materials, and conversion costs
c.total costs divided by total...
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