Process Costing - Spoilage
Easy Practice Test
Cost Accounting
Easy Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. The difference in spoilage equivalent units under FIFO and weighted average is computed as
a. 100% less (total units x % complete at inspection)
b. the difference in total units for started and completed
c. the difference in total units for beginning inventory
d. there is no difference
Answer
D. There is no difference in spoiled equivalent units. The only difference is in beginning inventory equivalent units.
2. In a process costing system, normal spoilage is
a. included in inventory costs
b. added directly to cost of goods sold
c. expensed as incurred
d. both a. and c.
Answer
A. Normal spoilage is always a part of inventory. The cost is either averaged in (continuous process) or added to finished goods (discrete process).
3. The weighted average cost per equivalent unit using FIFO includes
a. only the portion of spoiled units that were spoiled this period
b. only the portion of spoiled units that were spoiled last period
c. normal spoilage in a continuous process environment
d. both a. and c.
Answer
D. Normal spoilage in a continuous process is assigned 0 equivalent units and is averaged into the average cost per unit. The portion of spoiled units that were spoiled this period is included in a discrete process.
4. Which type of company may use a continuous process costing system?
a. a chemical manufacturer
b. a paper manufacturer
c. an ink manufacturer
d. all of the above
Answer
D. All of the above products most likely need to complete processing before it can be determined if there are any spoiled units and may use a continuous process. All manufacture homogenous products that are all the same.
5. Normal spoilage is usually based on
a. a historical percentage of units completed
b. a historical percentage of units started
c. a historical percentage of sales
d. a historical percentage of abnormal spoilage
Answer
B. Normal spoilage is what the company expects to spoil. This is often based on a normal historical percentage of units started.
6. Normal spoilage is defined as
a. unacceptable units that occur because of an unexpected event
b. unacceptable units that occur because of poor materials
c. unacceptable units that occur as part of the typical manufacturing process
d. spoilage that is greater than expected
Answer
C. Normal spoilage are spoiled units that are expected to occur. It is generally an acceptable part of the manufacturing process and is not caused by an identifiable event.
7. Abnormal spoilage is defined as
a. unacceptable units that occurs because of an expected event
b. all unacceptable units that occur as part of the typical manufacturing process
c. spoilage that is greater than expected
d. none of the above
Answer
C. Abnormal spoilage is spoiled units over and above what is expected for any reason.
8. The cost of abnormal spoilage is recorded as
a. an increase to finished goods inventory
b. an increase to cost of goods sold in the period incurred
c. an increase to work in process
d. it is not separately recorded
Answer
B. Abnormal spoilage is always expensed as incurred and included in cost of goods sold.
9. The entry to record abnormal spoilage includes
a. a debit to work in process
b. a credit to work in process
c. a debit to finished goods
d. a credit to loss from spoilage
Answer
B. The entry to record abnormal spoilage is a debit to loss on spoilage and a credit to work in process. The loss on spoilage is reported as part of cost of goods sold on the income statement.
10. The entry to record costs added this period includes
a. a debit to work in process
b. a debit to raw materials
c. a debit to salaries payable
d. a debit to finished goods
Answer
A. Costs added this period are recorded as a debit to work in process and a credit to raw materials, salaries payable and cash (for other costs).
11. A company produces paint in which spoilage takes place on a discrete basis with inspection occurring at 50% materials added and of conversion. Management considers normal spoilage to be 1.5% of gallons placed into production. The company uses the FIFO method. The following operating statistics are available for the current month:
| Beginning Inventory | |
| (70% complete for materials and 30% complete for conversion) | 8,000 gallons |
| Started during the month | 180,000 gallons |
| Ending Inventory | |
| (70% complete for materials and 30% complete for conversion) | 4,000 gallons |
| Total Spoiled | 6,400 gallons |
Cost information:
| Material | Conversion | |
| Beginning | $ 13,903 | $ 6,906 |
| Added | $167,304 | $108,759 |
Required:
A. Calculate normal spoilage in gallons
B. Calculate abnormal spoilage in gallons
C. Calculate units of production for materials and conversion
D. Compute the value of work in process and finished goods.
E. Compute the value of abnormal spoilage and record the cost
Answer
A. Normal spoilage = 1.5% x Gallons started of 180,000 = 2,700 gallons
B. Abnormal spoilage = total spoilage 6,400 – normal spoilage 2,700 = 3,700
C. Equivalent units schedule – FIFO
| Quantity | |
| Went in during the period: | |
| Beginning Inventory | 8,000 |
| +Started In to Production | 180,000 |
| =Total Units to be accounted for: | 188,000 |
| Equivalent Units | |||
| Quantity | Material | Conversion | |
| Came out during the period: | |||
| Beginning Inventory | 8,000 | 2,400 | 5,600 |
| +Started and Completed : | 169,600 | 169,600 | 169,600 |
| +Ending Inventory | 4,000 | 2,800 | 1,200 |
| Normal spoilage | 2,700 | 1,350 | 1,350 |
| Abnormal spoilage | 3,700 | 1,850 | 1,850 |
| =Total units accounted for | 188,000 | 178,000 | 179,600 |
Equivalent units:
Normal spoilage discrete: total units x 50% at inspection
Abnormal spoilage discrete: total units x 50% at inspection
Started/Completed is always at 100%
Ending is 4,000 total x the % complete-70% for material and 30% for conversion.
Equivalent units is the number of whole units that could have been completed given the amount of material that was put in and given the amount of conversion that was added.
D. Value WIP and FG
1st – Compute cost per unit using FIFO: use only the $ added this period / equiv. units
| Material | Conversion | |
| Added this period | $167,304 | $108,759 |
| Equivalent units | 178,000 | 179,600 |
| Cost per Eq. Unit | $0.94 | $0.61 |
2nd – Value WIP:
Eq. units from WIP row x Cost per Eq. Unit above
| Material: 2,800 x $0.94 = $ 2,632 Conversion: 1,200 x $0.61 = $ 732 Total value $ 3,364 |
3rd – Value FG – Do in 4 parts:
| Beginning Inventory $ (13,903 + 6,906) | $ 20,809 |
| Beginning Inventory done this period | |
| Material 2,400 x $0.94 | $ 2,256 |
| Conversion 5,600 x $0.61 | $ 3,416 |
| Started/Completed this period | |
| Material 169,600 x $0.94 | $159,424 |
| Conversion 169,600 x $0.61 | $103,456 |
| (or together 169,600 x $1.55) | |
| Normal Spoilage: | |
| Material 1,350 x $0.94 | $ 1,269 |
| Conversion 1,350 x $0.61 | $ 824 |
| Total Finished Goods | $291,454 |
E. Abnormal Spoilage:
| Material: 1,850 x $0.94 = $ 1,739 Conversion: 1,850 x $0.61 = $ 1,129 Total value $ 2,868 |
Loss from abnormal spoilage $2,868
Work in Process $2,868
12. A company produces paint in which spoilage takes place on a discrete basis with inspection occurring at 60% of conversion. Management considers normal spoilage to be 5% of gallons placed into production. Materials are added 50% at the beginning of the process and another 50% are added at 70% conversion. The following operating statistics are available for the current year:
| Beginning Inventory -60% complete for conversion | 16,000 gallons |
| Started during the year | 148,000 gallons |
| Ending Inventory – 80% complete for conversion | 7,000 gallons |
| Spoiled | 19,200 gallons |
Cost information:
| Material | Conversion | |
| Beginning | $ 9,903 | $ 16,906 |
| Added this period | $87,304 | $148,709 |
Required:
A. Calculate normal spoiled units
B. Calculate abnormal spoiled units
C. Compute equivalents units using weighted average process costing
D. Value finished goods and work in process
E. Compute the value of abnormal spoilage and record the cost
Answer
A. Normal spoilage = 5% x Gallons started of 148,000 = 7,400 gallons
B. Abnormal spoilage = total spoilage 19,200 – normal spoilage 7,400 = 11,800
C. Equivalent units schedule – Weighted Average
| Quantity | |
| Went in during the period: | |
| Beginning Inventory | 16,000 |
| +Started In to Production | 148,000 |
| =Total Units to be accounted for: | 164,000 |
| Equivalent Units | |||
| Quantity | Material | Conversion | |
| Came out during the period: | |||
| Beginning Inventory | 16,000 | 16,000 | 16,000 |
| +Started and Completed : | 121,800 | 121,800 | 121,800 |
| +Ending – 80% conversion | 7,000 | 7,000 | 5,600 |
| Normal spoilage | 7,400 | 3,700 | 4,440 |
| Abnormal spoilage | 11,800 | 5,900 | 7,080 |
| =Total units accounted for | 164,000 | 154,400 | 154,920 |
Equivalent units for: normal and abnormal spoilage – discrete: inspection at 60%
Materials: only 50% have been added when it is 60% complete
Conversion: total units x 60% at inspection
Beginning: 100% always when doing weighted average
Started/Completed is always at 100%
Ending:
100% of materials have been added by the time it is 80% converted.
Conversion is 80% x ending units
D. Value Inventory:
1st – Compute average cost per equivalent unit:
| Material | Conversion | |
| Beginning | $ 9,903 | $ 16,906 |
| Added this period | $87,304 | $148,709 |
| Total | $97,207 | $165,615 |
| / Equivalent Units above | 154,400 | 154,920 |
| = Cost per Equivalent Unit | $ 0.63 | $ 1.07 |
2nd – Value WIP:
| Material: 7,000 x $0.63 = $ 4,410 Conversion: 5,600 x $1.07 = $ 5,992 Total value $10,402 |
Value FG:
Equivalent units are from the beginning and started/comp rows
16,000 + 121,800 = 137,800 x ($0.63 + $1.07) = $234,260
Normal Spoilage:
| Material: 3,700 x $0.63 = $ 2,331 Conversion: 4,440 x $1.07 = $ 4,751 Total value $ 7,082 |
Total Finished Goods (Beg + S/C + N. S.) = $241,342
E. Abnormal Spoilage:
| Material: 5,900 x $0.63 = $ 3,717 Conversion: 7,080 x $1.07 = $ 7,576 Total value $11,293 |
Loss from abnormal spoilage $11,293
Work in Process $11,293
13. A company produces ice cream in which spoilage takes place on a continuous basis. Management considers normal spoilage to be 0.4% or less of units placed into production. The following operating statistics are available for the current month:
| Beginning Inventory | Units |
| (20% complete for materials; 30% complete for conversion) | 8,000 |
| Started during the month | 120,000 |
| Ending Inventory | |
| (70% complete for materials; 80% complete for conversion | 5,000 |
| Spoiled | 10,400 |
Cost information:
| Material | Conversion | |
| Beginning | $ 4,903 | $ 13,950 |
| Added this period | $77,501 | $ 198,128 |
Required:
A. Calculate normal spoiled units
B. Calculate abnormal spoiled units
C. Compute equivalents units using weighted average process costing
D. Value finished goods and work in process
E. Compute the value of abnormal spoilage and record the cost
Answer
A. Normal spoilage = 0.4% x units started of 120,000 = 480 gallons
B. Abnormal spoilage = total spoilage 10,400 – normal spoilage 480 = 9,920
C. Equivalent units schedule – Weighted Average
| Quantity | |
| Went in during the period: | |
| Beginning Inventory | 8,000 |
| +Started In to Production | 120,000 |
| =Total Units to be accounted for: | 128,000 |
| Equivalent Units | |||
| Quantity | Material | Conversion | |
| Came out during the period: | |||
| Beginning Inventory | 8,000 | 8,000 | 8,000 |
| +Started and Completed : | 104,600 | 104,600 | 104,600 |
| +Ending Inventory | 5,000 | 3,500 | 4,000 |
| Normal spoilage | 480 | 0 | 0 |
| Abnormal spoilage | 9,920 | 9,920 | 9,920 |
| =Total units accounted for | 128,000 | 126,020 | 126,520 |
Equivalent units for:
Normal continuous: always = 0
Abnormal spoilage: discovered at end of process = 100%
Beginning – 100% always when doing weighted average
Started/Completed is always at 100%
Ending – % complete x total ending units
Spoiled equivalent units:
Normal continuous is always 0
Abnormal, continuous, is discovered at the end of the process; 100%
D. Value Inventory:
1st – Compute average cost per equivalent unit:
| Material | Conversion | |
| Beginning | $ 4,903 | $ 13,950 |
| Added this period | $77,501 | $198,128 |
| Total | $82,404 | $212,078 |
| / Equivalent Units | 126,020 | 126,520 |
| = Cost per Eq. Unit | $ 0.65 | $ 1.68 |
2nd – Value WIP:
| Material: 3,500 x $0.65 = $ 2,275 Conversion: 4,000 x $1.68 = $ 6,720 Total value $ 8,995 WIP value |
Value FG:
Equivalent units are from the beginning and started/comp rows
| Beginning + S/C x total cost per unit 8,000 + 104,600 = 112,600 x ($0.65 + $1.68) = $262,358 |
Normal Spoilage: $0
Total Finished Goods (Beg + S/C + N. S.) $262,358
E. Abnormal Spoilage:
| Material: 9,920 x $0.65 = $ 6,448 Conversion: 9,920 x $1.68 = $16,666 Total value $23,114 |
Loss from abnormal spoilage $23,114
Work in Process $23,114