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Lecture

# Chapter 18 In Class Questions_solutions_ONLY.pdf

11 Pages
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School
University of Alberta
Department
Accounting
Course
ACCTG424
Professor
Trish Stringer
Semester
Fall

Description
In Class #18.1 Normal and abnormal spoilage in units Required 1 Compute the normal and abnormal spoilage in units. Total spoiled units 12,000 Normal spoilage in units, 5%  132,000 6,600 Abnormal spoilage in units 5,400 Required 2 Assume that the equivalent-unit cost of a spoiled unit is \$10. Compute the amount of potential savings if all spoilage were eliminated, assuming that all other costs would be unaffected. Comment on your answer. Abnormal spoilage, 5,400  \$10 \$ 54,000 Normal spoilage, 6,600  \$10 66,000 Potential savings, 12,000  \$10 \$120,000 Regardless of the targeted normal spoilage, abnormal s poilage is non-recurring and avoidable. The targeted normal spoilage rate is subject to change. Many companies have reduced their spoilage to almo st zero, which would realize a ll potential savings. Of course, zero spoilage usually means hi gher-quality products, more customer satisfaction, more employee satisfaction, and various beneficial effects on nonmanufacturing (for example, purchasing) costs of direct materials. In Class #18.2 Weighted-average method, spoilage Required 1 For each cost category, compute equivalent units. Show physical units in the first column of your schedule. SOLUTION EXHIBIT Weighted-Average Method of Process Costing with Spoilage; Chipcity, September 2013. PANEL A: Steps 1 and 2—Summarize Output in Physical Units and Compute Output in Equivalent Units (Step 1) (Step 2) Equivalent Units Physical Direct Conversion Flow of Production Units Materials Costs Work in process, beginning (given) 600 Started during current period (given) 2,550 To account for 3,150 Good units completed and transferred out during current period: 2,100 2,100 2,100 Normal spoilage* 315 315  100%; 315  100% 315 315 Abnormal spoilage † 285 285 285 285  100%; 285  100‡ Work in process, ending (given) 450 450  100%; 450  40% 450 180 Accounted for 3,150 Work done to date 3,150 2,880 *Normal spoilage is 15% of good units transferred out: 15% ▯ 2,100 = 315 units. Degree of completion of normal spoilage in this department: direct materials, 100%; conversion costs, 100%. †Total spoilage = 600 + 2,550 – 2,100 – 450 = 600 units; Abnormal spoilage = Total spoilage  Normal spoilage = 600  315 = 285 units. Degree of completion of abnormal spoilage in this department: direct materials, 100%; conversion costs, 100%. ‡Degree of completion in this department: direct materials, 100%; conversion costs, 40%. Required 2 Summarize total costs to account for, calculate cost per equivalent unit for each cost category, and assign total costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process. Solution Exhibit 18-24, Panel B, summarizes total costs to account for, calculates the costs per equivalent unit for each cost category, and assigns total costs to units completed (including normal spoilage), to abnormal spoilage, and to units in ending work in process using the weighted-average method. SOLUTION EXHIBIT PANEL B: Steps 3, 4, and 5— Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process Total Productio Direct Conversion n Materials Costs Costs (Step 3) Work in process, beginning (given) \$111,300 \$ 96,000 \$ 15,300 Costs added in current period (given) 797,400 567,000 230,400 Total costs to account for \$908,700 \$663,000 \$245,700 (Step 4) Costs incurred to date \$663,000 \$245,700 Divided by equivalent units of work  3,150  2,880 done to date \$210.476 \$85.3125 Cost per equivalent unit (Step 5) Assignmen ctfosts Good units completed and transferred out (2,100 units) Costs before adding normal spoilage \$621,156 (2,100 \$210.476) + Normal spoilage (315 units) 93,173 (2,100 \$85.3125) # # (A) Total cost of good units completed (315  \$210.476) + (315  and transferred out 714,329 \$85.3125) (B) Abnormal spoilage (285 units) 84,300 110,071 (C) Work-in-process, ending (450 units) # # (285  \$210.476) + (285  \$85.3125) (450  \$210.476) + (180 # \$85.3125) #A)+(B)+(C) Total costs accounted for \$908,700 \$663,000 \$245,700 Equivalent units of direct materials and conversion costs calculated in Step 2 in Panel A. Required 3 Redo using the FIFO method of process costing. Panel A, calculates the equivalent units of work done in the current period for each cost category in September 2013. First-in, First-out (FIFO) Method of Process Costing with Spoilage; Chipcity, September 2013. PANEL A: Steps 1 and 2—Summarize Output in Physical Units and Compute Output in Equivalent Units (Step 2) (Step 1) Equivalent Units Physical Direct Conversion Flow of Production Units Materials Costs Work in process, beginning (given) 600 Started during current period (given) 2,550 To account for 3,150 Good units completed and transferred out during current period: From beginning work in process || 600 600  (100% 100%); 600  (100%  30%) 0 420 Started and completed 1,500 # 1,500  100%; 1,500  100% 1,500 1,500 Normal spoilage* 315 315  100%; 315  100% 315 315 Abnormal spoilage † 285 285 285 285  100%; 285  10‡% Work in process, ending 450 450  100%; 450  40% 450 180 Accounted for 3,150 2,550 2,700 Work done in current period only |Degree of completion in this department: direct materials, 100%; conversion costs, 30%. #2,100 physical units completed and transferred out minus 600 physical units completed and transferred out from beginning work in process inventory. *Normal spoilage is 15% of good units transferred out: 15%  2,100 = 315 units. Degree of completion of normal spoilage in this department: direct materials, 100%; conversion costs, 100%. † Abnormal spoilage = Actual spoilage  Normal spoilage = 600  315 = 285 units. Degree of completion of abnormal spoilage in this department: direct materials, 100%; conversion costs, 100%. ‡Degree of completion in this department: direct materials, 100%; conversion costs, 40%. Panel B, summarizes the total Chip Department costs for September 2013, calculates the costs per equivalent unit for each cost category, and assigns total costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process under the FIFO method. SOLUTION EXHIBIT PANEL B: Steps 3, 4 and 5— Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process Total Productio Direct Conversion n Materials Costs Costs (Step 3) Work in process, beginning (given) \$111,30 \$ 96,000 \$ 15,300 Costs added in current period (given) 0 567,000 230,400 Total costs to account for \$663,000 \$245,700 797,400 (Step 4) Costs added in current period \$908,70 \$567,000 \$230,400 Divided by equivalent units of work done in 0  2,550  2,700 current period \$ 85.333 Cost per equivalent unit \$222.353 (Step 5) Assignment of costs: Good units completed and transferred out (2,100 units) Work in process, beginning (600 units) \$111,30 \$96,000 + \$15,300 Costs added to beg. work in process in 0 (0  \$222.353) + (420  current period 35,840 \$85.333) Total from beginning inventory before normal spoilage 147,140 Started and completed before normal spoilage 461,529 (1,500§ (1,500 units) 96,921 § \$222.3§3)+(1,500 \$85.333)§ Normal spoilage (315 units) (315  \$222.353) + (315 (A) Total costs of good units completed 705,590 \$85.333) and 87,691 transferred out 115,419 (B) Abnormal spoilage (285 units) § § (285  \$222.353) + (285 (C) Work in process, ending (450 units) \$85.333) (450  \$222.353) + (180  \$85.333) (A)+(B)+(C) Total costs accounted for \$908,70 \$663,000 + \$245,700 0 §Equivalent units of direct materials and conversion costs calculated in Step 2 in Panel A. In Class #18.3 Weighted-average method, inspection at 80% completion Required For August, summarize total costs to account for, and assign these costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process. The computation and allocation of spoilage is the most difficult part of this problem. The units in the ending inventory have passed inspection. Therefore, of the 100,000 units to account for (12,500 beginning + 87,500 started), 12,500 must have been spoiled in May [100,000 – (62,500 completed + 25,000 ending inventory)]. Normal spoilage is 8,750 [0.10  (62,500 + 25,000)]. The 3,750 remainder is abnormal spoilage (12,500 – 8,750). Solution Exhibit 18-3, Panel A, cal culates the equivalent units of work done for each cost category. We comment on several points in this calculation:  Ending work in process includes an element of normal spoilage since all the ending WIP have passed the point of inspection––inspection occurs when production is 80% complete, while the units in ending WIP are 95% complete.  Spoilage includes no direct materials units because spoiled units are detected and removed from the finishing activity when inspection occurs at the time production is 80% complete. Direct materials are added only later when production is 90% complete.
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