Chapter 13: Accounting for Spoiled units and increase in production

Illustrative Problems

Problem 1. CAVS Inc. employs weighted average process costing system regarding its cross-
over protector product. The following data are provided for the year ended December 31, 2020:
a. The January 1, 2020 work-in-process consists of 4,000 units which have the following
costs: P100,000- direct material, 250,000- direct labor and p150,000- factory overhead.
The beginning inventory is 60% incomplete as to conversion cost.
b. The units started during the year totaled 6,000 units while the units completed during the
period totals 5,000 units.
c. The December 31, 2020 work-in-process inventory consists of 3,000 units which is 90%
complete as to conversion cost.
d. The normal spoilage for the company is 20% of units started.
e. The total manufacturing costs added during the year consist of P2M-direct material,
P1.5M-direct labor and P1M-factory overhead.
f. F. the company inspects the products when the percentage of completion is conversion
cost is 70%.
g. The company adds direct labor and factory overhead evenly throughout the period while
¼ of direct materials are added at the start of the process while the remaining direct
materials are added at the end of the process.
What is the cost per equivalent unit for direct material and conversion cost, repectively?
a. 336 and 318,68
b. 154.85 and 274.7
c. 320 and 331.84
d. 254 and 294.82
Problem 2. DUB Nation Company employs FIFO process costing system regarding its 3-point
enhancer product. The following data are provided for the year ended December 31, 2020:
a. it is the company’s policy to add conversion cost evenly throughout the period while 4/5
of the direct materials are added at the start of the process while the remaining direct
materials are added at the end of the process.
b. 10% of units started are normally spoiled which all come from the units started.
c. The January 1, 2020 work-in-process inventory consists of 20,000 units with the
following costs: 400,000-direct material, 500,000-direct labor and 100,000-factory
overhead. The beginning inventory is 72% complete as to conversion cost.
d. The total manufacturing costs added during the year consists of P1M-direct material,
1,200,000-direct labor and 300,000-factory overhead.
e. The units started during the year totaled 80,000 units while the units completed totaled
60,000 units.
f. The December 31, 2020 work-in-process inventory consist of 10,000 units which is 20%
incomplete as to conversion cost.
 g. The inspection point occurs when the percentage of completion is 75% as to conversion
cost.

What is the cost per equivalent unit for direct material and conversion cost, respectively?
a. 13.16 and 19.71
b. 18.42 and 26.92
c. 12.20 and 17.54
d. 14.27 and 21.35
Problem 3. Glenda manufacturing Company applies process costing in the manufacture of its
sole product, “Pharmanex”.
o Manufacturing starts in Department 1 where materials are all added t the start of
processing. The good units are then transferred to department 2 where all the incremental
materials needed for its completion are added after final inspection.
o In department 1, units are inspected at the end of processing while in Department 2,
inspection takes place when the units are 90% completed.
o Department 1 uses FIFO costing while Department 2 uses the weighted average
costing.
The production data for the month of August show the following:
Department 1 Department 2

UNITS
Beginning work in process, August 1 20,000 10,000
Work to be done 80% 20%
Ending work in process, August 31 30,000 17,500

Work completed 2/3 5/7

Started in process during August 150,000
Normal spoilage (4% of units started 2,500
in process)
Abnormal spoilage (1/4 of normal 1,250
spoilage)

COST
Work in process, August 1
Transferred in - 285,450
Materials 135,000 214,875
Conversion cost 97,500 280,725

Current costs
Transferred in - ?
Materials 1,980,000 840,000
 Conversion costs 3,088,800 1,282,500

1. What is the total costs transferred to Department 2 and the amount of work-in-process, end in
Department 1, respectively?
a. 4,227,300; 792,000
b. 4,459,800; 792,000
c. 4,261,800; 396,000
d. 4,459,800; 549,000
2. What is the total costs transferred to the Storeroom and the amount of work-in-process, end in
Department 2, respectively?
a. 6,583,650; 725,250
b. 6,474,849; 647,390
c. 6,738,930; 930,987
d. 6,789,839; 456,987