Process Costing - Spoilage
Self Test
Cost Accounting
Self Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. A continuous process is one
a. where inspection occurs throughout the manufacturing process
b. where there is no regular inspection point
c. where inspection is scheduled to occur at the end of the process
d. where production never stops
Answer
B. A continuous process is one that can not be stopped for inspection of products without spoiling all products. Spoilage is detected during the process only if the process is stopped and then can not be restarted and produce good product (d). Inspection may occur after the process is complete and products are finished, however; there are no regularly scheduled inspections (b.).
2. A discrete process is one
a. where inspection occurs during the manufacturing process
b. where no inspection point is required
c. where inspection is always scheduled for the end of the process
d. where production never stops
Answer
A. A discrete process has a scheduled inspection point during the process. Units that are spoiled at this point are not processed further. Good products continue processing. The inspection point can occur at any natural break in the production process.
3. Equivalent units for normal spoilage using a continuous process are
a. determined by a % complete at inspection x total units
b. determined by 100% less (% complete x total units)
c. always 0
d. always 100%
Answer
C. Normal spoilage in a continuous process is always assigned 0 equivalent units. There is no inspection point in a continuous process. Assigning 0 equivalent units makes the total equivalent units lower and increases the average cost per equivalent unit. This spreads the cost of spoilage over all good units.
4. Equivalent units for normal spoilage using a discrete process are
a. determined by a % complete/added at inspection x total units
b. determined by 100% less (% complete x total units)
c. always 0
d. always 100%
Answer
A. Normal spoilage in a discrete process means that an inspection occurred. Equivalent units is determined by multiplying total units by the % complete/added at inspection.
5. Equivalent units for abnormal spoilage using a continuous process are
a. determined by a % complete/added at inspection x total units
b. determined by 100% less (% complete x total units)
c. always 0
d. always 100%
Answer
A. Abnormal spoilage in a continuous process are assigned equivalent units based on the % complete for the total units spoiled. In a continuous process this will be 100% unless the process is stopped at some point (d.).
6. Equivalent units for abnormal spoilage using a discrete process are
a. determined by a % complete/added at inspection x total units
b. determined by 100% less (% complete x total units)
c. always 0
d. always 100%
Answer
A. Abnormal spoilage in a discrete process are assigned equivalent units based on the % complete/added for the total units spoiled. This will never be 0.
7. The cost of normal spoilage is
a. included in finished goods
b. expensed as incurred
c. expensed as part of work in process
d. never computed
Answer
A. The cost of normal spoilage is included in finished goods in one of two ways. For continuous spoilage it is included in the average cost used to value finished goods. For discrete spoilage it is added separately to finished goods.
8. The cost of abnormal spoilage is
a. added to finished goods
b. expensed as incurred
c. expensed as part of finished goods
d. never computed
Answer
B. Abnormal spoilage is always expensed in the period incurred. It is not part of inventory.
9. When there is no scheduled inspection point in a process cost manufacturing plant
a. the process is considered continuous
b. the process is always considered discrete
c. the process is considered continuous or discrete depending on the type of product produced
d. spoiled products are never detected
Answer
A. A continuous process has no point of inspection during the process. The process must be complete before units can be tested and determined to be good units. Spoiled products are detected at the end of the process.
10. Process costing is used when
a. all units are homogenous and the same
b. each unit is manufactured to special order
c. units take a different amount of materials and labor to manufacture
d. all of the above
Answer
A. Process costing is used when an average cost can be used to value inventory. This can only occur when all products and the manufacturing process are the same.
11. Abnormal spoilage cost is
a. always determined by a % complete/added at inspection x total units
b. always determined by 100% less (% complete x total units)
c. always 0
d. always 100%
Answer
A. Abnormal spoilage in a discrete process are assigned equivalent units based on the % complete/added for the total units spoiled.
12. Normal spoilage cost is computed as
a. a % complete/added at inspection x total units
b. 100% less (% complete x total units)
c. 0
d. both a. and c. depending on if there is a scheduled inspection point
Answer
D. The cost of normal spoilage is determined either as 0 in a continuous process or by multiplying the % complete/added at inspection by total units in a discrete process.
13. How are equivalent units related to spoilage computed when inspection is scheduled for the end of the manufacturing process?
a. always 100% of total units
b. determined by 100% less (% complete x total units)
c. 0
d. both a. and c. depending on the type of process
Answer
A. Inspection at the end means that all materials and conversion were added to production because production is complete. For discrete processes, 100% is used. A process with a scheduled inspection is always a discrete process.
14. Normal continuous spoilage will
a. increase the average cost per equivalent unit
b. be added to the computed cost of finished goods
c. be added directly to cost of goods sold as an expense
d. be added to work in process
Answer
A. Equivalent units for continuous spoiled units is always 0. This gives less equivalent units and increases the average cost per unit. It is averaged in and not added again to finished goods (b.) or work in process (d.)
15. Normal discrete spoilage will
a. increase the average cost per equivalent unit
b. be added to the computed cost of finished goods
c. be added directly to cost of goods sold as an expense
d. be added to work in process
Answer
B. The cost of normal discrete spoiled units is valued at average cost and added to finished goods. It is part of total equivalent units and the average cost per unit will be lower (a.).