TEST BANK Cost Accounting 14E by Carter Ch07 PDF

Preview

Summary

Chapter 7 THE COST OF QUALITY AND ACCOUNTING FOR PRODUCTION LOSSES MULTIPLE CHOICE Question Nos. 16, 17, 22, and 23 are AICPA adapted. Question No. 24 is CIA adapted. A 1. The quality costs that are associated with materials and products that fail to meet quality standards and result in manufacturin...

Description

Chapter 7 THE COST OF QUALITY AND ACCOUNTING FOR PRODUCTION LOSSES

MULTIPLE CHOICE Question Nos. 16, 17, 22, and 23 are AICPA adapted. Question No. 24 is CIA adapted. A

1.

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 E. none of the above

D

2.

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 E. none of the above

C

3.

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 E. none of the above

B

4.

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 E. none of the above

82

83

Chapter 7

D

5.

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

6.

The A. B. C. D. E.

C

7.

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 E. none of the above

D

8.

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

9.

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 D. downtime due to machine failures E. all of the above

E

10.

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

11.

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

best approach to quality improvement is to concentrate on: prevention detection appraisal increased production none of the above

The Cost of Quality and Accounting for Production Losses

84

A

12.

When spoilage occurs because of some action taken by the customer, the unrecoverable cost of the spoilage should be charged to: A. Work in Process B. Spoiled Goods Inventory C. Factory Overhead Control D. Applied Factory Overhead E. none of the above

C

13.

When spoilage occurs because of some internal failure, the unrecoverable cost should be charged to: A. Work in Process B. Spoiled Goods Inventory C. Factory Overhead Control D. Applied Factory Overhead E. none of the above

A

14.

When rework occurs because of some action taken by the customer, the cost of the rework should be charged to: A. Work in Process B. Spoiled Goods Inventory C. Factory Overhead Control D. Applied Factory Overhead E. none of the above

C

15.

When rework occurs because of some internal failure, the cost of the rework should be charged to: A. Work in Process B. Spoiled Goods Inventory C. Factory Overhead Control D. Applied Factory Overhead E. none of the above

C

16.

Newman Company's Job 1865 for the manufacture of 2,200 coats was completed during August at the unit costs presented below. Due to an internal failure in the production process, 200 coats were found to be spoiled during final inspection that were sold to a jobber for $6,000. Direct materials.................................................................................... Direct labor.......................................................................................... Factory overhead................................................................................. .................................................................................................... What would be the unit cost of good coats produced on Job 1865? A. $57.00 B. $55.00 C. $56.00 D. $58.00 E. none of the above

SUPPORTING CALCULATION: $20 + $18 + $18 = $56

$20 18 18 $56

85

A

Chapter 7

17.

During March, Vaughan Company incurred the following costs on Job 009 for the manufacture of 200 motors: Original cost accumulation: Direct materials.............................................................................. Direct labor..................................................................................... Factory overhead (150% of direct labor).........................................

$

660 800 1,200 $ 2,660

Direct costs of reworking 10 units: Direct materials.............................................................................. Direct labor..................................................................................... ........................................................................................................

$100 160 $260

The rework costs were attributable to the exacting specifications of the customer. What is the cost per finished unit of Job 009? A. $15.80 B. $14.60 C. $14.00 D. $13.30 E. none of the above

SUPPORTING CALCULATION: $2,660 + $260 + (150% x $160) = $3,160  200 = $15.80 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 E. none of the above

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 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 E. none of the above

C

20.

In a process cost system, the cost of spoilage due to an internal production failure should be recorded as: A. dr. Work in Process; cr. Finished Goods 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

The Cost of Quality and Accounting for Production Losses

B

21.

86

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 $10,000 and spoilage due to internal failure of $12,000. How much spoilage cost should Leo charge to Factory Overhead Control for the month of March? A. $22,000 B. $12,000 C. $10,000 D. $0 E. none of the above

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 $27,000 and conversion costs of $40,000 were charged to Department A in October. What were the total costs transferred to Department B? A. $46,900 B. $53,600 C. $56,000 D. $57,120 E. none of the above

SUPPORTING CALCULATION: Materials: $27,000  (7,000 + 2,000) = $3 Conversion: $40,000  (7,000 + 1,000) = $5 Transferred costs: 7,000 x $8 = $56,000

87

D

Chapter 7

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.................................................................................. Conversion cost..................................................................................... ......................................................................................................

$

840 315 $ 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. $33 B. $22 C. $1,100 D. $55 E. none of the above

SUPPORTING CALCULATION: Materials: $840  (2,000 + 100) = $.40 Conversion: $315  (2,000 + 100) = $.15 Spoilage: 100 x $.55 = $55 A

25.

In a A. B. C. D. E.

process cost system, the cost of rework usually is debited to: Factory Overhead Control Applied Factory Overhead Spoiled Goods Inventory Work in Process none of the above

The following questions are based on the Appendix to the chapter: 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 B. units transferred out and 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 E. none of the above

The Cost of Quality and Accounting for Production Losses

88

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 B. units transferred out and 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 E. none of the above

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 E. none of the above

SUPPORTING CALCULATION: Equivalent units in beginning inventory (40% x 5,000)....................... Equivalent units started and completed during period (12,000 - 5,000)............................................................................. Equivalent units in ending inventory (40% x 6,000)............................ Equivalent units of spoilage (75% x 2,000)......................................... Total equivalent units........................................................................... A

29.

2,000 7,000 2,400 1,500 12,900

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 60% complete as to conversion costs, and lost units were the result of normal production shrinkage. The equivalent units of conversion cost using fifo is: A. 11,400 B. 14,400 C. 12,900 D. 13,400 E. none of the above

SUPPORTING CALCULATION: Equivalent units in beginning inventory (40% x 5,000)....................... Equivalent units started and completed during period (12,000 - 5,000)............................................................................. Equivalent units in ending inventory (40% x 6,000)............................ Total equivalent units...........................................................................

2,000 7,000 2,400 11,400

89

Chapter 7

PROBLEMS

PROBLEM 1. Journal Entries for Scrap. Munoz Metal Products accumulates metal shavings from the shop floor and sells them periodically to a nearby scrap dealer. Scrap sales, on account, for the period just ended total $2,300. Required: Indicate the journal entries when: (1)The (2)The (3)The (4)The

scrap sales are viewed as additional revenue. scrap sales are viewed as a reduction of the cost of goods sold during the period. scrap sales are viewed as a reduction of factory overhead. scrap sales are traceable to individual jobs and are viewed as a reduction in the cost of materials used on the jobs.

SOLUTION (1)

(2)

(3)

(4)

Accounts Receivable............................................................ Scrap Sales (or Other Income).......................................

2,300

Accounts Receivable............................................................ Cost of Goods Sold.........................................................

2,300

Accounts Receivable............................................................ Factory Overhead Control..............................................

2,300

Accounts Receivable............................................................ Work in Process..............................................................

2,300

2,300

2,300

2,300

2,300

PROBLEM 2. Spoilage in a Job Order Cost System. Walker Inc. manufactures custom wood products. During the current period, an order for 2,000 workbenches was begun on Job 1994. After the job was completed, the benches were inspected and 100 units were determined to be defective. The customer has agreed to accept the order with only 1,900 units instead of the quantity originally ordered. The spoiled units can be sold as seconds for $25 each. Spoiled goods are kept in a separate inventory account from finished goods. Total costs charged to Job 1994 follow: Materials ......................................................................................................... Labor (200 hours x $15 per hour)..................................................................... Factory overhead ($9.50 per labor hour).......................................................... Total cost charged to Job 1994.......................................................................... Custom jobs are marked up 150 percent on cost.

$ 5,100 3,000 1,900 $10,000

The Cost of Quality and Accounting for Production Losses

90

Required: (1)

(2)

Assuming that the defective units were the result of an internal failure (i.e., an employee error or a machine failure), prepare the appropriate general journal entries to record the transfer of the defective units to a separate inventory account and the completion and shipment of Job 1994 to the customer. Assuming that the defective units were the result of a change in design specified by the customer after the units were completed, prepare the appropriate general journal entries to record the transfer of the defective units to the separate inventory account and the completion and shipment of Job 1994 to the customer.

SOLUTION (1)

(2)

Spoiled Goods Inventory (10 units x $25 salvage)............... Factory Overhead Control.................................................... Work in Process (10 units x $50* cost)...........................

250 250

Cost of Goods Sold............................................................... Work in Process ($10,000 - 500)....................................

9,500

Accounts Receivable ($9,500 x 150%)................................. Sales..............................................................................

14,250

Spoiled Goods Inventory (10 units x $25 salvage)............... Work in Process..............................................................

250

Cost of Goods Sold............................................................... Work in Process ($10,000 - $250)..................................

9,750

Accounts Receivable ($9,750 x 150%)................................. Sales..............................................................................

14,625

*$10,000 total job cost = $50 per unit 200 units on job

500

9,500

14,250

250

9,750

14,625

91

Chapter 7

PROBLEM 3. Entries for Charging Rework Costs Caused by Internal Failure and by Change in Customer Specification. Albany Appliances manufactured 100 microwave ovens in a recent production run and discovered that 10 ovens were defective and required reworking as follows: Rework cost per unit: Materials.........................................................