Solution manual cost and managerial accounting 3rd by barspecial production issues lost units and accretion

Chapter 7
Special Production Issues:

Lost Units and Accretion

Questions
1.

An accepted quality level (AQL) is the proportion of total units
to be produced in a process without defects as preestablished by
an appropriate minimum that is determined by management.
Alternatively, an AQL can be stated as the proportion of total
units to be produced in a process that can be defective as
preestablished by an appropriate maximum determined by
management.
When the AQL is set at 100 percent for good production, then
the acceptable defect level is set at zero. In this case, the AQL
is set at a level of 100 percent and this is the same as a zerodefects tolerance level.

2.

Shrinkage refers to loss of inputs because of natural processes
such as evaporation or oxidation. Spoiled units cannot be
economically reworked to bring them up to standard. Defective
units can e economically reworked because the incremental revenue
exceeds the incremental cost of the rework. Both spoiled and
defective units do not meet quality specifications upon
inspection.

3.

A tolerated loss level may be set because losses are inherent in
the production process (e.g., shrinkage) or there are known
defects in materials used or in production processes. For
example, management may know that a particular production process
performs within tolerances only 99.5 percent of the time.
Accordingly, management may allow for 5 defects out of every
1,000 units produced. Although management could invest in
technology that would reduce the level of defects, the new
technology may be too costly relative to the existing level of
defects. With this cost/benefit analysis, management has
concluded that a certain level of defects is preferred to no
defects.

165


166
4.

CHAPTER 7
Special Production Issues: Lost Units and Accretion
Examples of defective units include the following: a car that
has been painted the wrong color; the delivery of personal
possessions to the wrong address by a moving company; an
incorrectly mounted transmission in a new automobile; a piece of
lumber that has been cut too long for its intended application;
and a fishing reel that has been assembled without a required
bearing.
Examples of spoiled products/services include the following:
a tire that that has treads which are irregularly positioned on

the tire (e.g., treads that would not be parallel to the road); a
tax return prepared by an accounting firm that was audited by the
IRS and determined to have large errors; a cake that has been cut
into pieces that are too small; a tree that died because it was
trimmed so severely by a landscaping service; loss of a patient’s
sight caused by a surgeon’s error during an operation.

5.

Normal loss refers to an expected reduction in production
quantity based on the production technology and production
practices of the company. Abnormal loss refers to a quantity of
loss above the normal loss quantity. Normal loss creates an
expected cost of production so the cost of such a loss is
inventoriable; abnormal spoilage cost is not expected, and, thus,
it is not inventoriable.

6.

Abnormal losses would be more likely to be preventable than
normal losses because abnormal losses are less likely to be
caused by factors that are inherent in the materials or
production methods. For example, a known amount of material loss
(waste) is to be expected if lower quality materials are
utilized. However, any loss beyond the expected amount would
likely be caused by other factors that are subject to management
control, e.g., production errors.

7.

A continuous loss is one that occurs (more or less) uniformly
throughout the production process. A discrete loss is one
that occurs at a specific stage or in a specific production
process.

8.

A discrete loss occurs at a specific point in the production
process. For accounting purposes, discrete loss is assumed to
occur immediately prior to inspection. In reality, the loss
could have occurred anywhere before the inspection point and,
thus, the lost units should have had no additional conversion
(and/or, possibly, materials) added to them. It is impossible
to have continuous monitoring for losses in most production
processes, so conversion costs are incurred until inspection
and assigned to all units that have passed the inspection
point (even though some units that have not reached the
inspection point could also be lost).


9.

CHAPTER 7
167
Special Production Issues: Lost Units and Accretion
Any time a decline in the value of an asset occurs that is
unexpected, it is considered a loss of the period. Abnormal
losses are unplanned for and are in excess of normal losses.
Therefore, the cost associated with them should not be
considered a product cost and should not be allocated to good

production. The units themselves have no value and cannot be
considered assets, so their costs are expired and belong on
the income statement. The cost is removed by debiting a loss
account (such as "Loss from Abnormal Spoilage") and crediting
Work in Process Inventory.

10.

The method of neglect requires no specific computations
regarding spoiled units; all costs are assigned to good units.
The cost of spoiled units that have been found at an
inspection point will be assigned to all units that have
passed the inspection point. Thus, the method of neglect
assigns spoilage costs by simply ignoring (neglecting) the
spoiled units.
The method of neglect is appropriate if loss is
considered to be incurred continuously and is considered
normal.

11.

The method of neglect raises the cost per equivalent unit
because no costs are assigned to the spoiled units.
Therefore, good units bear all costs, including the costs of
producing the spoiled units.

12.

If spoilage is incurred for all (or most) jobs in a job order
costing system, the estimate of overhead used in setting the

predetermined overhead rate should include an amount for the
net cost of spoilage. This will allow the cost of normal,
general spoilage to be spread over all jobs produced. If
spoilage is related to a single job, the cost of that spoilage
should be assigned to the job that gave rise to it. If any
abnormal spoilage is incurred in a job order system, its cost
should be assigned to the period as a loss.

13.

Accretion is an increase in the number of units or the volume
of a product that occurs through the addition of materials
(e.g., water or other fluids) or through processing (e.g.,
heat causing expansion). Although the total cost of the
predecessor department is unaffected, the cost per unit
calculated by the predecessor department would decline in the
successor department because of the increase in units.

14.

The cost per unit might have declined in the second department
because of an increase in the number of units caused by the
addition of materials or the expansion of the units
transferred in. If the company manufactures bread, the rising
of the dough would cause an increase in the volume of dough
transferred in from the Mixing Department.


168
15.

CHAPTER 7
Special Production Issues: Lost Units and Accretion
If the defects are considered normal, the treatment of rework
costs depends on whether an actual or a normal cost system is
in effect. If an actual cost system is used, the rework costs
will be added to the component costs of the period and be
allocated to all units completed. In a normal cost system,
the rework costs will have been estimated and included in the
development of the overhead application rate; actual rework
costs would be assigned to Manufacturing Overhead.
If the defects are abnormal, the costs of production and
rework costs for the defective units should be accumulated and
assigned to a loss account.

16.

The important managerial concern is to control spoilage and
defective work rather than to account for it. Measuring its
cost is the first step in controlling spoilage/defects. Using
the method of neglect or otherwise spreading the cost of the
lost units to good production minimizes the degree of control
that can be exerted by management.

17.

Certain fluctuations occur in any production process.
Statistical process controls can be used to determine if
fluctuations in a process are within normal and tolerable
limits, or exceed tolerable limits. In short, the SPC methods

can be used to determine whether a process is in control. SPC
charts can also be used as indicators of the points at which
the process is out of control and thus helps managers
understand why fluctuations occur in a process so that actions
can be taken to reduce such fluctuations.

18.

Each student will have a different answer. No solution
provided.

Exercises
19.

a.
b.
c.
d.
e.
f.
g.
h.

3
8
2
5
7
1
6

4


CHAPTER 7
169
Special Production Issues: Lost Units and Accretion
a.
Annual cost of spoilage = 200 × 50 × $8.50 =
$85,000.
Alfred would be able to save up to $85,000 per year
by purchasing the regulator. The amount he would pay
would be based on the expected life of the regulator and
(in a discounted cash flow framework) on the cost of
capital of the firm. In addition to these factors,
Alfred would want to consider how long the company
intends to keep the machinery that currently prints the
packing boxes, the costs of operating and installing the
regulator, the costs of training personnel to operate it
and the utility and maintenance costs for the machine (if
different from those currently experienced).

20.

b.

Good boxes = 600 – 50 = 550
Spoilage cost per setup = 50 × $8.50 = $425
Increase in cost = $425 ÷ 550 = $0.77 (rounded)
c.
To obtain the correct 20 boxes in each batch,

WEBOXALL must first produce the 50 misprinted boxes.
Total Per Box
Costs of spoilage = 12 × 50 × $8.50 = $5,100 $21.25
Cost of regulator
4,300
17.92
Net savings in cost
$ 800 $ 3.33
Yes, Springtime Corporation would be willing to
purchase the regulator because it would result in
substantial cost savings. The cost of the regulator
would be recouped in less than one year’s volume of
purchases. However, an alternative for Springtime would
be to purchase all of its boxes in a single transaction
rather than in 12 different batches. In such a case, the
total spoilage cost incurred would only be $425 (50 boxes
× $8.50).
d.
The spoilage cost-per-box figures differ
substantially because of the number of units produced in
the batches. In part (b), the batch costs of spoilage
were spread over 550 good units; in part (c), the costs
of spoilage for each batch were spread over only 20
units.

21.

a.

10,000 + 60,000 = 70,000 units

b.

60,000 × 0.05 = 3,000 units

c.

Abnormal loss = Total units – (Completed Units + EI units
+ Normal loss) = 70,000 - (58,200 + 8,000 + 3,000)
= 70,000 – 69,200 = 800 units


170

CHAPTER 7
Special Production Issues: Lost Units and Accretion
d.
Units
Material Conversion
Beginning inventory (10%)
10,000
Units started
60,000
Units to account for
70,000
Transferred out
Ending inventory (60%)
Normal shrinkage
Abnormal shrinkage
Units accounted for

22.

a - d.
Beginning inventory (20%; 30%)
Gallons started
Gallons to account for

58,200
8,000
3,000
800
70,000
Units
8,000
180,000
188,000

58,200
8,000

58,200
4,800

800
67,000

800
63,800

Material

Conversion

Beginning inventory completed
8,000
6,400
5,600
Gallons started and completed
174,600
174,600
174,600
Total gallons transferred
182,600
Ending inventory (70%; 80%)
4,000
2,800
3,200
Normal spoilage (180,000 × 0.4%)
720
0
0
Abnormal spoilage
680
680
680
Gallons accounted for (FIFO EUP)188,000
184,480
184,480
e.

Cost of normal spoilage is automatically spread
among all of the remaining units produced. This is done
by using the method of neglect and omitting these spoiled
units from the EUP calculations.
f.
23.

Cost of abnormal spoilage is treated as a period cost.

a.
Beginning inventory
Pounds started
Pounds to account for

b.

c.

Units
40,000
425,000
465,000

BI completed
40,000
Started & completed
405,000
Ending inventory
10,000
Normal spoilage

2,000
Abnormal spoilage
8,000
Units accounted for
465,000
Ending inventory:
Material (10,000 × $2.40)
Conversion (2,500 × $4.70)
Total cost
Abnormal spoilage:
Material (8,000 × $2.40)
Conversion (5,600 × $4.70)
Total cost (treated as a loss)

Material

Conversion

0
405,000
10,000

6,000
405,000
2,500

8,000
423,000

5,600

419,100

$24,000
11,750
$35,750
$19,200
26,320
$45,520


24.

CHAPTER 7
171
Special Production Issues: Lost Units and Accretion
a. Normal spoilage allowed = 30,000 pounds × 8% = 2,400 pounds
Units
Material
Conversion
Beginning inventory (30%)
9,000
Pounds started
30,000
Pounds to account for
39,000
Beginning inventory completed 9,000
Pounds started and completed 22,500
Total pounds completed
31,500
Ending inventory (20%)

5,400
Normal spoilage
2,100
Pounds accounted for (FIFO)
39,000
b.
Beginning inventory cost
Current costs
Total costs
Divided by EUP
Cost per EUP

Total
$ 6,200
18,729
$24,929
$0.65

0
22,500

6,300
22,500

5,400
0
27,900

1,080
0

29,880

Material

Conversion

$9,765

$8,964

27,900
$0.35

29,880
$0.30

c. Cost Assignment
Transferred out:
Beginning inventory cost
$ 6,200
Cost to complete (conversion: 6,300 × $0.30)
1,890
Total cost of beginning inventory
$ 8,090
Started & completed (22,500 × $0.65)
14,625
Ending inventory:
Material (5,400 × $0.35)
$ 1,890
Conversion (1,080 × $0.30)

324
Total costs accounted for
25.

a.

$22,715
2,214
$24,929

Normal spoilage = 20,000 ÷ 20 = 1,000 units
Material

Beginning inventory
Started
Units to account for

Units
4,000
20,000
24,000

Beginning inv. completed
Started & completed
Ending inventory
Normal spoilage
Units accounted for (WA)

4,000
16,000

3,000
1,000
24,000

4,000
16,000
3,000
1,000
24,000

Total
$ 24,592
175,448
$200,040

Material
$ 12,252
112,548
$124,800
24,000
$5.20

b.
Beginning inventory
Current period
Total costs
Divided by EUP
Cost per EUP

$8.50

Conversion

4,000
16,000
1,800
1,000
22,800
Conversion
$12,340
62,900
$75,240
22,800
$3.30


172

CHAPTER 7
Special Production Issues: Lost Units and Accretion
Cost Assignment
Transferred out:
Good units (20,000 × $8.50)
$170,000
Normal spoilage (1,000 × $8.50)
8,500
$178,500
Ending inventory:
Material
(3,000 × $5.20)

$ 15,600
Conversion (1,800 × $3.30)
5,940
21,540
Total cost accounted for
$200,040

26.

Maximum normal spoilage = 13,500,000 × 12% = 1,620,000
a. & b.
Beginning inventory (30%)
Pounds started
Pounds to account for

Units
500,000
13,500,000
14,000,000

Material

Conversion

Beginning inventory
Pounds started and completed
Ending inventory (40%)
Abnormal spoilage*
Normal spoilage
Pounds accounted for

(WA)

500,000
500,000
500,000
10,900,000 10,900,000 10,900,000
750,000
750,000
300,000
230,000
230,000
115,000
1,620,000 1,620,000
810,000
14,000,000 14,000,000 12,625,000

*

To balance schedule

c.
1.
The memo should address the fact that
additives such as water and preservatives would
cause accretion in the canning process.
2.

27.

The memo should discuss how evaporation would lead

to a loss of water content in the potato. Such
losses are very common in vegetable processing.

a.
Beginning inventory
Started
Units to account for

Units
750
17,250
18,000

Material

Beginning inventory completed
Units started and completed
Ending inventory
Defective units
Units accounted for

750
14,250
1,200
1,800
18,000

750
14,250
1,200

1,800
18,000

b.

Conversion

750
14,250
840
1,800
17,640

Regular ProRework
Total
Cost
duction Cost + Cost =
Cost ÷ EUP = per Unit
DM
$126,000
$3,240 $129,240
18,000
$7.18
Conv.
$41,013
$1,323
$42,336
17,640
$2.40
c.

The actual costs of reworking would be charged to
manufacturing overhead and the overhead application
rate(s)would include a charge for rework.


CHAPTER 7
173
Special Production Issues: Lost Units and Accretion
d.
Abnormal rework costs are accumulated and assigned to a
loss account.
Regular Production Cost
DM
$126,000
Conv.
$41,013
28.

EUP
18,000
17,640

Cost
per Unit
$7.00
$2.325

a.
Appraisal; the food can be compared to the
customer’s order before delivery to the table.

b.

Prevention; this error could be prevented by marking an
invoice “paid” at the time a check is issued.

c.

Prevention; only actions taken prior to the breakage
would be effective in minimizing the loss.

d.

Although neither method would be entirely effective,
prevention measures could be taken such as using
technology that minimizes evaporation losses.

e.

Prevention; all parts could be made such that only the
correct mates could be fastened together.

f.

Appraisal; the error would be discovered by visual
inspection.

Problems
29.

a.

b.

Total shrinkage = Total units to account for – Units
transferred – Ending inventory = (1,000 + 125,000) –
110,000 – 3,000 = 126,000 – 113,000 = 13,000
Maximum normal shrinkage = 125,000 × 10% = 12,500 pounds.
For accounting purposes, it is simply ignored, which
means its costs will be spread over all good units
produced.
c.
Abnormal spoilage = 13,000 – 12,500 = 500 pounds.
Its costs will be treated as a loss of the period.
d.
Total

Material

Conversion
Beginning inventory
Started
To account for

1,000
125,000
126,000

Beginning inventory
Started and completed
Ending inventory
Normal spoilage

Abnormal spoilage
Accounted for (WA)

1,000
1,000
109,000
109,000
3,000
3,000
12,500
500
500
126,000
113,500

1,000
109,000
900
500


CHAPTER 7
Special Production Issues: Lost Units and Accretion
111,400

174

Material
Total
Beginning WIP costs

Current costs
Total costs
Divide by EUP
Cost per EUP

$

1,020
118,155
$119,175
113,500
$1.05

$

195
33,225
$ 33,420
111,400
$0.30

Cost Assignment
Transferred out (110,000 × $1.35)
Ending inventory:
Material
(3,000 × $1.05)
Conversion (900 × $0.30)
Abnormal spoilage (500 × $1.35)
Total cost accounted for

30.

Conversion
$

1,215
151,380
$152,595
$1.35
$148,500

$3,150
270

3,420
675
$152,595

e.

The easiest way to decrease shrinkage loss is to buy
higher quality material. Higher quality ground beef
would have a lower fat content and consequently would
shrink less. Although raw material prices would
increase, the cost of conversion per pound of finished
product would likely decline because of the reduced loss.

a.

Units completed = (BI + Started) – EI – Defects = (5,000

+ 70,000) – 6,000 – 400 = 75,000 – 6,400 = 68,600

b.

Maximum normal spoilage = 70,000 × 1% = 700 units

c.
Beginning inventory
Started
To account for

Total
5,000
70,000
75,000

Beginning inventory
Started and completed
Ending inventory
Normal spoilage
Abnormal spoilage
Accounted for (WA)
73,180

5,000
5,000
5,000
5,000
63,600
63,600

63,600
63,600
6,000
6,000
0
4,200
400
400
0
380
0
0
0
0
75,000
75,000
68,600

Beginning WIP costs
Current costs
Total costs
Divide by EUP
Cost per EUP

Material
$ 21,900
315,600
$337,500
75,000
$4.50

Material

Boxes
0
75,460
$75,460
68,600
$1.10
$

Boxes

Conversion
$ 7,680
270,404
$278,084
73,180
$3.80

Conversion

Total
$ 29,580
661,464
$691,044
$9.40


CHAPTER 7

Special Production Issues: Lost Units and Accretion
Good units completed (68,600 × $9.40)
$644,840
Normal spoilage
Material (400 × $4.50)
$1,800
Conversion (380 × $3.80)
1,444
3,244
Total cost of good units
$648,084
Cost per unit = $648,084 ÷ 68,600 = $9.45 rounded

175

If there would have been no defective units, the cost would
have been $9.40 because the method of neglect would not have
been used.
d.

31.

Material (6,000 × $4.50)
Conversion (4,200 × $3.80)
Total cost of ending WIP

$27,000
15,960
$42,960

a.
Matthew Tools
Cost of Production Report
for August
Beginning inventory
1,000
Transferred in
50,800
Units to account for
51,800
Normal spoilage
(650)
Abnormal spoilage
(350)
Ending inventory
(1,800)
Transferred out
49,000
BI
Units S & C
Ending inventory
Normal spoilage
Abnormal spoilage
Units accounted for
BI cost
Current costs
Total costs
Divided by EUP
Cost per EUP

Units Trans. In Material Labor
1,000
1,000
1,000
1,000
48,000 48,000
48,000 48,000
1,800
1,800
0
720
650
650
0
650
350
350
0
350
51,800 51,800
49,000 50,720

Total
Trans. In
7,355 $ 6,050
235,557 149,350
$242,912 $155,400
51,800
$4.725
$3

$

Cost Assignment
Transferred out
Good units (49,000 × $4.725)
Normal spoilage (650 × $4.475)
Ending inventory:
Transferred in (1,800 × $3.00)
Labor (720 × $0.475)
Overhead (1,170 × $1.00)
Abnormal spoilage (350 × $4.475)
Total costs accounted for

Material
$
0
12,250
$12,250
49,000
$0.25

$231,525
2,909
$ 5,400
342
1,170

OH
1,000

48,000
1,170
650
350
51,170

Labor
OH
325 $
980
23,767 50,190
$24,092 $51,170
50,720 51,170
$0.475
$1.00

$

$234,434

6,912
1,566
$242,912


176

CHAPTER 7
Special Production Issues: Lost Units and Accretion
b.

Loss on Abnormal Spoilage
1,566
Work in Process - Grinding
1,566

32.
Big Piney Furniture
Cost of Production Report
for April 2003
Beginning inventory
2,000
Transferred in
14,900
Units to account for
16,900
Ending inventory
(3,000)
Normal spoilage
(200)
Abnormal spoilage
(400)
Transferred out
13,300
BI completed
Units S & C
Ending inventory
Normal spoilage
Abnormal spoilage
Units accounted for
Beginning inv.

Current costs
Total
Divide by EUP
Cost per EUP

Units Trans. In
2,000
2,000
11,300 11,300
3,000
3,000
200
200
400
400
16,900 16,900

Total Trans. In
$ 32,312 $ 15,020
310,714
137,080
$343,026 $152,100
16,900
$22.38
$9

Cost Assignment
Transferred out
Good units (13,300 × $22.38)
Normal spoilage (200 × $22.38)

Ending inventory:
Transferred in (3,000 × $9)
Labor (1,200 × $3.40)
Overhead (600 × $8.80)
Abnormal spoilage
Transferred in (400 × $9)
Labor (120 × $3.40)
Overhead (60 × $8.80)
Total costs accounted for

Material Labor
2,000
2,000
11,300
11,300
0
1,200
200
200
0
120
13,500
14,820
Material
$ 2,130
13,800
$15,930
13,500
$1.18

OH
2,000
11,300
600
200
60
14,160

Labor
OH
$ 4,118 $ 11,044
46,270 113,564
$50,388 $124,608
14,820
14,160
$3.40
$8.80

$297,654
4,476

$302,130

$ 27,000
4,080
5,280

36,360

$

3,600
408
528

Finished Goods Inventory
WIP Inventory-Lamination

302,130

Loss on Abnormal Spoilage
WIP Inventory-Lamination

4,536

4,536
$343,026

302,130
4,536


CHAPTER 7
Special Production Issues: Lost Units and Accretion

177

33.
Big Piney Furniture
Cost of Production Report

for April 2003
Beginning inventory
2,000
Transferred in
14,900
Units to account for
16,900
Ending inventory
(3,000)
Normal spoilage
(200)
Abnormal spoilage
(400)
Transferred out
13,300
Units
BI completed
2,000
Units S & C
11,300
Ending inventory
3,000
Normal spoilage
200
Abnormal spoilage
400
Units accounted for 16,900
Beginning inv.
Current costs
Total

Divide by EUP
Cost per EUP

Total
$ 32,312
310,714
$343,026
$22.80

Trans. In
0
11,300
3,000
200
400
14,900
Trans. In

Material Labor
0
400
11,300 11,300
0
1,200
200
200
0
120
11,500 13,220
Material

$137,080

$13,800

14,900
$9.20

11,500
$1.20

Cost Assignment
Transferred out
Beginning inventory
Complete BI:
Labor (400 × $3.50)
Overhead (600 × $8.90)
S&C (11,300 × $22.80)
Normal spoilage (200 × $22.80)
Ending inventory:
Transferred in (3,000 × $9.20)
Labor (1,200 × $3.50)
Overhead (600 × $8.90)
Abnormal spoilage
Transferred in (400 × $9.20)
Labor (120 × $3.50)
Overhead (60 × $8.90)
Total costs accounted for

OH

600
11,300
600
200
60
12,760

Labor

OH

$46,270 $113,564
13,220
$3.50

12,760
$8.90

$ 32,312
1,400
5,340
257,640
4,560

$301,252

$ 27,600
4,200
5,340

37,140

$

3,680
420
534

Finished Goods Inventory
WIP Inventory-Lamination

301,252

Loss on Abnormal Spoilage
WIP Inventory-Lamination

4,634

4,634
$343,026
301,252
4,634


178
34.

CHAPTER 7
Special Production Issues: Lost Units and Accretion
Maximum normal spoilage = 70,000 × 3% = 2,100 units

Ronald Company
Cost of Production Report
for May 2003
Units
Material
Conversion
Beginning inventory
5,600
Units started
74,400
Units to account for
80,000
BI completed
Units S & C
Total units completed
Ending inventory
Normal spoilage
Abnormal spoilage*
Units accounted for
*To balance schedule
Beg. inventory cost
Current costs
Total costs
Divided by EUP
Cost per EUP

5,600
64,400
70,000
7,500

2,100
400
80,000
Total
7,632
106,168
$113,800

0
64,400

2,800
64,400

7,500
2,100
400
74,400

2,500
2,100
400
72,200

Material

Conversion

$

$1.44

$74,400

$31,768

74,400
$1

72,200
$0.44

Cost Assignment
Transferred out:
Beginning inventory cost
Cost to complete
Conversion (2,800 × $0.44)
Total cost of BI
Started & comp. (64,400 × $1.44)
Normal spoilage
DM: (2,100 × $1)
$2,100
CC: (2,100 × $0.44)
924
Ending inventory:
Material (7,500 × $1)
Conversion (2,500 × $0.44)
Abnormal spoilage
Material (400 × $1)
Conversion (400 × $0.44)

Total costs accounted for

$

7,632

$

1,232
8,864
92,736
3,024

$104,624

$7,500
1,100

8,600

$

400
176

576
$113,800


35.

CHAPTER 7
Special Production Issues: Lost Units and Accretion
Maximum normal spoilage = 70,000 × 3% = 2,100 units
Ronald Company
Cost of Production Report
for May 2003
Units
Material
Conversion
Beginning inventory
5,600
Units started
74,400
Units to account for
80,000
BI completed
Units S & C
Total units completed
Ending inventory
Normal spoilage
Abnormal spoilage*
Units accounted for
*To balance schedule
Beg. inventory cost
Current costs
Total costs
Divided by EUP
Cost per EUP

5,600
64,400
70,000
7,500
2,100
400
80,000
Total
7,632
106,168
$113,800
$

$1.45

5,600
64,400

5,600
64,400

7,500
2,100
400
80,000

2,500
2,100
400
75,000

Material
$ 6,400
74,400
$80,800
80,000
$1.01

Cost Assignment
Transferred out:
Units completed (70,000 × $1.45)
Normal spoilage
DM: (2,100 × $1.01)
$2,121
CC: (2,100 × $0.44)
924
Ending inventory:
Material (7,500 × $1.01)
Conversion (2,500 × $0.44)
Abnormal spoilage
Material (400 × $1.01)
Conversion (400 × $0.44)
Total costs accounted for

Conversion
$ 1,232
31,768
$33,000
75,000
$0.44

$101,500
3,045

$104,545

$7,575
1,100

8,675

$

404
176

580
$113,800

179


180
36.

CHAPTER 7
Special Production Issues: Lost Units and Accretion
a.
Total
Material

Conversion
Beginning inventory
6,000
Started
180,000
To account for
186,000
Beginning inventory
Started and completed
Transferred out
Ending inventory
Normal spoilage
Abnormal spoilage*
Accounted for
*To balance schedule
b.
Conversion
BI
Current
$342,810
Total costs
Divide by EUP
Cost per EUP

6,000
146,000
152,000
20,000
4,800
9,200

186,000
Total
$

33,600
1,224,330

6,000
146,000
152,000
20,000
4,800
9,200
186,000

6,000
146,000
152,000
14,000
3,360
6,440
175,800

Material
$915,120

$1,257,930
$6.87

186,000

$4.92

175,800
$1.95

Cost of goods transferred before proration of normal spoilage:
152,000 × $6.87 = $1,044,240
Cost of ending inventory before proration of normal spoilage:
Direct material (20,000 × $4.92)
$ 98,400
Conversion (14,000 × $1.95)
27,300
Total
$125,700
Proration:
Cost of normal spoilage:
Direct material (4,800 × $4.92)
Conversion (3,360 × $1.95)
Total cost

$23,616
6,552
$30,168

Cost of transferred goods after proration of normal spoilage:
Cost before normal spoilage
$1,044,240
Normal spoilage
DM: $23,616 × .88
20,782

CC: $6,552 × .92
6,028
Total
$1,071,050
Cost of ending inventory after proration of normal spoilage:
Cost before normal spoilage
$125,700
Normal spoilage
DM: $23,616 × .12
2,834
CC: $6,552 × .08
524
Total
$129,058
Abnormal spoilage cost:
Direct material (9,200 × $4.92)
$45,264
Direct labor (6,440 × $1.95)
12,558


CHAPTER 7
181
Special Production Issues: Lost Units and Accretion
Total
$57,822


182

CHAPTER 7
Special Production Issues: Lost Units and Accretion
Total costs accounted for:
Transferred out
$1,071,050
Ending inventory
129,058
Abnormal spoilage
57,822
Total
$1,257,930

37.

a.

Abnormal spoilage = 2,100 – 1,680 = 420

Beginning inventory
Started
Units to account for
Beginning inventory
Started & completed
Transferred out
Ending inventory*
Abnormal spoilage
Normal spoilage
Units accounted for
*To balance schedule

Units
4,200
42,000
46,200

Tran. in

4,200
29,400
33,600
10,500
420
1,680
46,200

4,200
29,400
33,600
10,500
420
1,680
46,200

b.
Cost Assignment
Transferred out:
Good units (33,600 × $9)
Normal spoilage (1,680 × $9)
Total
c.

Ending inventory:
Trans. in (10,500 × $5)
Material (10,500 × $1)
Conversion (4,200 × $3)
Total
d.

Material Conversion

4,200
29,400
33,600
10,500
420
1,680
46,200

4,200
29,400
33,600
4,200
420
1,680
39,900

$302,400
15,120
$317,520

$52,500

10,500
12,600
$75,600

Total cost transferred in (46,200 × $5)
Cost of beginning inventory
Cost transferred in this period

$231,000
(18,900)
$212,100

e.
Abnormal spoilage: 420 × $9 = $3,780; this cost
would be deducted as a period cost (loss) in May.
(CMA adapted)


38.

CHAPTER 7
Special Production Issues: Lost Units and Accretion
Maximum normal loss = 150,000 × 4% = 6,000 units
Abnormal loss = 9,000 – 6,000 = 3,000 units
Dept. 1
Beginning inventory
Started
Units to account for

Units

6,000
150,000
156,000

Material

BI completed
Started & completed
Transferred out
Ending inventory
Normal spoilage (4%)
Abnormal spoilage
Units accounted for

6,000
123,000
129,000
18,000
6,000
3,000
156,000

6,000
123,000
129,000
18,000
6,000
3,000
156,000

Beginning inventory
Current period
Total costs
Divided by EUP
Cost per EUP

Material
$ 3,060
37,500
$40,560
156,000
$0.26

Cost Assignment
Transferred out:
Good units (129,000 × $1.67)
Normal spoilage (6,000 × $1.67)
Ending inventory:
Material (18,000 × $0.26)
Conversion (10,800 × $1.41)
Abnormal spoilage (3,000 × $1.67)
Total costs accounted for

Conversion

6,000
123,000
129,000
10,800
6,000

3,000
148,800

Conversion
$ 2,328
207,480
$209,808
148,800
$1.41

$215,430
10,020
$ 4,680
15,228

183

Total
$ 5,388
244,980
$250,368
$1.67

$225,450
19,908
5,010
$250,368

Dept. 2
Maximum normal loss = 129,000 × 8% = 10,320 units

Beginning inventory
Transferred in
Units to account for
BI completed
Units S & C
Transferred out
Ending inventory
Normal spoilage
Units accounted for
BI cost
Current costs
Total costs
Divided by EUP
Cost per EUP

Units
3,000
129,000
132,000
3,000
108,000
111,000
15,000
6,000
132,000

Total
8,436
281,810
$290,246

$

$2.22

Trans. In

3,000
108,000
111,000
15,000
6,000
132,000

Trans. In
$ 6,690
230,910
$237,600
132,000
$1.80

Material Conversion

3,000
108,000
111,000
0
0
111,000
Material

$ 0
740
$740
111,000
$0.01

3,000
108,000
111,000
12,000
3,600
126,600
Conversion
$ 1,746
50,160
$51,906
126,600
$0.41


184

CHAPTER 7
Special Production Issues: Lost Units and Accretion
Cost Assignment
Transferred out
Good units (111,000 × $2.22)
$246,420
*Proration of normal spoilage
10,832

$257,252
Ending inventory:
Transferred in (15,000 × $1.80)
$27,000
Conversion (12,000 × $0.41)
4,920
Total cost before proration
$31,920
*Proration of normal spoilage
1,444
33,364
Total costs accounted for (with rounding error) $290,616
*Proration:
Cost of normal spoilage:
Transferred in (6,000 × $1.80)
Conversion (3,600 × $0.41)
Total cost

Units transferred out*
Ending work in process

$10,800
1,476
$12,276

Trans In
EUP
%
111,000
88

15,000
12
126,000
100

Conversion
EUP
%
111,000
90
12,000
10
123,000
100

Note: Beginning inventory was not past inspection point and
must be included in the proration.
TO:
EI:
39.

TI
CC

$10,800 × 88% = $ 9,504
$ 1,476 × 90% =
1,328

$10,832

TI
CC

$10,800 × 12% = $ 1,296
$ 1,476 × 10% =
148

1,444

Maximum normal loss = 150,000 × 4% = 6,000 units
Abnormal loss = 9,000 – 6,000 = 3,000 units
Dept. 1
Beginning inventory
Started
Units to account for

Units
6,000
150,000
156,000

Material

BI completed
Started & completed
Transferred out
Ending inventory
Normal spoilage (4%)
Abnormal spoilage
Units accounted for

6,000
123,000
129,000
18,000
6,000
3,000
156,000

0
123,000
123,000
18,000
6,000
3,000
150,000

Conversion

5,400
123,000
128,400
10,800
6,000
3,000
148,200


CHAPTER 7
185

Special Production Issues: Lost Units and Accretion
Material
Conversion
Total
Beginning inventory
$ 5,388
Current period
$37,500
$207,480
244,980
Total costs
$250,368
Divided by EUP
150,000
148,200
Cost per EUP
$0.25
$1.40
$1.65
Cost Assignment
Transferred out:
Beginning WIP
$ 5,388
Complete Beginning WIP
CC (5,400 × $1.40)
7,560
S & C (123,000 × $1.65)
Normal spoilage (6,000 × $1.65)
Ending inventory:
Material (18,000 × $0.25)

Conversion (10,800 × $1.40)
Abnormal spoilage (3,000 × $1.65)
Total costs accounted for

$ 12,948
202,950
9,900
$

4,500
15,120

$225,798
19,620
4,950
$250,368

Dept. 2
Maximum normal loss = 129,000 × 8% = 10,320 units
Units
3,000
129,000
132,000

Trans. In

Beginning inventory
Transferred in
Units to account for
BI completed

Units S & C
Transferred out
Ending inventory
Normal spoilage
Units accounted for

3,000
108,000
111,000
15,000
6,000
132,000

0
108,000
108,000
15,000
6,000
129,000

BI cost
Current costs
Total costs
Divided by EUP
Cost per EUP

Total
8,436
281,810
$290,246

Trans. In

Material Conversion

3,000
108,000
111,000
0
0
111,000

1,800
108,000
109,800
12,000
3,600
125,400

Material

Conversion

$740

$50,160

$

$2.20

$230,910
129,000
$1.79

111,000
$0.01

125,400
$0.40


186

CHAPTER 7
Special Production Issues: Lost Units and Accretion
Cost Assignment
Transferred out:
Beginning WIP
$ 8,436
Complete Beginning WIP:
DM (3,000 × $0.01)
30
CC (1,800 × $0.40)
720
$ 9,186
S & C (108,000 × $2.20)
237,600
*Proration of normal spoilage
10,747

$257,533
Ending inventory:
Transferred in (15,000 × $1.79)
$26,850
Conversion (12,000 × $0.40)
4,800
Total cost before proration
$31,650
*Proration of normal spoilage
1,433
33,083
Total costs accounted for (with rounding error)
$290,616
*Proration:
Cost of normal spoilage:
Transferred in (6,000 × $1.79)
$10,740
Conversion (3,600 × $0.40)
1,440
Total cost
$12,180
Trans In
Conversion
EUP
%
EUP
%
Units transferred out*
111,000
88

111,000
90
Ending work in process
15,000
12
12,000
10
126,000
100
123,000
100
Note: Beginning inventory was not past inspection point and
must be included in the proration.
TO:
EI:

40.

TI
CC

$10,740 × 88% = $ 9,451
$ 1,440 × 90% =
1,296

$10,747

TI
CC

$10,740 × 12% = $ 1,289
$ 1,440 × 10% =
144

1,433

Maximum normal loss = 125,000 × 10% = 12,500 units
Dept. 1
Beginning inventory
Started
Units to account for

Units
5,000
125,000
130,000

Material

Beginning inv. completed
Started & completed
Transferred out
Ending inventory
Normal spoilage
Units accounted for

5,000
105,000
110,000
14,000

6,000
130,000

0
105,000
105,000
14,000
0
119,000

Conversion

1,750
105,000
106,750
5,600
0
112,350


CHAPTER 7
Special Production Issues: Lost Units and Accretion
Material
Beginning WIP
Current period
Total costs
Divided by EUP
Cost per EUP

Conversion

$190,400

$393,225

119,000
$1.60

112,350
$3.50

187

Total
$ 19,250
583,625
$602,875
$5.10

Cost Assignment
Transferred out:
Beginning inventory cost
Cost to complete (conv. 1,750 × $3.50)
Total cost of beginning inventory
Started & completed (105,000 × $5.10)
Ending inventory:
Material (14,000 × $1.60)
Conversion (5,600 × $3.50)
Total costs accounted for

$ 19,250
6,125
$ 25,375
535,500

$560,875

$ 22,400
19,600

42,000
$602,875

Dept. 2
Maximum normal loss = 110,000 × 5% = 5,500
Beginning inventory
Transferred in
Units to account for
BI completed
Units S & C
Transferred out
Ending inventory
Normal spoilage
Abnormal spoilage*
Units accounted for
*To balance schedule
BI cost
Current costs
Total costs
Divided by EUP

Cost per EUP

Units Trans. In
40,000
110,000
150,000
40,000
80,000
120,000
22,500
5,500
2,000
150,000

Total
345,600
892,770
$1,238,370

$

$8.79

40,000
80,000
120,000
22,500
5,500
2,000
150,000

Trans. In
$204,000
568,500
$772,500
150,000
$5.15

Material Conversion

40,000
80,000
120,000
0
5,500
2,000
127,500
Material
$120,000
268,875
$388,875
127,500
$3.05

40,000
80,000
120,000
4,500
4,400
1,600

130,500

Conversion
$21,600
55,395
$76,995
130,500
$0.59


188

CHAPTER 7
Special Production Issues: Lost Units and Accretion
Cost Assignment
Transferred out:
(120,000 × $8.79)
$1,054,800
Normal spoilage
Trans. In (5,500 × $5.15) $28,325
Materials (5,500 × $3.05)
16,775
Conversion (4,400 × $0.59)
2,596
47,696
Total costs transferred out
$1,102,496
Ending inventory:
Trans. In (22,500 × $5.15)
$ 115,875

Conversion (4,500 × $0.59)
2,655
118,530
Abnormal spoilage
Trans. In (2,000 × $5.15)
$ 10,300
Material (2,000 × $3.05)
6,100
Conversion (1,600 × $.59)
944
17,344
Total costs accounted for
$1,238,370

41.

a.

Predetermined rate = $462,500 ÷ 50,000 = $9.25 per MH

b.
Transferred out
Ending inventory
Defective units
Total
Costs
Divided by EUP
Cost per EUP

Units

2,000,000
75,000
40,000
2,115,000

Material
2,000,000
75,000
40,000
2,115,000

Total
$9,322,425

Material
$3,743,550
2,115,000
$1.77

$4.47

Conversion
2,000,000
26,250
40,000
2,066,250
Conversion
$5,578,875
2,066,250
$2.70

c.
The rework cost is debited to the manufacturing
overhead account since the company uses a predetermined
rate to apply overhead.
Manufacturing Overhead
Various accounts
d.

37,750
37,750

Normal production cost (40,000 × $4.47)
Cost of rework
Total cost of defective units
Total sales value of defective units
(40,000 × $3.50)
Deficiency
Inventory - Irregulars
140,000
Work in Process Inventory
Cost of good pipe (2,000,000 × $4.47)
Deficiency
Total cost
Divided by total good pipe
Revised cost per good pipe (rounded)

$178,800
37,750
$216,550

(140,000)
$ 76,550
140,000
$8,940,000
76,550
$9,016,550
2,000,000
$4.51


CHAPTER 7
Special Production Issues: Lost Units and Accretion
e.
Inventory - Irregular
140,000
Loss from Defects
15,310*
Work in Process
155,310
*20% of deficiency; $76,550 × 20%

189

Cost of good pipe
$8,940,000
Deficiency ($76,550 - $15,310)
61,240
Total cost
$9,001,240
Divided by total good pipe

2,000,000
Revised cost per good foot of pipe (rounded)
$4.50
42.

a.

WIP - Job BA468
850
Raw Materials Inventory
Wages Payable

150
700

b.

Manufacturing Overhead
Raw Materials Inventory
Wages Payable

850
150
700

c.

Loss on Abnormal Rework
Raw Materials Inventory
Wages Payable

850
150
700

Case
43.

a.

Beginning inventory
Transferred in
Units to account for

3,000
45,000
48,000

Transferred out
Ending inventory
Bikes lost
Units accounted for

40,000
4,000
4,000
48,000

(1) Bikes passing through Assembly
48,000

Less bikes not inspected during
current year:
Beginning WIP (inspected in prior
year - 80% complete)
3,000
Ending WIP(have not reached inspection point - 20% complete)
4,000 (7,000)
Bikes that reached inspection point
41,000
Normal defective rate
0.05
Normal number of defective bikes
2,050
(2)

Total bikes lost
4,000
Normal number of defective bikes
(2,050)
Abnormal number of defective bikes 1,950