Process Costing - Spoilage
Hard Practice Test
Cost Accounting
Hard Practice Test
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1. Ready to Roll, Inc. makes rolling pins and uses weighted average process costing. The company began the current month with 1,000 pins in process that were 60% complete as to material and 35% complete as to conversion. During the month, 45,800 rolling pins were started. At the end of the month, 700 pins were still in process (60% complete as to material and 80% complete as to conversion). Normal spoilage is 5% of units started. Spoiled units totaled 3,500 during the period. The company does not inspect during the process. Cost information for the month follows:
| Material | Conversion | |
| Beginning Inventory | $13,181 | $ 6,732 |
| Added this period | $66,970 | $29,040 |
A. Compute average cost per equivalent unit.
B. Determine the value of spoilage.
C. Record all necessary journal entries.
Answer
A. 1st – Prepare the equivalent units schedule:
Normal spoilage = 5% x units started of 45,800 = 2,290 gallons
Abnormal spoilage = total spoilage 3,500 – normal spoilage 2,290 = 1,210
Equivalent units schedule – Weighted Average
| Quantity | |
| Went in during the period: | |
| Beginning Inventory | 1,000 |
| +Started In to Production | 45,800 |
| =Total Units to be accounted for: | 46,800 |
| Equivalent Units | |||
| Quantity | Material | Conversion | |
| Came out during the period: | |||
| Beginning Inventory | 1,000 | 1,000 | 1,000 |
| +Started and Completed : | 41,600 | 41,600 | 41,600 |
| +Ending – 80% conversion | 700 | 420 | 560 |
| Normal spoilage | 2,290 | 0 | 0 |
| Abnormal spoilage | 1,210 | 1,210 | 1,210 |
| =Total units accounted for | 46,800 | 44,230 | 44,370 |
2nd – Compute average cost per equivalent unit:
| Material | Conversion | |
| Beginning | $13,181 | $ 6,732 |
| Added this period | $66,970 | $ 29,040 |
| Total | $ 80,151 | $ 35,772 |
| / Equivalent Units above | 44,230 | 44,370 |
| = Cost per Equivalent Unit | $ 1.81 | $ 0.81 |
B. Normal Spoilage is $0
Abnormal Spoilage is:
| Material: 1,210 x $1.81 = $2,190 Conversion: 1,210 x $0.81 = $ 980 Total value $ 3,170 Expensed this period |
C. Value FG before recording journal entries
You do not need to value WIP because no journal entry is made for this amount.
Value FG:
| Beginning + S/C x total cost per unit 1,000 + 41,600 = 42,600 x ($1.81 + $0.81) = $111,612 |
Journal Entries:
Work in Process 96,010
Raw Materials 66,970
Salaries Payable, cash… 29,040
Finished Goods 111,612
Work in Process 111,612
Loss from abnormal spoilage 3,170
Work in Process 3,170
Note: Make sure you do not do more work than you are asked to do. You will most likely not have time to do more work than is required on your test.
2. SitOnIt, Inc. produces plastic chairs and uses FIFO process costing. The accountant gathered the following information to use to determine the value of ending inventory at the end of the period.
| Beginning Inventory: 1,000 chairs | Started this period: 49,000 chairs | |||
| Material: | $ 4,564 | Material: | $213,978 | |
| Labor: | $ 8,354 | Labor: | $404,895 | |
| Overhead: | $18,379 | Overhead: | $890,769 | |
Transferred to Finished Goods: 48,000 chairs
Total spoiled units: 1,459
Expected spoilage: 1.5% of 50,000 units expected to be started during the period (management estimates normal spoilage at this company based on expected to start).
Beginning inventory is 45% complete as to conversion. Ending inventory is 20% complete as to conversion. Material is added 10% at the beginning, 30% when conversion is 40% complete and 60% when conversion is 70% complete. Labor is added 40% at the beginning of the process, and 60% at the end of the process. Overhead is considered to be incurred evenly during the process. Inspection occurs at the completion of the process.
A. Calculate equivalent units of production for materials and conversion:
B. Compute the value of work in process and finished goods.
C. Compute the value of abnormal spoilage
D. Make all required journal entries for the current month
Answer
A. Equivalent units schedule – FIFO
| Quantity | |
| Went in during the period: | |
| Beginning Inventory | 1,000 |
| +Started In to Production | 49,000 |
| =Total Units to be accounted for: | 50,000 |
| Equivalent Units | ||||
| Quantity | Material | Labor | Overhead | |
| Came out during the period: | ||||
| Beginning Inventory | 1,000 | 600 | 600 | 550 |
| +Started and Completed : | 47,000 | 47,000 | 47,000 | 47,000 |
| +Ending Inventory | 541 | 54 | 216 | 108 |
| Normal spoilage | 750 | 750 | 750 | 750 |
| Abnormal spoilage | 709 | 709 | 709 | 709 |
| =Total units accounted for | 50,000 | 49,113 | 49,275 | 49,117 |
Normal Spoiled = 1.5% x 50,000 = 750
Total spoiled – normal spoiled = abnormal spoiled 1,459 – 750 = 709
Started and Completed = Transferred 48,000 – beginning inventory 1,000
Ending inventory is the amount it takes to get the total to be 50,000
B. Value WIP and FG
1st – Compute cost per unit using FIFO: use only the $ added this period / equiv. units
| Material | Labor | Overhead | |
| Added this period | $213,978 | $404,895 | $890,769 |
| Equivalent units | 49,113 | 49,275 | 49,117 |
| = Cost per Eq. Unit | $4.36 | $8.22 | $18.14 |
2nd – Value WIP:
| Material: 54 x $4.36 = $ 235 Labor 216 x $8.22 = $ 1,776 Overhead: 108 x $18.14 = $ 1,959 Total value $ 3,970 WIP value |
3rd – Value FG – This is done in 4 parts:
Beginning Inventory $ $ 4,564 + 8,354 + 18,379 = $31,297
Beginning Inventory done this period
| Material 600 x $4.36 | $ 2,616 |
| Labor 600 x $8.22 | $ 4,932 |
| Overhead 550 x $18.14 | $ 9,977 |
Started/Completed this period
47,000 x $30.72 = $1,443,840
Normal Spoilage:
750 x $30.72 = $23,040
Total Finished Goods $1,515,702
C. Abnormal Spoilage:
709 x $30.72 = $21,780
D. All Journal Entries:
Work in Process 1,509,642
Raw Materials 213,978
Wages Payable 404,895
Cash, accounts payable… 890,769
Finished Goods 1,515,702
Work in Process 1,515,702
Loss from abnormal spoilage 21,780
Work in Process 21,780
3. Mouse, Inc. produces mouse pads and uses weighted average process costing. The company ended the prior month with 2,500 mouse pads in process. During the month, total units accounted for totaled 54,500. At the end of the current month, 2,800 mouse pads were still in process (40% complete as to material and 60% complete as to conversion). Cost information for the month follows:
| Material | Conversion | |
| Beginning Inventory | $ 2,456 (20% complete) | $ 8,432 (45% complete) |
| Added this period | $21,934 | $89,040 |
The company expects that 4% of total units in process during the period will be spoiled. Actual units spoiled this period were 7% of units started this period. Inspection normally occurs at 60% of conversion. A batch of 1,000 bad units was discovered when an inspection had to be done at 20%.
A. Calculate equivalent units of production for materials and conversion:
B. Compute the value of work in process and finished goods.
C. Compute the value of abnormal spoilage
D. Make all required journal entries for the current month
Answer
A. Prepare the equivalent units schedule:
Normal spoilage = 4% x units in process of 54,500 = 2,180
Abnormal spoilage = total spoilage 3,640 – normal spoilage 2,180 = 1,460
Equivalent units schedule
| Quantity | |
| Went in during the period: | |
| Beginning Inventory | 2,500 |
| +Started In to Production | 52,000 |
| =Total Units to be accounted for: | 54,500 |
| Equivalent Units | |||
| Quantity | Material | Conversion | |
| Came out during the period: | |||
| Beginning Inventory | 2,500 | 2,500 | 2,500 |
| +Started and Completed : | 45,560 | 45,560 | 45,560 |
| +Ending – 80% conversion | 2,800 | 1,120 | 1,680 |
| Normal spoilage | 2,180 | 1,308 | 1,308 |
| Abnormal spoilage | 1,460 | 476 | 476 |
| =Total units accounted for | 54,500 | 50,964 | 51,524 |
Normal spoilage = 60% x quantity – this is when inspection occurs
Abnormal spoilage = 1,000 x 20% = 200 + 460 other x 60% = 276 = 476
B – Compute average cost per equivalent unit so you can value WIP and FG:
| Material | Conversion | |
| Beginning Inventory | $ 2,456 | $ 8,432 |
| Added this period | $21,934 | $89,040 |
| Total | $24,390 | $ 97,472 |
| / Equivalent Units above | 50,964 | 51,524 |
| = Cost per Equivalent Unit | $0.48 | $1.89 |
Value WIP:
| Material: 1,120 x $0.48 = $ 538 Conversion: 1,680 x $1.89 = $ 3,175 Total value $ 3,713 |
Value FG:
|
Beginning + S/C x total cost per unit + Normal Spoilage: 1,308 x $2.37 = $ 3,100 Total Finished Goods $117,002 |
C. Abnormal Spoilage is:
426 x $2.37 = $1,128
D. Journal Entries:
Work in Process 110,974
Raw Materials 21,934
Salaries Payable, cash… 89,040
Finished Goods 117,002
Work in Process 117,002
Loss from abnormal spoilage 1,128
Work in Process 1,128