AC 512 Review - 2003

1
PROCESS COSTING- W.A. & FIFO

1.
Chicago Processing Co. uses the average costing method and reported a beginning inventory of
5,000 units that were 20% complete with respect to materials in one department. During the
month, 11,000 units were started; 8,000 units were finished; ending inventory amounted to 8,000
units that were 60% complete with respect to materials. Total materials cost during the period for
work in process should be spread over:
A.
7,200 units
B.
16,000 units
C.
11,200 units
D.
13,200 units
E.
12,800 units
SUPPORTING CALCULATION: 8,000 + .60(8,000) = 12,800 units

2.
Beginning work in process was 60% complete as to conversion costs, and ending work in process
was 45% complete as to conversion costs. The dollar amount of the conversion cost included in
ending work in process (using the average cost method) is determined by multiplying the average
unit conversion costs by what percentage of the total units in ending work in process?
A.
60%
B.
55%
C.
45%
D.
522%
E.
100%
Answer: C
3.
Goode Manufacturing has three producing departments in its factory. The ending inventory in the
Milling Department consisted of 3,000 units. These units were 60% complete with respect to labor
and factory overhead. Materials are applied at the end of the milling process. Unit costs for the
complete process in the Milling Department are: materials, P1; labor, P2; and factory overhead,
P3. The appropriate unit cost for each unit in the ending inventory is:
A.
P2
B.
P5
C.
P3
D.
P6
E.
P4
SUPPORTING CALCULATION: 60% (P2 + P3) = P3

4.
Gyro Products transferred 10,000 units to one department. An additional 3,000 units of materials
were added in the department. At the end of the month, 7,000 units were transferred to the next
department. There was no beginning inventory. The costs for units transferred in would be
effectively allocated over:
2
A.
17,000 units
B.
3,000 units
C.
10,000 units
D.
7,000 units
E.
13,000 units
SUPPORTING CALCULATION:
7,000 units transferred out + 6,000 units in ending

inventory = 13,000 units
5.
Read, Inc. instituted a new process in October. During October, 10,000 units were started in
Department A. Of the units started, 7,000 were transferred to Department B, and 3,000 remained
in work in process at October 31. The work in process at October 31 was 100% complete as to
material costs and 50% complete as to conversion costs. Materials costs of P27,000 and
conversion costs of P39,950 were charged to Department A in October. What were the total costs
transferred to Department B?
A.
P46,900
B.
P53,600
C.
P51,800
D.
P57,120
E.
none of the above
Materials unit cost = P27,000 (7,000 + 3,000) = P2.70
Conversion unit cost = P39,950 [7,000 + 50%(3,000)] = P4.70
Costs transferred = 7,000(P2.70 + P4.70) = P51,800
C
6.
Dover Corporation's production cycle starts in the Mixing Department. The following information is
available for April:
Units
Work in process, April 1 (50% complete) ............................................................
40,000
Started in April ....................................................................................................
240,000
Work in process, April 30 (60% complete) .........................................................
25,000
Materials are added at the beginning of the process in the Mixing Department. Using the average
cost method, what are the equivalent units of production for the month of April?
Materials
Conversion
A.
255,000
255,000
B.
270,000
280,000
C.
280,000
270,000
D.
305,000
275,000
E.
240,000
250,000
Materials = 40,000 + 240,000 = 280,000
Conversion = (280,000 - 25,000) + .6(25,000) = 270,000
B
7.
Information concerning Department A of Neeley Company for June is as follows:

Materials
Units
Costs
Beginning work in process .............................................................
17,000
P12,800
Started in June ..............................................................................
82,000
69,700
Units completed .............................................................................
85,000
Ending work in process .................................................................
14,000
All materials are added at the beginning of the process. Using the average cost method, the cost
per equivalent unit for materials is:
A.
P0.825
B.
P0.833
C.
P0.85
D.
P0.97
E.
P1.01
SUPPORTING CALCULATION: (P12,800 + P69,700) (85,000 + 14,000) = P.833

B
8.
Kennedy Company adds materials in the beginning of the process in the Forming Department,
which is the first of two stages of its production cycle. Information concerning the materials used in
the Forming Department in October is as follows:
Materials
Units
Costs
Work in process, October 1 ...........................................................
6,000
P 3,000
Units started ..................................................................................
50,000
25,560
Units completed and transferred out ..............................................
44,000
Using the average cost method, what was the materials cost of work in process at October 31?
A.
P3,000
B.
P6,120
C.
P3,060
D.
P5,520
E.
P6,000
(P3,000 + P25,560) (44,000 + 12,000) = P.51
4
P.51 x 12,000 = P6,120
A
9.
Connor Company computed the flow of physical units completed for Department M for the
month of March as follows:

Units completed:
From work in process on March 1 ...................................................................
15,000
From March production ....................................................................................
45,000
Total ..........................................................................................................
60,000
Materials are added at the beginning of the process. The 12,000 units of work in process at March
31 were 80% complete as to conversion costs. The work in process at March 1 was 60% complete
as to conversion costs. Using the fifo method, the equivalent units for March conversion costs
were:
A.
60,600
B.
55,200
C.
57,000
D.
54,600
E.
63,600
SUPPORTING CALCULATION: (15,000 x .4) + 45,000 + (12,000 x .8) = 60,600

D
10.
The Hilo Company computed the physical flow of units for Department A for the month of April as
follows:
Units completed:
From work in process on April 1 ......................................................................
10,000
From April production ......................................................................................
30,000
Total ..........................................................................................................
40,000
Materials are added at the beginning of the process. Units of work in process at April 30 were
8,000. The work in process at April 1 was 80% complete as to conversion costs, and the work in
process at April 30 was 60% complete as to conversion costs. What are the equivalent units of
production for the month of April using the fifo method?
Materials
Conversion Costs
A.
48,000
48,000
B.
40,000
47,600
C.
36,800
38,000
D.
38,000
36,800
E.
48,000
44,800
Materials = 30,000 + 8,000 = 38,000
Conversion = (10,000 x .2) + 30,000 + (8,000 x .6) = 36,800
11.
Department A is the first stage of Mann Company's production cycle. The following information is
available for conversion costs for the month of April:
..................................................................................................................
Units
Beginning work in process (60% complete) .........................................................
20,000
Started in April .....................................................................................................
340,000
Completed in April and transferred to Department B .............................................
320,000
Ending work in process (40% complete) ..............................................................
40,000
Using the fifo method, the equivalent units for the conversion cost calculation are:
A.
336,000
B.
360,000
C.
328,000
D.
320,000
E.
324,000
(20,000 x .4) + 300,000 + (40,000 x .4) = 324,000
SCRAP & SPOILAGE

E
12.
13.
14.
All of the following accounts would be acceptable ones to credit at the time scrap is sold except:
A.
Scrap Sales
B.
Cost of Goods Sold
C.
Factory Overhead Control
D.
Work in Process
E.
all of the above would be acceptable
Scrap includes all of the following except:

A.
the trimmings remaining after processing materials
B.
defective materials that cannot be used or returned to the vendor
C.
partially or fully completed units that are in some way defective
D.
broken parts resulting from employee or machine failures
E.
all of the above
When spoilage occurs because of some action taken by the customer, the unrecoverable cost of
the spoilage should be charged to:
A.
Work in Process
B.
Spoiled Goods Inventory
C.
D.
Applied Factory Overhead
E.
none of the above
6
C
15.
When spoilage occurs because of some internal failure, the unrecoverable cost should be charged
to:
16.
A.
Work in Process
B.
C.
D.
E.
none of the above
When rework occurs because of some action taken by the customer, the cost of the rework
should be charged to:
17.
A.
Work in Process
B.
C.
D.
E.
none of the above
When rework occurs because of some internal failure, the cost of the rework should be charged
to:
18.
A.
Work in Process
B.
C.
D.
E.
none of the above
Spoilage occurs as a result of an internal failure in a process cost system. Using average
costing, the number of equivalent units that production costs should be charged to would be based
upon:
19.
A.
spoiled units
B.
units transferred out and spoiled units
C.
units transferred out, spoiled units, and units in ending inventory
D.
units transferred out and units in ending inventory
E.
none of the above
Spoilage occurs as a result of normal production shrinkage in a process cost system. Using
average costing, the number of equivalent units that production costs should be charged to would
be based upon:
20.
A.
spoiled units
B.
C.
units transferred out, spoiled units, and units in ending inventory
D.
units transferred out and units in ending inventory
E.
none of the above
In a process cost system, the cost of spoilage due to an internal production failure should be
recorded as:
A.
dr. Work in Process; cr. Finished Goods
21.
B.
dr. Work in Process; cr. Factory Overhead Control
C.
dr. Factory Overhead Control; cr. Work in Process
D.
dr. Materials; cr. Factory Overhead
E.
dr. Finished Goods; cr. Work in Process
Gyro Products transferred 10,000 units to one department. An additional 3,000 units of materials
were added in the department. At the end of the month, 7,000 units were transferred to finished
goods; while 4,000 units remained in work in process inventory. There was no beginning
inventory, and lost units were a result of normal production shrinkage. The production costs for
the period in this department would be effectively allocated over:
A.
12,000 units
B.
11,000 units
C.
10,000 units
D.
7,000 units
E.
13,000 units
SUPPORTING CALCULATION: 7,000 + 4,000 = 11,000

B
22.
In manufacturing its products for the month of March, Leo Co. incurred normal production shrinkage
of P10,000 and spoilage due to internal failure of P12,000. How much spoilage cost should Leo
charge to Factory Overhead Control for the month of March?
23.
A.
P22,000
B.
P12,000
C.
P10,000
D.
P0
E.
none of the above
Willis, Inc. instituted a new process in October. During October, 10,000 units were started in
Department A. Of the units started, 1,000 were lost in the process due to normal production
shrinkage, 7,000 were transferred to Department B, and 2,000 remained in work in process at
October 31. The work in process at October 31 was 100% complete as to materials costs and
50% complete as to conversion costs. Materials costs of P27,000 and conversion costs of
P40,000 were charged to Department A in October. What were the total costs transferred to
Department B?
A.
P46,900
B.
P53,600
C.
P56,000
D.
P57,120
E.
none of the above
Materials: P27,000 (7,000 + 2,000) = P3
Conversion: P40,000 (7,000 + 1,000) = P5
Transferred costs: 7,000 x P8 = P56,000
24.
A company that manufactures baseballs begins operations on January 1. Each baseball requires
three elements: a hard plastic core, several yards of twine that are wrapped around the plastic
core, and a piece of leather to cover the baseball. The plastic core is started down a conveyor
belt and is automatically wrapped with the twine to the approximate size of the baseball, at which
time the leather cover is sewn to the wrapped twine. Finished baseballs are inspected, and the
ones that are defective due to internal production failure are pulled out. Defective baseballs
cannot be economically salvaged and are destroyed. Cost and production reports for the first week
of operations are:
Raw material cost ....................................................................................................
840
Conversion cost .......................................................................................................
315
.....................................................................................................................
P 1,155
During the week, 2,100 baseballs were completed; 2,000 passed inspection. There was no ending
work in process. The cost of the spoilage charged to Factory Overhead is:
A.
P33
B.
P22
C.
P1,100
D.
P55
E.
none of the above
Materials: P840 (2,000 + 100) = P.40
Conversion: P315 (2,000 + 100) = P.15
Spoilage: 100 x P.55 = P55
A
25.
26.
In a process cost system, the cost of rework usually is debited to:

A.
B.
C.
D.
Work in Process
E.
none of the above
If spoilage occurs as a result of an internal failure in a process cost system, using fifo costing, the
number of equivalent units that production costs should be charged to would be based upon:
A.
spoiled units
B.
C.
units transferred out, beginning inventory, and units in ending inventory
D.
units transferred out, spoiled units, units in ending inventory, and units in beginning inventory
E.
none of the above
27.
If spoilage occurs as a result of normal production shrinkage in a process cost system, using
fifo costing, the number of equivalent units that production costs should be charged to would be
based on:
A.
spoiled units
B.
C.
units transferred out, beginning inventory, and units in ending inventory
D.
units transferred out, spoiled units, units in ending inventory, and units in beginning
inventory
E.
B
28.
none of the above
Primo Products transferred 15,000 units to one department. An additional 5,000 units were in
beginning inventory in the department. At the end of the month, 12,000 units were transferred
to the next department, 6,000 units remained in work in process, 40% complete as to
conversion costs and the remaining units were lost at the 75% stage of conversion. Beginning
inventory was 60% complete as to conversion costs and lost units were the result of internal
failure. The equivalent units of conversion cost using fifo costing is:
A.
14,400
B.
12,900
C.
13,900
D.
13,400
E.
none of the above
Equivalent units in beginning inventory (40% x 5,000)..........................................
2,000
Equivalent units started and completed during period
29.
(12,000 - 5,000)...........................................................................................
7,000
Equivalent units in ending inventory (40% x 6,000) ..............................................
2,400
Equivalent units of spoilage (75% x 2,000) ..........................................................
1,500
Total equivalent units..............................................................................................
12,900
Primo Products transferred 15,000 units to one department. An additional 5,000 units were
added in the department. At the end of the month, 12,000 units were transferred to the next
department, 6,000 units remained in work in process, 40% complete as to conversion costs
and the remaining units were lost at the 75% stage of conversion. Beginning inventory was
10
60% complete as to conversion costs, and lost units were the result of normal production
shrinkage. The equivalent units of conversion cost using fifo is:
A.
11,400
B.
14,400
C.
12,900
D.
13,400
E.
none of the above
Equivalent units in beginning inventory (40% x 5,000)..........................................
2,000
Equivalent units started and completed during period

(12,000 - 5,000)...........................................................................................
7,000
Equivalent units in ending inventory (40% x 6,000) ..............................................
2,400
Total equivalent units..............................................................................................
11,400
11
COSTING BY-PRODUCTS AND JOINT PRODUCTS
D
30.
The Hovart Corporation manufactures two products out of a joint process-Compod and
Ultrasene. The joint (common) costs incurred are P250,000 for a standard production run that
generates 120,000 gallons of Compod and 80,000 gallons of Ultrasene. Compod sells for
P2.00 per gallon, while Ultrasene sells for P3.25 per gallon. If there are no additional
processing costs incurred after the split-off point, the amount of joint cost of each production run
allocated to Compod by the quantitative unit method is:
A.
P100,000
B.
P120,000
C.
P130,000
D.
P150,000
E.
some amount other than those given above
120,000
_ $250,000 = $150,000
120,000 + 80,000
A
31.
Ace Company produced 20,000 units of Clubs, 15,000 units of Diamonds, and 10,000 units of
Hearts. If the company uses the average unit cost method of allocating joint production costs,
which were P120,000 for the period, the joint costs allocated to Diamonds would be:
A.
P40,000
B.
P20,000
C.
P80,000
D.
P45,000
E.
none of the above
15,000
_ $120,000 = $40,000
20,000 + 15,000 + 10,000
11
12
C
32.
A company uses the weighted average method to assign joint products. Weight factors used to
assign joint costs to its three joint products were: Product A, 4 points; Product B, 7 points; and
Product C, 8 points. Units produced were: Product A, 10,000; Product B, 5,000; and Product
C, 3,125. The amount of the joint costs of P100,000 that would be allocated to Product C are:
33.
A.
P42,105
B.
P17,241
C.
P25,000
D.
P30,000
E.
none of the above
Tobin Company manufactures products S and T from a joint process. The market value at splitoff was P50,000 for 6,000 units of Product S and P50,000 for 2,000 units of Product T.
Assuming that the portion of the total joint cost properly allocated to Product S using the market
value method was P30,000, the total joint cost was:
A.
P40,000
B.
P42,500
C.
P45,000
D.
P60,000
E.
P75,000
$50,000
= .5
$50,000 + $50,000
$30,000
= $60,000
.5
34.
Alphabet Company manufactures Products A and B from a joint process that also yields a byproduct, X. Alphabet accounts for the revenues from its by-product sales as a deduction from
the cost of goods sold of its main products. Additional information is as follows:
12
13
A
Units produced ...........................
15,000
9,000
Joint costs ..................................
6,000
Total
30,000
P 264,000
Market value at split-off .............. P290,000
P150,000
10,000
P450,000
Assuming that joint product costs are allocated using the market value at the split-off approach,
the joint cost allocated to Product B would be:
A.
P136,540
B.
P79,200
C.
P88,000
D.
P86,591
E.
P99,000
$150,000
_ ($264,000 $10,000) = $86,591
$290,000 + $150,000
35.
Idaho Corporation manufactures liquid chemicals A and B from a joint process. Joint costs are
allocated on the basis of relative market value at split-off. It costs P4,560 to process 500
gallons of Product A and 1,000 gallons of Product B to the split-off point. The market value at
split-off is P10 per gallon for Product A and P14 for Product B. Product B requires an additional
process beyond split-off at a cost of P2 per gallon before it can be sold. What is Idaho's cost
to produce 1,000 gallons of Product B?
A.
P5,040
B.
P4,360
C.
P4,860
13
14
D.
P5,360
E.
P3,360
36.
Determination of Ending Inventory; Hypothetical Market Value Method. Macho Inc. manufactures two
beveragesCRed Eye and Tornado. The production process is such that both beverages are jointly processed
in the Basic Blending Department. At the end of the basic blending process, Red Eye is sold at P10 per
gallon, but Tornado must be processed at a further cost of P7 per gallon before it can be sold at P15 per
gallon. In June, the total joint cost amounted to P96,000, while 5,000 gallons of Red Eye and 12,500
gallons of Tornado were produced. There were no beginning inventories. At the end of June, there were
1,500 gallons of Red Eye and 2,000 gallons of Tornado on hand.
Required: Calculate the ending inventory costs for Red Eye and Tornado, using the hypothetical market
value method.
SOLUTION
Ending
Inventory
Unit Costs
Total
Product
(Units)
(per Schedule)
Costs
Red Eye ..............................................................................
1,500
Tornado ...............................................................................
2,000
6.40
12.12
Ending inventory ...........................................................
Product
per Unit
9,600
24,240
P 33,840
Ultimate
Market Value
Units
Produced
Ultimate
Processing )
Market
Costs After )
Value
Split-Off )
Red Eye ........................................................
P10
5,000
P 50,000
0 )
Tornado .........................................................
15
12,500
187,500
P87,5001 )
P 237,500
P87,500 )
Total
Hypothetical
Joint Cost
Production
Market Value
Allocation2
Cost
P 50,000
P32,000
P 32,000
P 6.40
100,000
64,000
151,500
12.12
P 150,000
P96,000
P 183,500
14
Unit Cost
15
1
12,500 units x P7 = P87,500
P96,000/P150,000 = 64%, percentage to allocate joint cost
COST OF QUALITY
A
37.
The quality costs that are associated with materials and products that fail to meet quality
standards and result in manufacturing losses are known as:
38.
A.
internal failure costs
B.
external failure costs
C.
prevention costs
D.
appraisal costs
E.
none of the above
The quality costs that are associated with designing, implementing, and maintaining the quality
system are known as:
39.
A.
appraisal costs
B.
C.
D.
prevention costs
E.
none of the above
The quality costs that are incurred to ensure that materials and products meet quality standards
are known as:
40.
A.
B.
prevention costs
C.
appraisal costs
D.
E.
none of the above
The quality costs that are incurred because inferior quality products are shipped to customers
are known as:
A.
B.
C.
prevention costs
D.
appraisal costs
15
16
E.
D
41.
none of the above
All of the following are characteristics of total quality management except:

A.
the company's objective for all business activity is to serve its customers
B.
top management provides an active leadership role in quality improvement
C.
all employees are actively involved in quality improvement
D.
the company maintains a loosely defined system of identifying quality problems so as not
to stifle employee creativity
E.
A
42.
43.
44.
45.
the company provides continuous training as well as recognition for achievement
The best approach to quality improvement is to concentrate on:

A.
prevention
B.
detection
C.
appraisal
D.
increased production
E.
none of the above
A mathematical technique used to monitor production quality and reduce product variability is:
A.
the method of least squares
B.
the statistical scattergraph method
C.
statistical process control
D.
linear programming
E.
none of the above
Appraisal costs include all of the following except:

A.
inspecting and testing materials
B.
inspecting products during and after production
C.
obtaining information from customers about product satisfaction
D.
designing quality into the product and the production process
E.
all of the above
Internal failure costs include all of the following except:

A.
the cost of the scrap
B.
the cost of warranty repairs and replacements
C.
rework
16
17
D.
downtime due to machine failures
E.
all of the above
THEORY OF CONSTRAINTS
C
46.
47.
48.
A specialized version of direct costing for short-run optimization is :

A.
learning theory
B.
absorption costing
C.
the theory of constraints
D.
variable costing
E.
none of the above
The theory of constraints uses which of the following basic measures :

A.
throughput
B.
operating expense
C.
assets
D.
all of the above
E.
none of the above
The practice of improving a reported volume or idle capacity variance by producing more than is
currently needed is viewed by the theory of constraints as :
49.
A.
a benefit with no cost increase
B.
a cost increase with no benefit
C.
both a cost increase and a benefit
D.
worthwhile from a cost/benefit perspective
E.
none of the above
The theory of constraints is a short-run optimization technique that views which of the following
as relatively constant :
A.
resources
B.
technology
C.
product lines
D.
demand
17
18
E.
A
50.
all of the above
The theory of constraints is primarily useful for :

A.
short-run decisions
B.
medium range decisions
C.
long-run decisions
D.
both short-run and long-run decisions
E.
medium range to long-run decisions
18

AC 512 Review - 2003

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

AC 512 Review - 2003

Uploaded by

Copyright:

Available Formats

1

PROCESS COSTING- W.A. & FIFO

SUPPORTING CALCULATION: 8,000 + .60(8,000) = 12,800 units

SUPPORTING CALCULATION: 60% (P2 + P3) = P3

7,000 units transferred out + 6,000 units in ending

none of the above

Started in April ....................................................................................................

Work in process, April 30 (60% complete) .........................................................

Information concerning Department A of Neeley Company for June is as follows:

Beginning work in process .............................................................

Started in June ..............................................................................

Units completed .............................................................................

Ending work in process .................................................................

SUPPORTING CALCULATION: (P12,800 + P69,700) (85,000 + 14,000) = P.833

Work in process, October 1 ...........................................................

Units started ..................................................................................

Units completed and transferred out ..............................................

month of March as follows:

From March production ....................................................................................

SUPPORTING CALCULATION: (15,000 x .4) + 45,000 + (12,000 x .8) = 60,600

From April production ......................................................................................

Beginning work in process (60% complete) .........................................................

Started in April .....................................................................................................

Completed in April and transferred to Department B .............................................

Ending work in process (40% complete) ..............................................................

SCRAP & SPOILAGE

Cost of Goods Sold

Factory Overhead Control

all of the above would be acceptable

Scrap includes all of the following except:

the trimmings remaining after processing materials

defective materials that cannot be used or returned to the vendor

partially or fully completed units that are in some way defective

broken parts resulting from employee or machine failures

all of the above

Spoiled Goods Inventory

Factory Overhead Control

Applied Factory Overhead

none of the above

Spoiled Goods Inventory

Factory Overhead Control

Applied Factory Overhead

none of the above

Spoiled Goods Inventory

Factory Overhead Control

Applied Factory Overhead

none of the above

Spoiled Goods Inventory

Factory Overhead Control

Applied Factory Overhead

none of the above

units transferred out and spoiled units

units transferred out, spoiled units, and units in ending inventory

units transferred out and units in ending inventory

none of the above

units transferred out and spoiled units

units transferred out, spoiled units, and units in ending inventory

units transferred out and units in ending inventory

none of the above

dr. Work in Process; cr. Finished Goods

dr. Work in Process; cr. Factory Overhead Control

dr. Factory Overhead Control; cr. Work in Process

dr. Materials; cr. Factory Overhead