Cost of Production Report: Accounting for Spoiled Units and Increase in Production 501

MULTIPLE CHOICES THEORETICAL

1. Units that do not meet production standards and usually discarded

are:

a. Defective units.
b. Spoiled units.
c. Scrap units.
d. Added units.

2. Spoilage that is an inherent result of a particular production and arises even under
efficient operating conditions is:

a. Normal spoilage.
b. Abnormal spoilage.
c. Defective units.
d. Scrap units.

3. What is the method of accounting for spoilage wherein spoiled units are ignored in
the computation of equivalent units of productions?

a. FIFO method.
b. Average method.
c. Theory of neglect.
d. Separation method.

4. What is the equivalent production of lost units which are normally discovered at the
end of the process?

a. None.
b. 100%
c. 50%
d. 80%

5. Under the average method, the cost of spoiled units discovered at

the end of the process is to be absolved by:

a. All the good units.

b. The completed and transferred out units.
c. The units in process at the end.
d. None.
502 Chapter 13

6. When spoiled units are discovered at the end of the process in the subsequent
department, to compute the cost of spoiled units, the number of spoiled units multiplied
by:
a. The unit costs from prior department only.
b. The total unit costs from prior department and subsequent departments.
c. The unit cost in the subsequent department.
d. The unit cost for materials in subsequent department.

7. If the spoilage is normal, using the FIFO costing method, the number of equivalent
units that production costs should be charged to would be based upon:
a. Spoiled units.
b. Units transferred out and spoiled units.
c. Units transferred out, beginning work in process, and units in ending work in process.
d. Units transferred out, beginning work in process, spoiled units, and units in ending
work in process.

8. When average costing method is used, the costs of the beginning work in process
are:
a. kept separate from the costs for the current month
b. added to the costs of the current month
c. subtracted from the costs of the current month
d. taken as a percentage of cost of the current month

9. When FIFO costing method is used, the costs of the beginning work
in process are:
a. kept separate from the costs of the current period
b. added to current costs
c. subtracted from the current month
d. averaged with other costs to arrive at total cost.

10. When materials are added in the subsequent department and the volume of units
increased, the transferred in unit costs are:
a. increased
b. unchanged
c. decreased
d. not applicable
Cost of Production Report: Accounting for Spoiled Units and Increase in Production 503

MULTIPLE CHOICES OF COMPUTATION

1. Materials are added at the start of the process in first department of JG

Manufacturing Company. The following information is available for the month of January
2014:
______________________________________________________________________
Work in Process- Beginning:
(60% complete as to conversion costs) 30,000 units
Started in January 75,000 units
Transferred Out to Next Department Normal Lost Units 55,000 units
Work in Process-Ending
(50% complete as to conversion costs) 35,000 units

The costs of normal lost units are absorbed by the units transferred out to the next
department. Using the average method, what is the equivalent unit for materials?

a. 90,000
b. 72,500
c. 90,500
d. 105,000

2. Using the data in Number 1, assuming the FIFO method is used what is the
equivalent unit for conversion costs?

a. 69,500
b. 84,500
c. 75,500
d. 87,500

3. Ping Products transferred 15,000 units to the 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 spoiled at the 75% stage of
conversion. Beginning inventory was 60% complete as to conversion costs and spoiled
units were considered normal.
504 Chapter 13

Number 3- Continued

1. What is the equivalent unit for conversion costs using the FIFO costing
method?

a. 14,400
b. 12,900
c. 13,900
d. 13,400

4. Using the data in Number 3, what is the equivalent unit for conversion costs
under the average method?

a. 15,900
b. 14,400
c. 16,400
d. 20,000

5. Jet Company manufactures a product that passes in four departments in a

continuous process. Department 3 had no beginning work in process inventory
and transferred in 18,000 units from Department 2, each with an equivalent unit
cost of P12.50. Within Department 3, unit costs for direct materials, direct labor
and manufacturing overhead (applied) were P8.00, P9.75, and P4.00,
respectively. Direct materials in Department 3 are added at the beginning of the
process. Department 3 had 4,800 units in ending work in process inventory which
are 65% complete as to conversion costs.
If 620 units were lost in Department 3 at Jet's inspection point where conversion
costs were 45% complete, what was the total costs of lost units?

a. P11,325.22
b. P13,818.25
c. P16,546.25
d. P 8,796.25
Cost of Production Report: Accounting for Spoiled Units and Increase in Production 505

6. Using the data in Number 5, if at Jet's Department 3 inspection point. which is at

halfway through Department 3's conversion process, 1,200 spoiled units were removed
from production. Normal lost units was 800 units. If total costs of lost units was P32,850,
how much of the amount should be allocated to ending work in process inventory?

a. P5,840.00
b. P7,320.00
c. P6,257.14
d. P -0-

7. Rose Company instituted a new process in July. During the month. 10,000 units were
started in Department 1. Of the units started, 1,000 were spoiled at the end of the
process, considered normal in the operation of the company. 7.000 units were
transferred to Department 2, and 2,000 remained in work in process at July 31 which
was 100% complete as to material costs and 50% complete as to conversion costs.
Material costs of P30,000 and conversion costs of P45,000 were charged to
Department 1 in July.

What were the total costs transferred out to Department 2?

a. P46,900
b. P53,600
c. P56,000
d. P57,120

8. The following production data were available for the month of May 2014 for the first
department of Tan Company.
______________________________________________________________________
Work in Process, May 1 (40% complete as to conversion costs) 40,000
Started in Process during the month 100,000
Transferred Out to Next Department 85,000
Normal Lost Units discovered when units are 80% completed 10,000
Work in Process, May 31 (60% complete as to conversion costs) 45,000

If materials are added at the beginning of the process, using the average method, what
is the equivalent unit for materials?

a. 122,000
b. 112,000
c. 140,000
d. 120,000
506 Chapter 13

9. Loren Company has the following production data for the month of
March, 2014:
__________________________________________________________________
Work in Process at March 1 10,000 units
Started during March 40,000 units
Transferred Out to Finished Goods
33,000 units
Work in Process at March 31
15,000 units
Abnormal Lost Units 2,000 units

Materials were added at the beginning of the process. As to conversion costs, the
beginning work in process was 70% completed and the ending work in process was
60% completed. Lost units are detected at the end of the process.

Using the average method, what is the equivalent unit for March
with respect to conversion costs?

a. 42,000
b. 44,000
c. 45,000
d. 46,000

10. Heaven Company adds materials at the start of production in the Forming
Department. Data related to production in May 2014 are as follows

________________________________________________________________
____________________________________________________________Units
Work in Process, May 1 14,000
Started in May 70,000
Completed and Transferred Out in May 72,000
Normal Lost Units 4,000
Work in Process, May 31 8,000
Materials in beginning work in process inventory P68,000
Cost of materials added during month Units P100,000

Assuming that lost units are ignored in computing equivalent production, what is the
equivalent unit of production for materials under the average method?

a. 80,000
b. 84,000
c. 88,000
d. 82,000
Cost of Production Report: Accounting for Spoiled Units and Increase in Production 507

11. Using the data in number 10, what is the cost per unit for materials?

a. P2.00
b. P2.10
c. P2.20
d. P2.30

12. The following data pertain to labor used in the Boxing Department
of the Sky Paper. Company during July:
_____________________________________________
Beginning work in process, 400 units, 50% complete
Started in production, 10,000 units
Transferred out to next department, 9,600 units
Ending work in process, 200 units 40% complete
Lost at the end of the process, 600 units
Labor costs in beginning work in process, P15,000
Cost of labor incurred during the month, P365,360

What are the equivalent units of production for labor for the month under the average
method?

a. 10,280
b.9,680
c.12,080
d.10,520

13. Using the data in Number 12, what is the labor cost per unit of production?

a. P37.00
b. P39.30
c. P39.00
d. P37.50

14. Using the data in Number 12, what are the equivalent units for labor
under the FIFO method?

a. 10,080
b. 10,280
c. 10,500
d. 10,800
508 Chapter 13

Items 15 through 17 are based on the following data:

On January 2, 2014 beginning work in process inventory for the Machining
Department of the Jack Company was 3,000 units with transferred in costs from
prior department of P90,000. During the with transferred in costs from prior
department of P450,000. A total month, 15,000 units were transferred into the
Machining Department of 17,250 units transferred out to the next department and
450 units were in the ending work in process inventory. Some units were lost at the
end of the process as a normal part of the manufacturing process.

Assuming the company uses the average method of process costing and lost
units are included in the equivalent production computations.

15. How many units were lost?

a.- 300
b. 400
c. 350
d. 450

16. What is the equivalent unit of production for transferred in costs from prior
department for the month?

a. 18,000
b. 17,350
c. 18,250
d. 17,500

17. What is the cost per equivalent unit for transferred in costs from prior
department?

a. P30.00
b. P31.00
c. P30.50
d. P34.00