AC 512 review_2003

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PROCESS COSTING- W.A. & FIFO

1. Chicago Processing Co. uses the average costing method and reported a beginning inventory of

5,000 units that were 20% complete with respect to materials in one department. 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 to materials. Total materials cost during the period for

work in process should be spread over:

A. 7,200 units

B. 16,000 units

C. 11,200 units

D. 13,200 units

E. 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 ending work in process

was 45% complete as to conversion costs. The dollar amount of the conversion 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 ending inventory in the

Milling Department consisted of 3,000 units. These units were 60% complete with respect to laborand factory overhead. Materials are applied at the end of the milling process. Unit costs for the

complete process in the Milling Department are: materials, P1; labor, P2; and factory overhead,

P3. The appropriate unit cost for each unit in the ending inventory is:

A. P2

B. P5

C. P3

D. P6

E. P4

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

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A. 17,000 units

B. 3,000 units

C. 10,000 units

D. 7,000 units

E. 13,000 units

SUPPORTING CALCULATION: 7,000 units transferred out + 6,000 units in ending

inventory = 13,000 units

5. Read, Inc. instituted a new process in October. During October, 10,000 units were started 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 at October 31 was 100% complete as to

material costs and 50% complete as to conversion costs. Materials costs of P27,000 and

conversion costs of P39,950 were charged to Department A in October. What were the total costs

transferred to Department B?

A. P46,900

B. P53,600

C. P51,800

D. P57,120

E. none of the above

SUPPORTING CALCULATION:

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

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

Costs transferred = 7,000(P2.70 + P4.70) = P51,800

C 6. Dover Corporation's production cycle starts in the Mixing Department. The following information is

available for April:

Units

Work in process, April 1 (50% complete)............................................................ 40,000

Started in April .................................................................................................... 240,000

Work in process, April 30 (60% complete) ......................................................... 25,000

Materials are added at the beginning of the process in the Mixing Department. Using the average

cost method, what are the equivalent units of production for the month of April?

Materials Conversion

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Materials = 40,000 + 240,000 = 280,000

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

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

Materials

Units Costs

Beginning work in process............................................................. 17,000 P12,800

Started in June.............................................................................. 82,000 69,700

Units completed............................................................................. 85,000

Ending work in process ................................................................. 14,000

All materials are added at the beginning of the process. Using the average cost method, the cost

per equivalent unit for materials is:

A. P0.825

B. P0.833

C. P0.85

D. P0.97

E. 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 Forming Department,

which is the first of two stages of its production cycle. Information concerning the materials used in

the Forming Department in October is as follows:

Materials

Units Costs

Work in process, October 1 ........................................................... 6,000 P 3,000

Units started.................................................................................. 50,000 25,560

Units completed and transferred out .............................................. 44,000

Using the average cost method, what was the materials cost of work in process at October 31?

A. P3,000

B. P6,120

C. P3,060

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P.51 x 12,000 = P6,120

A 9. Connor Company computed the flow of physical units completed for Department M for the

month of March as follows:

Units completed:

From work in process on March 1 ................................................................... 15,000

From March production .................................................................................... 45,000

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

Materials are added at the beginning of the process. The 12,000 units of work in process at March

31 were 80% complete as to conversion costs. The work in process at March 1 was 60% complete

as to conversion costs. Using the fifo method, the equivalent units for March conversion costs

were:

A. 60,600

B. 55,200

C. 57,000

D. 54,600

E. 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...................................................................... 10,000

From April production ...................................................................................... 30,000

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

Materials are added at the beginning of the process. Units of work in process at April 30 were

8,000. The work in process at April 1 was 80% complete as to conversion costs, 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 fifo method?

Materials Conversion Costs

A. 48,000 48,000

B. 40,000 47,600

C. 36,800 38,000

D. 38,000 36,800

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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:

.................................................................................................................. Units

Beginning work in process (60% complete) ......................................................... 20,000

Started in April ..................................................................................................... 340,000

Completed in April and transferred to Department B............................................. 320,000

Ending work in process (40% complete).............................................................. 40,000

Using the fifo method, the equivalent units for the conversion cost calculation are:

A. 336,000

B. 360,000

C. 328,000

D. 320,000

E. 324,000


(20,000 x .4) + 300,000 + (40,000 x .4) = 324,000

SCRAP & SPOILAGE

E 12. All of the following accounts would be acceptable ones to credit at the time scrap is sold except:

A. Scrap Sales

B. Cost of Goods Sold

C. Factory Overhead Control

D. Work in Process

E. all of the above would be acceptable

C 13. Scrap includes all of the following except:

A. the trimmings remaining after processing materials

B. defective materials that cannot be used or returned to the vendor

C. partially or fully completed units that are in some way defective

D. broken parts resulting from employee or machine failures

E. all of the above

A 14. When spoilage occurs because of some action taken by the customer, the unrecoverable cost of

the spoilage should be charged to:

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C 15. When spoilage occurs because of some internal failure, the unrecoverable cost should be charged

to:

A. Work in Process

B. Spoiled Goods Inventory


D. Applied Factory Overhead


A 16. When rework occurs because of some action taken by the customer, the cost of the rework

should be charged to:

A. Work in Process





C 17. When rework occurs because of some internal failure, the cost of the rework should be charged

to:

A. Work in Process





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 should be charged to would be based

upon:

A. spoiled units

B. units transferred out and spoiled units

C. units transferred out, spoiled units, and units in ending inventory

D. units transferred out and units in ending inventory


D 19. Spoilage occurs as a result of normal production shrinkage in a process cost system. Using

average costing, the number of equivalent units that production costs should be charged to would

be based upon:

A. spoiled units


C. units transferred out, spoiled units, and units in ending inventory

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B. dr. Work in Process; cr. Factory Overhead Control

C. dr. Factory Overhead Control; cr. Work in Process

D. dr. Materials; cr. Factory Overhead

E. dr. Finished Goods; cr. Work in Process

B 21. Gyro Products transferred 10,000 units to one department. An additional 3,000 units of materials

were added in the department. At the end of the month, 7,000 units were transferred to finished

goods; while 4,000 units remained in work in process inventory. There was no beginning

inventory, and lost units were a result of normal production shrinkage. The production costs for

the period in this department would be effectively allocated over:

A. 12,000 units

B. 11,000 units

C. 10,000 units

D. 7,000 units

E. 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 normal production 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 the month of March?

A. P22,000

B. P12,000

C. P10,000

D. P0


C 23. Willis, Inc. instituted a new process in October. During October, 10,000 units were started in

Department A. Of the units started, 1,000 were lost in the process due to normal production

shrinkage, 7,000 were transferred to Department B, and 2,000 remained in work in process at

October 31. The work in process at October 31 was 100% 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 to Department A in October. What were the total costs transferred to

Department B?

A. P46,900

B. P53,600

C. P56,000

D. P57,120


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D 24. A company that manufactures baseballs begins operations on January 1. Each baseball requires

three elements: a hard plastic core, several yards of twine that are wrapped around the plastic

core, and a piece of leather to cover the baseball. The plastic core is started down a conveyor

belt and is automatically wrapped with the twine to the approximate size of the baseball, at which

time the leather cover is sewn to the wrapped twine. Finished baseballs are inspected, and the

ones that are defective due to internal production failure are pulled out. Defective baseballs

cannot be economically salvaged and are destroyed. Cost and production reports for the first week

of operations are:

Raw material cost .................................................................................................... P 840

Conversion cost....................................................................................................... 315

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

During the week, 2,100 baseballs were completed; 2,000 passed inspection. There was no ending

work in process. The cost of the spoilage charged to Factory Overhead is:

A. P33

B. P22

C. P1,100

D. P55



Materials: P840 (2,000 + 100) = P.40

Conversion: P315 (2,000 + 100) = P.15

Spoilage: 100 x P.55 = P55

A 25. In a process cost system, the cost of rework usually is debited to:

A. Factory Overhead Control

B. Applied Factory Overhead

C. Spoiled Goods Inventory

D. Work in Process


D 26. If spoilage occurs as a result of an internal failure in a process cost system, using fifo costing, the

number of equivalent units that production costs should be charged to would be based upon:

A. spoiled units


C. units transferred out, beginning inventory, and units in ending inventory

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C 27. If spoilage occurs as a result of normal production shrinkage in a process cost system, using

fifo costing, the number of equivalent units that production costs should be charged to would be

based on:

A. spoiled units


C. units transferred out, beginning inventory, and units in ending inventory

D. units transferred out, spoiled units, units in ending inventory, and units in beginning

inventory


B 28. Primo Products transferred 15,000 units to one department. An additional 5,000 units 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 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 conversion costs and lost units were the result of internal

failure. The equivalent units of conversion cost using fifo costing is:

A. 14,400

B. 12,900

C. 13,900

D. 13,400



Equivalent units in beginning inventory (40% x 5,000).......................................... 2,000

Equivalent units started and completed during period

(12,000 - 5,000)........................................................................................... 7,000

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

Equivalent 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 were transferred 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

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60% complete as to conversion costs, and lost units were the result ofnormal production

shrinkage. The equivalent units of conversion cost using fifo is:

A. 11,400

B. 14,400

C. 12,900

D. 13,400



Equivalent units in beginning inventory (40% x 5,000).......................................... 2,000

Equivalent units started and completed during period

(12,000 - 5,000)........................................................................................... 7,000

Equivalent 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-Compod and

Ultrasene. The joint (common) costs incurred are P250,000 for a standard production run that

generates 120,000 gallons of Compod and 80,000 gallons of Ultrasene. 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 the quantitative unit method is:

A. P100,000

B. P120,000

C. P130,000

D. P150,000

E. some amount other than those given above


$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, and 10,000 units of

Hearts. If the company uses the average unit cost method of allocating joint production costs,

which were P120,000 for the period, the joint costs allocated to Diamonds would be:

A. P40,000

B. P20,000

C. P80,000

D. P45,000



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

15,000

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C 32. A company uses the weighted average method to assign joint products. Weight factors used to

assign joint costs to its three joint products were: Product A, 4 points; 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. P42,105

B. P17,241

C. P25,000

D. P30,000


D 33. Tobin Company manufactures products S and T from a joint process. The market value at split-

off was P50,000 for 6,000 units of Product S and P50,000 for 2,000 units of Product T.

Assuming that the portion of the total joint cost properly allocated to Product S using the marketvalue method was P30,000, the total joint cost was:

A. P40,000

B. P42,500

C. P45,000

D. P60,000

E. P75,000


$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 also yields a by-

product, X. Alphabet accounts for the revenues from its by-product sales as a deduction from

the cost of goods sold of its main products. Additional information is as follows:

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A B X Total

Units produced ........................... 15,000 9,000 6,000 30,000

Joint costs .................................. P 264,000

Market 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 the split-off approach,

the joint cost allocated to Product B would be:

A. P136,540

B. P79,200

C. P88,000

D. P86,591

E. P99,000


$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 costs P4,560 to process 500

gallons of Product A and 1,000 gallons of Product B to the split-off point. The market value at

split-off is P10 per gallon for Product A and P14 for Product B. Product B requires an additionalprocess beyond split-off at a cost of P2 per gallon before it can be sold. What is Idaho's cost

to produce 1,000 gallons of Product B?

A. P5,040

B. P4,360

C. P4,860

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D. P5,360

E. P3,360

36.

Determination of Ending Inventory; Hypothetical Market Value Method. Macho Inc. manufactures two

beveragesCRed Eye and Tornado. The production process is such that both beverages are jointly processed

in the Basic Blending Department. At the end of the basic blending process, Red Eye is sold at P10 per

gallon, but Tornado must be processed at a further cost of P7 per gallon before it can be sold at P15 per

gallon. In June, the total joint cost amounted to P96,000, while 5,000 gallons of Red Eye and 12,500

gallons of Tornado were produced. There were no beginning inventories. At the end of June, there were

1,500 gallons of Red Eye and 2,000 gallons of Tornado on hand.

Required: Calculate the ending inventory costs for Red Eye and Tornado, using the hypothetical marketvalue method.

SOLUTION

Ending

Inventory Unit Costs Total

Product (Units) (per Schedule) Costs

Red Eye .............................................................................. 1,500 P 6.40 P 9,600

Tornado ............................................................................... 2,000 12.12 24,240

Ending 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

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112,500 units x P7 = P87,500

2P96,000/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 meet quality

standards and result in manufacturing losses are known as:

A. internal failure costs

B. external failure costs

C. prevention costs

D. appraisal costs


D 38. The quality costs that are associated with designing, implementing, and maintaining the quality

system are known as:

A. appraisal costs

B. internal failure costs

C. external failure costs

D. prevention costs


C 39. The quality costs that are incurred to ensure that materials and products meet quality standards

are known as:

A. external failure costs

B. prevention costs

C. appraisal costs

D. internal failure costs


B 40. The quality costs that are incurred because inferior quality products are shipped to customers

are known as:

A. internal failure costs

B. external failure costs

C. prevention costs

D. appraisal costs

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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 customers

B. top management provides an active leadership role in quality improvement

C. all employees are actively involved in quality improvement

D. the company maintains a loosely defined system of identifying quality problems so as not

to stifle employee creativity

E. the company provides continuous training as well as recognition for achievement

A 42. The best approach to quality improvement is to concentrate on:

A. prevention

B. detectionC. appraisal

D. increased production


C 43. A mathematical technique used to monitor production quality and reduce product variability is:

A. the method of least squares

B. the statistical scattergraph method

C. statistical process control

D. linear programming


D 44. Appraisal costs include all of the following except:

A. inspecting and testing materials

B. inspecting products during and after production

C. obtaining information from customers about product satisfaction

D. designing quality into the product and the production process

E. all of the above

B 45. Internal failure costs include all of the following except:

A. the cost of the scrap

B. the cost of warranty repairs and replacements

C. rework

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D. downtime due to machine failures

E. all of the above

THEORY OF CONSTRAINTS

C 46. A specialized version of direct costing for short-run optimization is :

A. learning theory

B. absorption costing

C. the theory of constraints

D. variable costing


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

A. throughput

B. operating expense

C. assets

D. all of the above


B 48. The practice of improving a reported volume or idle capacity variance by producing more than is

currently needed is viewed by the theory of constraints as :

A. a benefit with no cost increase

B. a cost increase with no benefit

C. both a cost increase and a benefit

D. worthwhile from a cost/benefit perspective


E 49. The theory of constraints is a short-run optimization technique that views which of the following

as relatively constant :

A. resources

B. technology

C. product lines

D. demand

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E. all of the above

A 50. The theory of constraints is primarily useful for :

A. short-run decisions

B. medium range decisions

C. long-run decisions

D. both short-run and long-run decisions

E. medium range to long-run decisions

Documents

AC 512 review_2003