Test bank cost and management accounting 4e by barfield ch07

CHAPTER 7
SPECIAL PRODUCTION ISSUES: LOST UNITS AND ACCRETION
MULTIPLE CHOICE
1.

Shrinkage should be treated as
a.
b.
c.
d.

defective units.
spoiled units.
miscellaneous expense.
a reduction of overhead.

ANSWER:
2.

not be sold through normal channels of distribution.
be sold through normal channels of distribution.
not be reprocessed to a sufficient quality level.
also be called a spoiled unit.

ANSWER:

b

EASY

A unit that is rejected at a quality control inspection point, but that can be reworked and

sold, is referred to as a
a.
b.
c.
d.

spoiled unit.
scrap unit.
abnormal unit.
defective unit.

ANSWER:
4.

EASY

Economically reworked units may
a.
b.
c.
d.

3.

b

d

EASY

Spoiled units are
a.
b.
c.
d.

units that cannot be economically reworked to bring them up to standard.
units that can be economically reworked to bring them up to standard.
the same as defective units.
considered abnormal losses.

ANSWER:

a

EASY

7–1


7–2

5.

Chapter 7

The cost of abnormal losses (net of disposal costs) should be written off as
a.
b.
c.

d.

Product cost
yes
yes
no
no

ANSWER:
6.

Abnormal loss
yes
yes
no
no

ANSWER:

EASY

d

Normal loss
yes
no
no
yes
EASY

If abnormal spoilage occurs in a job order costing system, has a material dollar value,
and is related to a specific job, the recovery value of the spoiled goods should be
a.
b.
c.
d.

debited to
a scrap inventory account
the specific job in process
a loss account
factory overhead

ANSWER:
8.

c

Period cost
no
yes
yes
no

Which of the following would fall within the range of tolerance for a production cycle?
a.
b.
c.
d.

7.

Special Production Issues: Lost Units and Accretion

a

credited to
the specific job in process
overhead
the specific job in process
sales

MEDIUM

If normal spoilage is detected at an inspection point within the process (rather than at
the end), the cost of that spoilage should be
a.
b.
c.
d.

included with the cost of the units sold during the period.
included with the cost of the units completed in that department during the
period.
allocated to ending work in process units and units transferred out based on their
relative values.
allocated to the good units that have passed the inspection point.

ANSWER:

d

MEDIUM


Chapter 7

9.

Special Production Issues: Lost Units and Accretion

A continuous loss
a.
b.
c.
d.

occurs unevenly throughout a process.
never occurs during the production process.
always occurs at the same place in a production process.
occurs evenly throughout the production process.

ANSWER:
10.

adding the correct ingredients to make a bottle of ketchup
putting the appropriate components together for a stereo
adding the wrong components when assembling a stereo
putting the appropriate pieces for a bike in the box

ANSWER:

EASY

discrete and abnormal.
discrete and normal.
continuous and abnormal.
continuous and normal.

ANSWER:

d

MEDIUM

Normal spoilage is defined as unacceptable production that
a.
b.
c.
d.

arises because of a special job or process.
occurs in on-going operations.
is caused specifically by human error.
is in excess of that which is expected.

ANSWER:
13.

c

The method of neglect handles spoilage that is
a.
b.
c.
d.

12.

EASY

Which of the following would be considered a discrete loss in a production process?
a.
b.
c.
d.

11.

d

b

EASY

When the cost of good units are increased and lost units are not included in an
equivalent unit schedule, these units are considered
a.
b.
c.

d.

normal and discrete.
normal and continuous.
abnormal and discrete.
abnormal and continuous.

ANSWER:

b

EASY

7–3


7–4

14.

Chapter 7

The net cost of normal spoilage in a job order costing system in which spoilage is
common to all jobs should be
a.
b.
c.
d.

assigned directly to the jobs that caused the spoilage.

charged to manufacturing overhead during the period of the spoilage.
charged to a loss account during the period of the spoilage.
allocated only to jobs that are completed during the period.

ANSWER:
15.

MEDIUM

written off as a period cost.
never shown in EUP schedules.
treated as a product cost.
both b and c.

ANSWER:

c

EASY

Normal spoilage units resulting from a continuous process
a.
b.
c.
d.

are extended to the EUP schedule.
result in a higher unit cost for the good units produced.
result in a loss being incurred.
cause estimated overhead to increase.

ANSWER:
17.

b

Normal spoilage is
a.
b.
c.
d.

16.

Special Production Issues: Lost Units and Accretion

b

EASY

When normal spoilage is discovered at a discrete inspection point and the degree of
completion of ending work in process has not reached the level of completion of the
inspection point, normal spoilage is handled by
a.
b.
c.
d.

prorating the spoilage cost between units transferred out and units in ending
work in process.

extending the spoiled units to the EUP schedule.
assigning the normal spoilage costs to the units transferred out and those in
beginning inventory.
both b and c.

ANSWER:

d

MEDIUM


Chapter 7

18.

Special Production Issues: Lost Units and Accretion

In a job order costing system, the net cost of normal spoilage is equal to
a.
b.
c.
d.

estimated disposal value plus the cost of spoiled work.
the cost of spoiled work minus estimated spoilage cost.
the units of spoiled work times the predetermined overhead rate.
the cost of spoiled work minus the estimated disposal value.

ANSWER:

19.

Beginning
Inventory
no
yes
no
yes

ANSWER:

MEDIUM

b

Ending
Inventory
yes
yes
no
no

Units Started
& Completed
yes
yes
yes
no

MEDIUM

The cost of normal discrete losses is
a.
b.
c.
d.

absorbed by all units past the inspection point on an equivalent unit basis.
absorbed by all units in ending inventory.
considered a period cost.
written off as a loss on an equivalent unit basis.

ANSWER:
21.

d

Taylor Co. has a production process in which the inspection point is at 65 percent of
conversion. The beginning inventory for July was 35 percent complete and ending
inventory was 80 percent complete. Normal spoilage costs would be assigned to which
of the following groups of units, using FIFO costing?

a.
b.
c.
d.

20.

7–5

a

EASY

When spoilage is discovered at a discrete point in the production process,
a.
b.
c.
d.

equivalent units for the spoilage are shown in the EUP schedule.
its cost, if normal, should be assigned to the units transferred out.
its cost, if abnormal, should be assigned to the good units produced.
both a and c.

ANSWER:

a

EASY


7–6

22.

Chapter 7

When the cost of lost units must be assigned, and those same units must be included in

an equivalent unit schedule, these units are considered
a.
b.
c.
d.

normal and discrete.
normal and continuous.
abnormal and discrete.
abnormal and continuous.

ANSWER:
23.

MEDIUM

spoilage that is forecasted or planned.
spoilage that is in excess of planned.
accounted for as a product cost.
debited to Cost of Goods Sold.

ANSWER:

b

EASY

Which of the following accounts is credited when abnormal spoilage is written off in an
actual cost system?
a.

b.
c.
d.

Miscellaneous Revenue
Loss from Spoilage
Finished Goods
Work in Process

ANSWER:
25.

d

Abnormal spoilage is
a.
b.
c.
d.

24.

Special Production Issues: Lost Units and Accretion

d

EASY

Which of the following types of spoilage cost is considered a product cost?
a.

b.
c.
d.

Abnormal spoilage
yes
yes
no
no

ANSWER:

c

EASY

Normal spoilage
yes
no
yes
no


Chapter 7

26.

Special Production Issues: Lost Units and Accretion

Abnormal spoilage can be

a.
b.
c.
d.

continuous
yes
no
yes
no

ANSWER:
27.

good units
yes
no
yes
no

ANSWER:

EASY

d

lost units
yes
no
no

yes
EASY

The cost of abnormal continuous losses is
a.
b.
c.
d.

considered a product cost.
absorbed by all units in ending inventory and transferred out on an equivalent
unit basis.
written off as a loss on an equivalent unit basis.
absorbed by all units past the inspection point.

ANSWER:
29.

c

discrete
no
no
yes
yes

The cost of abnormal discrete units must be assigned to
a.
b.
c.

d.

28.

7–7

c

EASY

Which of the following statements is false? The cost of rework on defective units, if
a.
b.
c.
d.

abnormal, should be assigned to a loss account.
normal and if actual costs are used, should be assigned to material, labor and
overhead costs of the good production.
normal and if standard costs are used, should be considered when developing the
overhead application rate.
abnormal, should be prorated among WIP, FG, and CGS.

ANSWER:

d

MEDIUM

7–8

30.

Chapter 7

A process that generates continuous defective units
a.
b.
c.
d.

never requires a quality control point.
requires a quality control point at the end of the process.
requires quality control points every time new materials are added to the
production process.
requires quality control points at the beginning of the production process.

ANSWER:
31.

MEDIUM

accretion.
reworked units.
complex procedure.
undetected spoilage.

ANSWER:

a

EASY

When material added in a successor department increases the number of units, the
a.
b.
c.
d.

extra units are treated like spoilage.
unit cost of the transferred-in units is decreased.
costs associated with the extra units are maintained separately for financial
reporting purposes.
unit cost of the transferred-in units is increased.

ANSWER:
33.

b

The addition of material in a successor department that causes an increase in volume is
called
a.
b.
c.
d.

32.

Special Production Issues: Lost Units and Accretion

b

EASY

Which of the following is not a question that needs to be answered in regard to quality
control?
a.
b.
c.
d.

What happens to the spoiled units?
What is the actual cost of spoilage?
How can spoilage be controlled?
Why does spoilage happen?

ANSWER:

a

MEDIUM


Chapter 7

34.

Special Production Issues: Lost Units and Accretion

In regard to spoilage, management should be most concerned with which of the
following?
a.
b.
c.
d.

accounting for spoilage
controlling spoilage
planning for spoilage
inspecting spoilage

ANSWER:

b

EASY

Use the following information for questions 35–46.
The following information is available for K Co. for June:
Started this month
Beginning WIP
(40% complete)
Normal spoilage (discrete)
Abnormal spoilage
Ending WIP
(70% complete)
Transferred out
Beginning Work in Process Costs:

Material
Conversion
Current Costs:
Material
Conversion

80,000 units
7,500 units
1,100 units
900 units
13,000 units
72,500 units
$10,400
13,800
$120,000
350,000

All materials are added at the start of production and the inspection point is at the end of the
process.
35.

What are equivalent units of production for material using FIFO?
a.
b.
c.
d.

80,000
79,100
78,900

87,500

ANSWER:

a

MEDIUM

7–9


7–10

36.

Chapter 7

What are equivalent units of production for conversion costs using FIFO?
a.
b.
c.
d.

79,700
79,500
81,100
80,600

ANSWER:
37.

b

EASY

What are equivalent units of production for conversion costs using weighted average?
a.
b.
c.
d.

83,600
82,700
82,500
81,600

ANSWER:

a

EASY

What is cost per equivalent unit for material using FIFO?
a.
b.
c.
d.

$1.63
$1.37

$1.50
$1.56

ANSWER:
40.

MEDIUM

86,600
87,500
86,400
85,500

ANSWER:

39.

d

What are equivalent units of production for material using weighted average?
a.
b.
c.
d.

38.

Special Production Issues: Lost Units and Accretion

c

EASY

What is cost per equivalent unit for conversion costs using FIFO?
a.
b.
c.
d.

$4.00
$4.19
$4.34
$4.38

ANSWER:

c

EASY


Chapter 7

41.

Special Production Issues: Lost Units and Accretion

What is cost per equivalent unit for material using weighted average?
a.
b.

c.
d.

$1.49
$1.63
$1.56
$1.44

ANSWER:
42.

$4.19
$4.41
$4.55
$4.35

ANSWER:

EASY

$75,920
$58,994
$56,420
$53,144

ANSWER:

b

MEDIUM

What is the cost assigned to abnormal spoilage using FIFO?
a.
b.
c.
d.

$1,350
$3,906
$5,256
$6,424

ANSWER:
45.

d

What is the cost assigned to ending inventory using FIFO?
a.
b.
c.
d.

44.

EASY

What is cost per equivalent unit for conversion costs using weighted average?
a.
b.

c.
d.

43.

a

c

MEDIUM

What is the cost assigned to normal spoilage and how is it classified using weighted
average?
a.
b.
c.
d.

$6,193 allocated between WIP and Transferred Out
$6,424 assigned to units Transferred Out
$6,193 assigned to loss account
$6,424 assigned to units Transferred Out

ANSWER:

b

MEDIUM

7–11

7–12

46.

Chapter 7

Special Production Issues: Lost Units and Accretion

What is the total cost assigned to goods transferred out using weighted average?
a.
b.
c.
d.

$435,080
$429,824
$428,656
$423,400

ANSWER:

b

DIFFICULT

Use the following for questions 47–57.
The following information is available for OP Co. for the current year:
Beginning Work in Process

(75% complete)
Started
Ending Work in Process
(60% complete)
Abnormal spoilage
Normal spoilage (continuous)
Transferred out

14,500 units
75,000 units
16,000
2,500
5,000
66,000

units
units
units
units

Costs of Beginning Work in Process:
Material
$25,100
Conversion
50,000
Current Costs:
Material
$120,000
Conversion
300,000

All materials are added at the start of production.
47.

Using weighted average, what are equivalent units for material?
a.
b.
c.
d.

82,000
89,500
84,500
70,000

ANSWER:
48.

c

EASY

Using weighted average, what are equivalent units for conversion costs?
a.
b.
c.
d.

80,600
78,100

83,100
75,600

ANSWER:

b

EASY


Chapter 7

49.

Special Production Issues: Lost Units and Accretion

What is the cost per equivalent unit for material using weighted average?
a.
b.
c.
d.

$1.72
$1.62
$1.77
$2.07

ANSWER:
50.

$4.62
$4.21
$4.48
$4.34

ANSWER:

MEDIUM

$31,000
$15,500
$30,850
none of the above

ANSWER:

d

EASY

Assume that the cost per EUP for material and conversion are $1.75 and $4.55,
respectively. What is the cost assigned to ending Work in Process?
a.
b.
c.
d.

$100,800
$87,430
$103,180

$71,680

ANSWER:
53.

c

What is the cost assigned to normal spoilage using weighted average?
a.
b.
c.
d.

52.

MEDIUM

What is the cost per equivalent unit for conversion costs using weighted average?
a.
b.
c.
d.

51.

a

d

EASY

Using FIFO, what are equivalent units for material?
a.
b.
c.
d.

75,000
72,500
84,500
70,000

ANSWER:

d

EASY

7–13


7–14

54.

Chapter 7

Using FIFO, what are equivalent units for conversion costs?
a.
b.

c.
d.

72,225
67,225
69,725
78,100

ANSWER:
55.

EASY

$1.42
$1.66
$1.71
$1.60

ANSWER:

c

EASY

Using FIFO, what is the cost per equivalent unit for conversion costs?
a.
b.
c.
d.

$4.46
$4.15
$4.30
$3.84

ANSWER:
57.

b

Using FIFO, what is the cost per equivalent unit for material?
a.
b.
c.
d.

56.

Special Production Issues: Lost Units and Accretion

a

EASY

Assume that the FIFO EUP cost for material and conversion are $1.50 and $4.75,
respectively. Using FIFO what is the total cost assigned to the units transferred out?
a.
b.
c.
d.

$414,194
$339,094
$445,444
$396,975

ANSWER:

a

DIFFICULT


Chapter 7

Special Production Issues: Lost Units and Accretion

7–15

Use the following information for questions 58–65.
T Co. has the following information for July:
Units started
Beginning Work in Process: (35% complete)
Normal spoilage (discrete)
Abnormal spoilage
Ending Work in Process: (70% complete)
Transferred out
Beginning Work in Process Costs:
Material
$15,000

Conversion
10,000

100,000
20,000
3,500
5,000
14,500
97,000

units
units
units
units
units
units

All materials are added at the start of the production process. T Co. inspects goods at 75
percent completion as to conversion.
58.

What are equivalent units of production for material, assuming FIFO?
a.
b.
c.
d.

100,000
96,500
95,000

120,000

ANSWER:
59.

MEDIUM

What are equivalent units of production for conversion costs, assuming FIFO?
a.
b.
c.
d.

108,900
103,900
108,650
106,525

ANSWER:
60.

a

d

MEDIUM

Assume that the costs per EUP for material and conversion are $1.00 and $1.50,
respectively. What is the amount of the period cost for July using FIFO?
a.

b.
c.
d.

$0
$9,375
$10,625
$12,500

ANSWER:

c

MEDIUM


7–16

61.

Chapter 7

Assume that the costs per EUP for material and conversion are $1.00 and $1.50,
respectively. Using FIFO, what is the total cost assigned to the transferred-out units
(rounded to the nearest dollar)?
a.
b.
c.
d.

$245,750
$244,438
$237,000
$224,938

ANSWER:
62.

DIFFICULT

107,000
116,500
120,000
115,000

ANSWER:

c

EASY

What are equivalent units of production for conversion costs assuming weighted
average is used?
a.
b.
c.
d.

113,525
114,400

114,775
115,650

ANSWER:
64.

b

What are equivalent units of production for material assuming weighted average is
used?
a.
b.
c.
d.

63.

Special Production Issues: Lost Units and Accretion

a

EASY

Assume that the costs per EUP for material and conversion are $1.00 and $1.50,
respectively. What is the cost assigned to normal spoilage, using weighted average, and
where is it assigned?
a.
b.
c.
d.

Value
$7,437.50
$7,437.50
$8,750.00
$8,750.00

ANSWER:

b

Assigned To
Units transferred out and EI
Units transferred out
Units transferred out and EI
Units transferred out
EASY


Chapter 7

65.

Special Production Issues: Lost Units and Accretion

Assume that the costs per EUP for material and conversion are $1.00 and $1.50,
respectively. Assuming that weighted average is used, what is the cost assigned to
ending inventory?
a.
b.

c.
d.

$29,725.00
$37,162.50
$38,475.00
$36,250.00

ANSWER:
66.

its minimum tolerance for defects.
its maximum tolerance for defects.
a decision to seek world-class status as a manufacturer.
its automated quality limits.

ANSWER:

b

EASY

World-class companies
a.
b.
c.
d.

believe that “Six-Sigma” is the best AQL to have.
have performed well if their defect percentage is greater than their AQL.

continuously attempt to raise their AQL.
all of the above.

ANSWER:
68.

EASY

A company’s AQL represents
a.
b.
c.
d.

67.

a

c

MEDIUM

Six Sigma translates into a rate of 3.4 defects per
a.
b.
c.
d.

million items processed.
billion items processed.

thousand items processed.
hundred items processed.

ANSWER:

a

EASY

7–17


7–18

69.

Chapter 7

The concept of Six Sigma is directly related to
a.
b.
c.
d.

Variation elimination
no
no
yes
yes

ANSWER:
70.

d

JIT Inventory
no
yes
yes
no

MEDIUM

Performing services with zero errors is viewed as a(an)
a.
b.
c.
d.

reasonable goal for all service organizations.
impossible goal for any service organization.
laudable goal for most service organizations.
goal equivalent to achieving Six-Sigma performance.

ANSWER:
71.

Special Production Issues: Lost Units and Accretion

c

MEDIUM

Which of the following would be the most likely cause of an increase in the number of
units in a department?
a.
b.
c.
d.

Bulk packaging
Expansion of material
Heat processing
All of the above

ANSWER:

b

MEDIUM

SHORT ANSWER/PROBLEMS
1.

How is the cost of reworking defective items accounted for?
ANSWER: Reworked units are also known as defective units. These units can be
reprocessed and sold or sold as is as irregulars. Rework cost is classified as either a
product or period cost. If rework is considered normal and actual costing is used, the
cost is added to current Work in Process and is assigned to all units produced. If rework
is abnormal, the cost is allocated to a loss account for the period.

MEDIUM


Chapter 7

2.

Special Production Issues: Lost Units and Accretion

7–19

Discuss the accounting treatment of spoilage in a job order costing system.
ANSWER: If the spoilage is common to all jobs, is normal, and can be estimated, the
net cost is applied to production using a predetermined overhead rate that was set by
including the spoilage estimate in estimated overhead. If spoilage pertains to a particular
job and is normal, the disposal value of the spoiled goods should be removed from that
particular job. If the spoilage is abnormal, the net cost should be charged to a loss
account and credited to the particular Work in Process job that created the spoilage.
MEDIUM

3.

Discuss why units are lost during production.
ANSWER: In most production processes, losses are anticipated to a certain degree.
Losses may be classified as normal and abnormal depending on management’s
expectations. A normal loss is one that is expected, while an abnormal loss is one that
exceeds the normal loss. The losses may result in spoiled or defective units. Spoiled
units cannot be economically reworked; defective units can be. Losses can occur on a
continuous or a discrete basis. Quality control points are established at the end of and/or
within the process to inspect goods and remove from further processing those units that

are either spoiled or defective.
MEDIUM

4.

Discuss how spoilage is treated in EUP computations.
ANSWER: If spoilage is normal and continuous, the calculations for EUP do not
include this spoilage (method of neglect), and the good units simply absorb the cost of
such spoilage. If spoilage is normal and discrete, the equivalent units are used in the
EUP calculations, and the spoilage cost is assigned to all units that passed through the
inspection point during the current period. If the spoilage is abnormal and either discrete
or continuous, the equivalent units are used in EUP calculations and costed at the cost
per EUP; the total cost is then assigned to a loss account.
MEDIUM


7–20

Chapter 7

Special Production Issues: Lost Units and Accretion

Use this data for questions 5 and 6.
The following information is available for Paas Co. for January 2001. All materials are added at
the start of production.
Beginning Work in Process: (80% complete)
Started
Normal spoilage (continuous)
Abnormal spoilage
Ending Work in Process: (55% complete)

Transferred out
Beginning Work in Process Costs:
Material
$ 14,000
Conversion
45,000
Current Costs:
Material
50,000
Conversion
175,000
Total Costs
$ 284,000

8,000
35,000
6,000
2,500
15,000
19,500

units
units
units
units
units
units


Chapter 7

5.

Special Production Issues: Lost Units and Accretion

7–21

Prepare a cost of production report for January using FIFO.
ANSWER:

BI 8,000 + Started 35,000 = Accountable for 43,000
Paas Co.
Cost Report
January 31, 2001

BWIP
S&C
EWIP
Norm
Abnorm.
Acctd. for

8,000
11,500
15,000
6,000
2,500
43,000

Material

0
11,500
15,000
0
2,500
29,000

Material: $50,000/29,000 = $1.72
Conversion Costs: $175,000/23,850 = $7.34
Cost Assignment:
Ending Work in Process
15,000 × $1.72 =
$ 25,800
8,250 × $7.34 =
60,555
Abnormal Spoilage
2,500 × $9.06 =
Cost Transferred Out
$284,000 – 86,355 – 22,650 =
Total costs accounted for
MEDIUM

$ 86,355
22,650
174,995
$ 284,000

CC
1,600
11,500

8,250
0
2,500
23,850


7–22

6.

Chapter 7

Special Production Issues: Lost Units and Accretion

Prepare the cost of production report assuming weighted average.
ANSWER:

BI 8,000 + Started 35,000 = Accountable for 43,000
Paas Company
Cost Report
January 31, 2001

TO
EWIP
Norm
Abnorm.
Acctd. for

19,500
15,000

6,000
2,500
43,000

Material
19,500
15,000
0
2,500
37,000

Material: $64,000/37,000 = $1.73
Conversion Costs: $220,000/30,250 = $ 7.27
Cost Assignment:
Ending Work in Process
15,000 × $1.73 =
8,250 × $7.27 =
Abnormal Spoilage
2,500 × $9.00 =

$25,950
59,978

Transferred Out
$284,000 – 85,928 – 22,500 =
Total costs accounted for
MEDIUM

$ 85,928
22,500

175,572
$ 284,000

CC
19,500
8,250
0
2,500
30,250


Chapter 7

7.

Special Production Issues: Lost Units and Accretion

7–23

MJ Company manufactures picture frames of all sizes and shapes and uses a job order
costing system. There is always some spoilage in each production run. The following
costs relate to the current run:
Estimated overhead (exclusive of spoilage)
Spoilage (estimated)
Sales value of spoiled frames
Labor hours

$160,000
$ 25,000
$ 11,500

100,000

The actual cost of a spoiled picture frame is $7.00. During the year 170 frames are
considered spoiled. Each spoiled frame can be sold for $4. The spoilage is considered a
part of all jobs.
a.
b.
c.

Labor hours are used to determine the predetermined overhead rate. What is the
predetermined overhead rate per direct labor hour?
Prepare the journal entry needed to record the spoilage.
Prepare the journal entry if the spoilage relates only to Job #12 rather than being
a part of all production runs.

ANSWER:
a.

$160,000 + $25,000 – $11,500 = $173,500
$173,500/100,000 = $1.735 per DLH

b.

Disposal Value of Spoiled Work
Manufacturing Overhead
Work in Process Inventory

680
510

Disposal Value of Spoiled Work
Work in Process Inventory—Job #12

680

c.

MEDIUM

1,190
680


7–24

8.

Chapter 7

Special Production Issues: Lost Units and Accretion

I Eat Yogurt Company produces yogurt in two departments—Mixing and Finishing. In
Mixing, all ingredients except fruit are added at the start of production. In Finishing,
fruit is added and then the mixture is placed into containers. Adding the fruit to the
basic yogurt mixture increases the volume transferred in by the number of gallons of
fruit added. Any spoilage that occurs is in the Finishing Department. Spoilage is
detected just before the yogurt is placed into containers or at the 98 percent
completion point. All spoilage is abnormal.
Finishing Department
BWIP (100% fruit, 0% container, 30% CC)

Gallons transferred in
Gallons of fruit added
EWIP (100% fruit, 0% container, 60% CC)
Gallons transferred out
Abnormal spoilage
BWIP Costs:
Transferred In
Fruit
CC
Current Costs:
Transferred In
Fruit
Containers
CC
Total Costs

$

5,000 gallons
5,500
1,200
1,700 gallons
9,000
1,000

9,700
10,500
15,000

12,400

54,000
11,000
98,000
$ 210,600

Prepare a cost of production report for September 2001. The company uses weighted
average.


Chapter 7

Special Production Issues: Lost Units and Accretion

ANSWER:

7–25

I Eat Yogurt Co.
Cost Report
September 30, 2001

BWIP
Trans. In
Fruit
Acctble. For

5,000
5,500
1,200
11,700

TO
EWIP
AS

TI
9,000
1,700
1,000
11,700

Fruit
9,000
1,700
1,000
11,700

Container
9,000
0
0
9,000

CC
9,000
1,020
980
11,000

TI

$ 9,700
12,400
$22,100
11,700
$1.89

Fruit
$10,500
54,000
$64,500
11,700
$5.51

Container
$
0
11,000
$11,000
9,000
$1.22

CC
$ 15,000
98,000
$113,000
11,000
$10.27

Costs:
BWIP

Current
EUP
Per unit
Cost Assignment:
EWIP
1,700 × $1.89 =
$ 3,213
1,700 × $5.51 =
9,367
1,020 × $10.27 =
10,475
Spoilage
1,000 × $1.89 =
$ 1,890
1,000 × $5.51 =
5,510
980 × $10.27 =
10,065
Transferred Out
$210,600 – 23,055 – 17,465 =
Total accounted for
MEDIUM

$ 23,055

17,465
170,080
$ 210,600