...support. 18: CHAPTER SPOILAGE, REWORKED UNITS, AND SCRAP TRUE/FALSE 1. Reducing defects helps to reduce costs, but does not make the business more competitive. Answer: False Difficulty: 2 Reducing defects does make the business more competitive. 2. Objective: 1 Reworked goods are unacceptable units of production usually not capable of being repaired or converted into a salable product. Answer: False Difficulty: 2 Objective: 1 Reworked goods are unacceptable units of production that can be repaired into a salable product. 3. The value of scrap material can have either a high or low sales value relative to the product with which it is associated. Answer: False Difficulty: 2 Scrap material by definition has a low sales value. Objective: 1 4. Normal spoilage adds to the cost of the job to which it is attributed in a job order costing system. Answer: True Difficulty: 2 Objective: 2 5. When calculating normal spoilage rates, the base should be actual units started in production. Answer: False Difficulty: 2 The base should be good units started into production. Objective: 2 6. Abnormal spoilage is spoilage that should arise under efficient operating conditions. Answer: False Difficulty: 2 Objective: Abnormal spoilage should not arise under efficient operating conditions. 2 7. A company whose goal is zero defects would usually treat all spoilage as abnormal. Answer: True Difficulty: 2 Objective: 2 8. Counting spoiled units as part of output units in a process-costing system usually results...
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...Question 1 CCS manufactures pencils. All direct materials are added at the beginning of the production process. During January, the accounting department noted that there was no beginning inventory. Direct materials purchases totaled $30863 during the month. Work in process records revealed that 1047 units were started in January, 464 units were completed, and 36 units were spoiled as expected. Ending work in process units are complete with respect to direct materials costs. Spoilage is not detected until the process is complete. What is the direct material cost assigned to good units completed? Select one: a. $13678 b. $30863 c. $14739 d. $33258 e. None of the other options is correct Feedback Your answer is incorrect. The correct answer is: $14739 Question 2 Which of the following correctly reflects what units passed inspection this period? Assume beginning work in process was completed and ending work in process was started during the period Select one: a. | INSPECTION POINT | | 10% | 50% | 100% | BWIP (30% complete) | No | No | Yes | b. | INSPECTION POINT | | 10% | 50% | 100% | BWIP (5% completed) | Yes | Yes | Yes | c. | INSPECTION POINT | | 10% | 50% | 100% | Started and completed | No | Yes | Yes | d. | INSPECTION POINT | | 10% | 50% | 100% | EWIP ( 40% completed) | Yes | No | Yes | e. None of the other options is correct Feedback Your answer is incorrect. The correct answer is: | INSPECTION POINT...
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...ch05.qxd 9/27/04 4:19 PM Page 174 CHAPTER Q1 Q2 Q3 Q4 Q5 Q6 Job Costing In Brief Custom products and services, which are produced singly or in small batches, need to be valued for financial statements, tax reporting, and management monitoring. Job costing is an accounting method used to assign product costs to custom products or services. In job costing, direct costs are traced and overhead costs are allocated to individual jobs. Sometimes defects occur in custom products. Defective units can sometimes be reworked. The costs for both spoilage and rework need to be accounted for, as does the cost of scrap that arises from production. This Chapter Addresses the Following Questions: How are costs assigned to customized goods and services? How is overhead allocated to individual jobs? What is the difference between actual costing and normal costing? What are the uses and limitations of job cost information? How are spoilage, rework, and scrap handled in job costing? What are the quality and behavioral implications of spoilage? ch05.qxd 9/27/04 4:19 PM Page 175 BOMBARDIER: CUSTOM MANUFACTURING n 1942, the Canadian company L’AutoNeige Bombardier Limitée began manufacturing tracked vehicles for snow-covered terrain. These vehicles were early models of what later became snowmobiles. In English, L’Auto-Neige means snow car. Over time, the company developed expertise in building engines and expanded into other markets such as personal watercraft, aircraft, subway cars, buses...
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...Spoilage, Rework and Scrap National Chengchi University 2007.5.2 1 Basic Concepts In today’s manufacturing environment, firms adopt various quality improvement programs to reduce spoilage, rework units, and scrap: • Spoilage refers to unacceptable units (i.e., do not meet the specifications required by customers for good units) that are discarded or sold for disposal value (or sold at reduced prices).1 • Rework units are units produced that must be reworked into good units that can be sold in regular channels. • Scrap is the material left over from the manufacture of the product (i.e., residual materials); it has little or no value. The two types of spoilage are normal and abnormal. Normal spoilage occurs under normal operating conditions; it is uncontrollable in the short term and is considered a normal part of production and product cost. That is, the cost of normal spoilage unit is absorbed by the cost of good units produced. Abnormal spoilage is in excess over the amount of normal spoilage expected under normal operating conditions; it is charged as a loss to operations in the period detected. Example 1: In October 2005, Mendonza Co. incurs costs of $615,000 to produce 20,500 units. Of these 20,500 units, 20,000 are good units and 500 are spoiled units. Mendonza has no beginning inventory and no ending inventory that month. Of the 500 spoiled units, 400 units are spoiled because the injection molding machines are unable to manufacture good casing 100% of the time...
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...PART 3A COST MEASUREMENT CONCEPTS 457 QUESTIONS [1] Source: CMA 0690 5-27 Costs that arise from periodic budgeting decisions that have no strong input-output relationship are commonly called A. Committed costs. B. Discretionary costs. C. Opportunity costs. D. Differential costs. [Fact Pattern #1] The estimated unit costs for a company using absorption (full) costing and planning to produce and sell at a level of 12,000 units per month are as follows. Estimated Cost Item Unit Cost --------- --------- Direct materials $32 Direct labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 6 Variable selling 3 Fixed selling 4 [2] Source: CMA 1291 3-27 (Refers to Fact Pattern #1) Estimated conversion costs per unit are A. $35. B. $41. C. $48. D. $67. [3] Source: CMA 1291 3-28 (Refers to Fact Pattern #1) Estimated prime costs per unit are A. $73. B. $32. C. $67. D. $52. [4] Source: CMA 1291 3-29 (Refers to Fact Pattern #1) Estimated total variable costs per unit are A. $38. B. $70. C. $52. D. $18. [5] Source: CMA 1291 3-30 (Refers to Fact Pattern #1) Estimated total costs that would be incurred during a month with a production...
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...COURSE SYLLABUS DEPARTMENT: Business COURSE TITLE: Cost Accounting COURSE NUMBER: EBA 213 PREREQUISITES: EBA 101, EBA 102 CREDIT HOURS: 3 DEVELOPER: Professor Simon Saltz LAST UPDATE: December 1,2003 COURSE DESCRIPTION: Cost accounting focuses on cost determination for manufacturers, products and services. This includes the establishment and maintenance of job order and process cost systems, and the classification of costs as product or period, direct or indirect. Also included are managerial techniques and systems such as budgeting and variance analysis, which enable a business to manage its affairs more efficiently . COURSE/ DEPARTMENTAL OBJECTIVES: Students should be able to understand the thinking and systems of the business world. Understanding how the cost of a product is determined, as it moves through the manufacturing process, enables students to gain insight into how pricing decisions are made. They will be in a better position to determine whether a business is price gouging and can be an effective force in countering such behavior. Understanding budgeting systems enables one to properly manage a business and diagnose the causes of poor business performance. This could help preserve jobs for employees and investment value for shareholders. COURSE/ INSTITUTIONAL OBJECTIVES: ...
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...PART 3A COST MEASUREMENT CONCEPTS 457 QUESTIONS [1] Source: CMA 0690 5-27 Costs that arise from periodic budgeting decisions that have no strong input-output relationship are commonly called A. Committed costs. B. Discretionary costs. C. Opportunity costs. D. Differential costs. [Fact Pattern #1] The estimated unit costs for a company using absorption (full) costing and planning to produce and sell at a level of 12,000 units per month are as follows. Estimated Cost Item Unit Cost --------- --------- Direct materials $32 Direct labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 6 Variable selling 3 Fixed selling 4 [2] Source: CMA 1291 3-27 (Refers to Fact Pattern #1) Estimated conversion costs per unit are A. $35. B. $41. C. $48. D. $67. [3] Source: CMA 1291 3-28 (Refers to Fact Pattern #1) Estimated prime costs per unit are A. $73. B. $32. C. $67. D. $52. [4] Source: CMA 1291 3-29 (Refers to Fact Pattern #1) Estimated total variable costs per unit are A. $38. B. $70. C. $52. D. $18. [5] Source: CMA 1291 3-30 (Refers to Fact Pattern #1) Estimated total costs that would be incurred during a month with a production...
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...example, duplicating the same item keeping in mind the end goal to swap it for the client and it will lose its notoriety according to clients which will make faithful clients to go the contenders. Managers have found that enhanced quality and narrow mindedness for high spoilage have brought down general expenses and expanded deals. As for the situation with Boeing Dreamliner, where the planes with the low quality cost for organization $2.5 billion to add to the planes' quality and alternate clients which are Quantas Airways and a Dubai-based air ship renting firm both crossed out the request for 15 planes with the cost of by and large for $4.5 billion. "Like Boeing, organizations are progressively centered around enhancing the nature of, and decreasing deformities in, their items, administrations, and exercises. A rate of imperfections viewed as typical in the past is no fairer. In this section, we concentrate on three sorts of expenses that emerge as an aftereffect of imperfections—spoilage, rework, and scrap—and approaches to represent them. We likewise describe how to determine (1) cost of products, (2) cost of goods sold, and (3) inventory values when spoilage, rework, and scrap occur.” (Horngren, 2011) Spoilage is units of production—whether fully or partially completed—that do not meet the specifications required by customers for good units and that are discarded or sold at reduced prices....
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...information below: The Daltry Tractor Company manufactures small garden tractors on a highly automated assembly line. Its costing system uses two cost categories, direct materials and conversion costs. Each tractor must pass through the Assembly Department and the Testing Department. Direct materials are added at the beginning of the production process. Conversion costs are allocated evenly throughout production. Daltry Tractor uses weighted-average costing. Data for the Assembly Department for April 2012 are: Work in process, beginning inventory 400 units Direct materials (100% complete) Conversion costs (30% complete) Units started during April 1,200 units Work in process, ending inventory: 250 units Direct materials (100% complete) Conversion costs (50% complete) Costs for April 2012: Work in process, beginning inventory: Direct materials $230,000 Conversion costs $220,000 Direct materials costs added during April $700,000 Conversion costs added during April $1,175,000 What are the equivalent units for direct materials and conversion costs, respectively, for April? Select one: a. 1,600 units; 1,600 units b. 1,600 units; 1,475 units c. 250 units; 125 units d. 1,350 units; 1,350 units Question 2 Answer saved Marked out of 4 Question text A manufacturing company uses process costing with an average cost flow assumption in its two processing departments. On August 1, the subsequent department had zero units...
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...Review Notes (Chap 3 to Chap 6) 1. Important Concepts: Cost Drivers and Cost Pools. A cost driver is any factor that has the effect of changing the level of total cost. In cost leadership, managing cost drivers is essential. A firm incurs a cost when it uses a resource for some purpose. Often costs are collected into meaningful groups called cost pools. Since individual costs can be group in several different ways, cost pools can be defined in several different ways as well (by cost type, source, or responsibility). Cost Allocation: Direct and Indirect Costs. A direct cost can be conveniently and economically traced to a cost object or pool. In contrast, there is no convenient or economical way to trace indirect costs from cost or cost pool to the cost pool or cost object. Indirect costs are caused by two or more cost pools or objects, but cannot be directly traced to either one. Because of this difficulty, indirect costs are traced using cost drivers. The result is that indirect costs are assigned to the cost pool or object that caused the costs in the manner that is fairly representative of the way the cost was incurred. This assignment of indirect costs is known as cost allocation, which is a form of cost assignment used when direct tracing is not possible. The cost drivers used in the allocation are called allocation bases. Cost Drivers: activity-based and volume-based. Activity-based drivers are developed at a detailed level of operations and are associated...
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...Chapter 10 THE PRODUCTION BUSINESS PROCESS TEACHING TIPS I usually gloss over the materials on job costing, for my students have covered job costing in their Cost/Managerial course. I do emphasize the need for good ledger control over property, plant, and equipment. THE PRODUCTION BUSINESS PROCESS Production Planning and Control. A sales order or sales forecast cause the creation of production orders which specify items that should be produced. Materials are requisitioned and production is scheduled. Items are produced, inspected, transferred to finished goods inventory, then transferred to shipping to complete the process. Basic production requirements are provided by the bill of materials and master operations list. Resources available for production are communicated to the production control function through inventory status reports and factor availability reports. The production order serves as authorization for the production departments to make certain products. Materials requisitions are issued for each production order to authorize the inventory department to release materials to the production departments. Production status reports are periodically sent from the production departments to the production control function. Cost Accounting Controls. Job costing is a procedure in which costs are distributed to particular jobs or production orders. In process costing, costs are compiled in process or department accounts by periods (day, week, or month).The cost accounting department...
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...CHAPTER 2 Accounting for Materials Review Summary 1. Materials control includes physical control of materials and control over the investment in materials. Effective physical control of materials involves limiting the access to stored materials, segregating the duties of employees who handle materials and materials reports, and establishing an accurate recording system for materials purchases and issues. Only authorized personnel should be permitted in material storage areas, and procedures for moving materials into and out of these areas should be well established. The following functions of materials control should be segregated to minimize opportunities for employee misappropriation: purchasing, receiving, storage, use, and recording. To ensure the accurate recording of purchases and materials issues, inventory records should document the determination of inventory quantities on hand, and cost records should provide the data needed to assign a cost to inventories to be used in the preparation of financial statements. 2. Controlling the materials inventory investment requires analysis and planning to determine when orders should be placed and the number of units to be ordered. The point at which the predetermined minimum level of inventory is reached, requiring the item to be ordered, is called the order point. Calculating the order point is based on the following: Usage—The anticipated rate at which the materials will be used. Lead time—The...
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...Preliminary Test of Cost Accounting Knowledge--Does not affect your grade! Name___________________________________ Mark one letter for each question response. Note that in some cases there are options like ʺD) Both A and C are correct.ʺ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Cost objects include: A) customers C) products B) departments D) All of these answers are correct. 2) Cost tracing is: A) the process of tracking both direct and indirect costs associated with a cost object B) a function of cost allocation C) the assignment of direct costs to the chosen cost object D) the process of determining the actual cost of the cost object 3) Cost allocation is: A) the assignment of indirect costs to the chosen cost object B) the process of determining the actual cost of the cost object C) the process of tracking both direct and indirect costs associated with a cost object D) a function of cost tracing 4) A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of direct costs for the golf equipment line are: A) monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver B) utilities paid for the manufacturing plant C) beverages provided daily in the plant break room D) salaries of the clerical staff that work in the company administrative offices 5) All of the following are true EXCEPT that indirect costs: A) may be included in prime costs...
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...Accounting 1) Anything for which a separate measurement of costs is desired is a a. cost item. b. cost object c. fixed cost item. d. variable cost object. 2) Using information obtained for a cost object , a manager maybe able to determine all of the following EXCEPT a. the direct manufacturing labor cost of a job. b. the direct manufacturing labor of a work station. c. which customers should be denied discounts. d. which customers accounts require the most effort to maintain. 3) Cost tracing is a. the assignment of direct costs to the chosen cost object. b. a function of cost allocation. c. the process of tracking both direct and indirect costs associated with a cost object. d. the process of determining the actual cost of the cost object 4) Classifying a cost as either direct or indirect depends upon a. the behavior of the cost in response to volume changes. b. whether the cost is expensed in the period in which it is incurred. c. whether the cost can be easily identified with the cost object. d. whether an expenditure is avoidable or not in the future. 5) Which statement is TRUE? a. All variable costs are direct costs. b. Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs. c. All fixed costs are indirect costs. d. All direct costs are variable costs. 6)...
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...Marginal costing and Absorption costing: the concept of marginal and absorption costing and its practical applications on business decisions. Cost Volume Profit Analysis: Relationship, impact on pricing, practical decision making strategies through CVP analysis Standard Costing and Variance analysis: concept and objectives of standard costing, advantages and limitations, variance analysis (Material, labour, overheads and sales variance), practical applications Budgeting and budgetary control mechanism Activity based costing, Responsibility Accounting Target costing Objective Objective of this course is to help student understand: 1. The essence of management accounting-effective use of the accounting information for planning, control and business decision making. 2. To use cost accounting as a managerial tool for business strategy and implementation. 3. To understand analyse the costing tools and their business application for enhancing revenue and profitability of a firm,. 4. To analyse various aspects of costing such as, marginal costing, absorption costing, allocation of costs, standard costing and variance analysis, activity based costing, target costing etc. 5. To understand the process of decision making, planning and budgeting in a business organisation. Pedagogy Lectures Discussions on case studies Term Projects and presentations Discussion and presentation on published research papers on related topics. Text book: Management Accounting: Paresh...
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