Ch07SM

CHAPTER 7 DISCUSSION QUESTIONS

Q7-1. Quality Quality costs may may be grouped grouped into the follow follow-ing three classifications: 1. Pre Preve venti ntion on costs costs are are the costs costs incur incurred red to to prevent product failure. failure. They include the cost of designing high quality products and production systems, including the costs of implementing and maintaining such systems. 2. Appr Appraisa aisall costs costs are are the cost costs s incurr incurred ed to detect product product failure failure.. They include include the cost of inspecting and testing materials, inspecting products during production, and the cost of obtaining information i nformation from customers about product satisfaction. 3. Fa Failur ilure e costs costs are are the the costs costs incur incurred red when when a product fails, and may occur internally or externally exte rnally.. Internal failure failure costs are those that occur during the manufacturing or production process (e.g., scrap, spoilage, and rework), and external failure costs are those that occur after the product has been sold (e.g., warranty repairs and replacements, sales refunds, handling customer complaints, and lost sales resulting from poor product quality). Q7-2. TQM stands stands for for total total quality quality management management,, which is a company-wide approach to quality improvement in all processes and activities. TQM is a pervasive philosophy of doing business that applies to all functional areas of the company and to all personnel. Q7-3. Five charac characterist teristics ics of TQM systems systems are: are: 1. The comp company any’s ’s objec objectiv tive e for for all busin business ess activity activit y is to serve its customers customers.. The term “product” “produ ct” is extended extended to include include services services as well as goods, and “customer “customer”” include includes s internal users as well as those outside of the company who purchase the company’s products. product s. Each employee’ employee’s s activity is oriented to providing service to the customer. 2. Top manag managemen ementt prov provides ides an acti active ve leadership role in the quality improvement i mprovement movement. 3. All emplo employe yees es are are activ actively ely invo involve lved d in quality improve improvement. ment. Emplo Employees yees are not only asked to contribute ideas, but also to

Q7-4.

Q7-5.. Q7-5

Q7-6.. Q7-6

Q7-7 Q7 -7..

7-1

find better ways of doing things. Involvement Involv ement can be successful only when there is encouragement and an open and honest environment of trust. 4. The comp company any has a sys system tem of ident identify ifying ing quality problems, developing solutions, and setting quality improvement objectives. tiv es. This typically typically involve involves s organizing organizing employees from all ranks and from different organizational units along with managers who have authority to take the necessary action to solve problems. 5. The com compan pany y place places s a high high va value lue on its its employees and provides continuous training, as well as recognition for achievement. Employees perform perform best when they are well trained, and they have the greatest capacity to contribute when they are highly educated. The concept concept of continuo continuous us quality quality improvem improvement ent differs from the concept of quality optimization in that continuous quality improvement is a dynamic process of change under the assumpas sumption that the ideal is not an absolute known value; whereas quality optimization is a static approach to finding the best solution to a given set of fixed and known constraints. The first first problem problem with trying trying to inspect inspect quality quality into the product is that it detects internal failures only after considerable cost has been incurred. The second problem is that the magnitude of the cost of the internal failures, detected by inspection, is rarely measured and typically ignored. Companies Compa nies should should concentrat concentrate e their efforts efforts on preventing poor quality rather than on trying to inspect it into the process, because it will result result in less less total total quality quality cost. cost. The approach is founded on the belief that by increasing prevention costs, the cost of internal failures—such as scrap, spoilage, rework, and downtime—will decline by a larger amount than the increase in prevention costs. Quality Qual ity costs costs should be measured measured and reported to management in order to provide incentive and direction for improving quality.

7-2

Large quality costs indicate large opportunities for for improvem improvement. ent. Also Also,, measuremen measurements ts provide a basis for monitoring the cost of quality and evaluating improvements. improvements. Q7-8.. Scrap include Q7-8 includes s (1) the the filings filings and trimming trimmings s remaining after processing materials, (2) defective materials that cannot be used or returned to the vendor, and (3) broken parts resulting from employee errors or machine failures fail ures.. Spoiled goods goods differ differ from scrap scrap in that they are partially or fully completed units that are in some way defective and are not economically or physically correctable. Spoiled goods may be units of the product or component parts, and they may or may not have a salvage value. value. Rework is the process of correcting defective manufactured goods. Q7-9. The cost cost of scrap scrap,, spoilage, spoilage, and rewo rework rk should not be ignored, because such costs

Chapter 7

are often quite high and often result from internal failures that can be eliminated. Ignoring the cost of these internal failures sends a signal to managers that such costs are acceptab acceptable. le. Reportin Reporting g such costs provides incentive for improvement, particularly if the costs are large. Q7-10. In order to know know what to to do with the the cost, the accountant must know whether the spoilage or rework is caused by the customer or by an internal failure failure.. If spoilage spoilage or rework rework is the the result of a customer requirement, the unrecoverable erab le cost should be charged charged to the job. job. On the other hand, if the spoilage or rework is the consequence of an internal failure, the unrecoverable cost should be removed from the job (i.e., charged to Factory Overhead Control) and reported to responsible management.

 

Chapter 7

7-3

EXERCISES E7-1 (1) (2) (3) (4)

E7-2

E7-3 E73

E7-4

E7-5

Accounts Receivable ................................................... Scrap Sales (or Other Income) ...........................

1,650

Accounts Receivable ................................................... Cost of Goods Sold .............................................

1,650

Accounts Receivable ................................................... Factory Overhead Control .................................

1,650

Accounts Receivable ................................................... Work in Process .. .................................................

1,650

Spoiled Goods Inventory.. y.............................................. Fact cto ory Over erh head Contr tro ol ........................................... Work in Process .. . ................................................

120 112

1,650 1,650 1,650 1,650

232

$27,000 $27, 000 tot total al job cos cost/1 t/1,00 ,000 0 chai chairs rs = $27 $27 cos costt per per chai chairr Spoiled Goods Inve ven ntory ($10 × 100 chairs). )............... Factory Ov Overhead Control (($27 – $1 $10) × 100). )............ Finished Goods In Inventory ($27 × 900 900 chairs).. )............. Work in Process .. .................................................

1,000 1,700 24,300

Spoiled goods inventory ($100 × 100 units) .............. Cost Co st of of Good Goods s Sold. Sold... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Work in Process .................................................

10,000 94,0 94 ,000 00

Factory Ov Overhead Co Control ........................................... Materials (100 units × $1.50) ............................... Payroll (100 units × 1/4 hour × $10 per hour) .. ... Applied Factory Overhead (100 × 1/4 hr × $12 rate) .. .............................

700

Fini Fi nish shed ed Goo oods ds Inve vent ntor ory y .. .... .... .... ...... .... .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .. Work in Process .. .................................................

6,60 6, 600 0

27,000

104,000

150 250 300 6,600

 

7-4

E7-6

Chapter 7

Work in Proces ess. s............................................................. Materials (1,000 units × $1) ................................. Payroll (1,000 units × 1/6 hour × $15) .. ................ Applied Factory Overhead (1,000 × 1/6 × $30) ..

8,500

Cost Co st o off Good Goods s Sold.. Sold.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Work in Process ($65,000 + $8,500) ...................

73,5 73 ,500 00

Acco Ac coun unts ts Rec Recei eiv vab ablle ($73 ($73,5 ,500 00 × 150 150% %) .. .... .... .... ...... .... ...... .... .... .... Sales .....................................................................

110, 11 0,25 250 0

1,000 2,500 5,000 73,500 110,250

 

Chapter 7

7-5

E7-7 (1)

Island Company Forming Department Cost of Production Report For August

Quantity Schedule Beginning inventory ............................... Started in process this period ..............

Materials

Transferred to Finishing Department .... Ending inventory ....................................... Spoiled in process ..................................

100% 100%

Labor

60% 100%

Cost Charged to Department Beginning inventory: Materials Mater ials .... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... Labor Lab or...... ......... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... Facto Fa ctory ry over overhea head d ...... ........ ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... Tot otal al cost cost in begi beginn nnin ing g inven inventor tory... y...... ...... ...... ..... ..... ...... ...... ...... ...... ..... ..... ...... ..... Cost added during current period: Materials .................................................................................... Labor. r............................................................................................ Factory overhead. d........................................................................ Tot otal al cost added added durin during g current current perio period.... d....... ...... ...... ...... ...... ..... ..... ...... ..... Total co cost ch charged to to de department .. .................................................. Cost Accounted for as Follows Transferred to Finishing Department .... Charge to Factory Overhead for spoilage: Materials .. . ........................................... Labor .................................................. Factory overhead .............................. Work Wo rk in Process, ending inventory: inventory: Materials .. . ........................................... Labor .................................................. Factory overhead .............................. Total cost accounted for ........................

Units 8,000

Overhead

50% 100%

Total Cost $ 1,260 770 1,400 1,4 00 $ 3,4 3,430 30 $36,240 10,510 21,725 $68,47 $68 ,475 5 $71,905

Quantity 1,000 9,000 10,000 8,000 1,500 500 10,000 Equivalent Units*

10,000 9,400 9,250

Unit Cost**

$3.75 1.20 2.50 $7.45

% Complete Unit Cost 100% $7.45

Total Cost $59,600

500 500 500

100% 100% 100%

$3.75 1.20 2.50

$1,875 600 1,250

1,500 1,500 1,500

100% 60% 50%

$3.75 1.20 2.50

$5,625 1,080 1,875

3,725

8,580 $71,905

 

7-6

Chapter 7

E7-7 (Concluded) *Total number of equivalent units required in the cost accounted for section determined as follows:

Equivalent units transferred out ........................... Equivalent units in ending inventory .. ................. Equivalent units of spoilage .. . .............................. Total eq equivalent un units...........................................

Materials 8,000 1,500 500 10,000

Labor 8,000 900 500 9,400

Overhead 8,000 750 500 9,250

** Total cost (i.e., the cost in beginning beginning inventory inventory plus the cost added during during the current period) divided by the total number of equivalent units required in the cost accounted for section

(2)

Work in Process—Finishing Department. t.................... Fac acto tory ry Ov Over erhe head ad Con ontr trol ol .. .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .... ..... Work in Process—Forming Depar tment .. ..

59,600 3,72 3, 725 5 63,325

 

Chapter 7

7-7

E7-8 (1)

Juniper Company Finishing Department Cost of Production Report For July

Quantity Schedule Beginning inventory ................................ Received from Cutting Department .......

Materials

Transferred to Finished Goods .............. Ending inventory ..................................... Spoiled in process .. ..................................

40% 100%

Labor

20% 100%

Cost Charged to Department Beginning inventory: Cost Co st from preced precedin ing g dep depart artmen ment.. t..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ... Materi Mat erials.... als....... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ..... Labor.. Lab or..... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ..... Facto Fa ctory ry overh overhead. ead.... ...... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... Total cost in begi beginni nning ng in invento ventory ry .... ........ ........ ........ ........ ........ ........ ........ ........ .... Cost added during current period: Cost from preceding department............................................. Materials .................................................................................... Labor. r............................................................................................ Factory overhead ...................................................................... Total cost cost added added durin during g current current period period ....... ........... ........ ........ ........ ........ .... Total cost charged to department .. .................................................. Cost Accounted for as Follows Transferred to Finished Goods .............. Transferred to Spoiled Goods inventory at salvage value ................................ Charge to Factory Overhead for spoilage: Cost of completed spoiled units ..... Less salvage value of spoiled units Work Wo rk in Process, ending inventory: inventory: Cost from preceding department .... Materials .. ............................................ Labor .................................................. Factory overhead .............................. Total cost accounted for ........................

Units 3,800

Overhead

20% 100%

Quantity 500 4,500 5,000 3,800 800 400 5,000

Total Cost $ 5,5 5,500 00 1,950 1,9 50 1,180 1,1 80 1,770 1,7 70 $ 10,40 10,400 0

Equivalent Units*

Unit Cost**

$ 54,500 20,650 16,260 24,390 $115,800 $115, 800 $126,200

5,000 4,520 4,360 4,360

$12.00 5.00 4.00 6.00 $27.00

% Complete Unit Cost 100% $27.00

400

Total Cost $102,600

$10.00

400 400

100%

800 800 800 800

100% 40% 20% 20%

4,000

$27.00 10.00

$10,800 4,000

$12.00 5.00 4.00 6.00

$ 9,600 1,600 640 960

6,800

12,800 $126,200

 

7-8

Chapter 7

E7-8 (Concluded) *Total number of equivalent units required in the cost accounted for section determined as follows:

Equivalent units transferred out ............ Equivalent units in ending inventory .... Equivalent units of spoilage .................... Total equivalent units .............................

Prior Dept. Co Cost Materials 3,800 3,800 800 320 400 400 5,000 4,520

Labor 3,800 160 400 4,360

Overhead 3,800 160 400 4,360

** Total cost (i.e., the cost in beginning beginning inventory inventory plus the cost added during during the current period) divided by the total number of equivalent units required in the cost accounted for section

(2)

Finish she ed Goods Invento tory ry ........................................... Spoi Sp oilled Goo oods ds Inve vent ntor ory y .. .... .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .... ..... Fac acto tory ry Ov Over erhe head ad Con ontr trol ol .. .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .... ..... Work in Process—Finishing Department ..........

102,600 4,00 4, 000 0 6,80 6, 800 0 113,400

 

Chapter 7

E7-9 (1)

7-9

Carver Petroleum Inc. Cracking Department Cost of Production Report For May

Quantity Schedule Beginning inventory ................................ Started in process this period ............... Transferred to Refining Department...... Ending in inventory ..................................... Lost in process .......................................

Materials

Conversion Cost

100%

Cost Accounted for as Follows Transferred to Refining Department...... Work Wo rk in Process, ending inventory: inventory: Materials .. . ........................................... Conversion cost ................................ Total cost accounted for ........................

Units 49,000 6,000 6,000

49,000 6,000 5,000 60,000

70%

Cost Charged to Department Beginning inventory: Materials Mater ials .... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... Con Co nve vers rsio ion n co cost st.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Tot otal al cost cost in begi beginn nnin ing g inven inventor tory... y...... ...... ...... ..... ..... ...... ...... ...... ...... ..... ..... ...... ..... Cost added during current period: Materials .. .................................................................................... Conversion cost......................................................................... Tot otal al cost added added durin during g current current perio period.... d....... ...... ...... ...... ...... ..... ..... ...... ..... Total cost charged to department ...................................................

Quantity 5,000 55,000 60,000

Total Cost $ 1,900 240 24 0 $ 2,1 2,140 40 $20,100 5,080 $25,18 $25 ,180 0 $27,320

Equivalent Units*

55,000 53,200

.40 .10

$.40 .10 $

% Complete Unit Cost 100% $.50 100% 70%

Unit Cost**

.50

Total Cost $24,500 $2,400 420

2,820 $27,320

*Total number of equivalent units required in the cost accounted for section determined as follows: Materials Equivalent units transferred out .. . .... 49,000 Equivalent units in ending inventory 6,000 Total equivalent units .. ....................... 55,000

Conversion Cost 49,000 4,200 53,200

** Total cost (i.e., the cost in beginning beginning inventory inventory plus the cost added during the the current period) divided by the total number of equivalent units required in the cost accounted for section

(2)

Work iin n Pr Process—Refining De Department .................... Work in Process—Cracking Department ..........

24,500 24,500

 

7-10

Chapter 7

E7-10 APPENDIX (1)

Suarez Company Tooling Department Depar tment Cost of Production Report For March

Quantity Schedule Beginning inventory ................................ Started this period .................................. Transferred to Finishing Department .... Ending in i nventory ....................................... Spoiled in process .. ..................................

Materials 100%

100% 100%

Labor 70%

60% 90%

Cost Charged to Department Beginning inventory: Materials Mater ials.... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... Labor.. Lab or..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Fact Fa ctor ory y ov over erhe head. ad... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Tota otall cost cost in begi beginn nning ing in inven vento tory.. ry..... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ..... Cost added during current period: Materials.. s...................................................................................... Labor. r............................................................................................ Factory ov overhead .. ...................................................................... Tota otall cost added added during during curre current nt period.. period..... ...... ...... ...... ...... ...... ...... ...... ..... .. Total co cost ch charged to to de department .. .................................................. Cost Accounted for as Follows Transferred to Finishing Department: From beginning inventory................ Cost to complete this period: Materials ................................. Labor ..................................... Factory overhead ................. Started and completed this period . Total cost transferred to Finishing Department ................ Charge to Factory Overhead for spoilage: Materials .. . ........................................... Labor .................................................. Factory ov overhead .............................. Work Wo rk in Process, ending inventory: inventory: Materials .. . ........................................... Labor .................................................. Factory overhead .............................. Total cost accounted for ........................

Units

Current %

Overhead 60%

40% 90%

Total Cost $ 1,600 290 950 95 0 $ 2,8 2,840 40 $ 9,750 2,380 9,200 $21,33 $21 ,330 0 $24,170

Quantity 2,000 13,000 15,000 7,000 3,000 5,000 15,000 Equivalent Units*

13,000 11,900 11,500

Unit Cost**

$.75 .20 .80 $1.75

Unit Cost

Total Cost $2,840

2,000 2,000 2,000 5,000

0% 30% 40% 100%

$ .75 .20 .80 $1.75

0 120 640

$ 3,600 8,750 $12,350

5,000 5,000 5,000

100% 90% 90%

$ .75 .20 .80

$3,750 900 3,600

3,000 3,000 3,000

100% 60% 40%

$ .75 .20 .80

$2,250 360 960

8,250

3,570 $24,170

 

Chapter 7

7-11

E7-10 APPENDIX (Concluded) * Number of equivalent units of cost added during the current period determined as follows:

To complete beginning inventory .............................. Started and completed this period .. . .......................... Ending inventory......................................................... Spoiled units ............................................................... Total equivalent units.. s..................................................

Materials 0 5,000 3,000 5,000 13,000

Labor 600 5,000 1,800 4,500 11,900

Overhead 800 5,000 1,200 4,500 11,500

** Cost added during the current period period divided by the number of equivalent units units of cost added during the current period

(2)

Work in Process—Finishing Depart rtm ment. t.................... Fac acto tory ry Ov Over erhe head ad Co Cont ntrrol .. .... .... .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .. Work in Process—Tooling Department .. .............

12,350 8,25 8, 250 0 20,600

7-12

Chapter 7

E7-11 APPENDIX (1)

Matrix Furniture Company Finishing Department Cost of Production Report For September

Quantity Schedule Beginning inventory ................................ Received from Fabricating Department Transferred to Finished Goods .............. Ending in i nventory ....................................... Spoiled in process .. ..................................

Materials 80%

100% 100%

Labor 40%

60% 100%

Cost Charged to Department Beginning inventory: Cost fro from m prece precedin ding g depa departmen rtment.... t........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... Materi Mat erials..... als........ ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Labor.. Lab or..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Facto Fa ctory ry overh overhead. ead.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. Total cost in begi beginnin nning g in invent ventory... ory....... ........ ........ ........ ........ ........ ........ ........ ....... ... Cost added during current period: Cost from preceding department............................................. Materials.. s...................................................................................... Labor. r............................................................................................ Factory overhead. d........................................................................ Total cost cost added added during during curre current nt period..... period......... ........ ........ ........ ........ ....... ... Total cost charged to department .................................................

Overhead 40%

60% 100%

Quantity 1,200 6,000 7,200 5,000 1,500 700 7,200

Total Cost $ 14,16 14,160 0 1,210 1,2 10 1,300 1,3 00 3,250 3,2 50 $ 19,92 19,920 0

Equivalent Units*

Unit Cost**

$ 72,000 6,240 12,240 30,600 $121,080 $121, 080 $141,000

6,000 6,240 6,120 6,120

$12.00 1.00 2.00 5.00 $20.00

 

Chapter 7

7-13

E7-11 APPENDIX (Concluded) Cost Accounted for as Follows Transferred to Finished Goods: From beginning inventory................ Cost to complete this period: Materials .. ............................... Labor ..................................... Factory overhead ................. Started and completed this period Total cost transferred to Finishing Department ................ Transferred to Spoiled Goods inventory at salvage value ................................ Charge to Factory Overhead for spoilage: Cost of completed spoiled units ..... Less salvage value of spoiled units Work Wo rk in Process, ending inventory: inventory: Cost from preceding department .... Materials .. . ........................................... Labor .................................................. Factory overhead .............................. Total cost accounted for ........................

Units

Current %

Unit Cost

Total Cost $19,920

1,200 1,200 1,200 3,800

20% 60% 60% 100%

$ 1.00 2.00 5.00 $20.00

240 1,440 3,600

$ 25,200 76,000 $101,200

700

$12.00

700 700

100%

1,500 1,500 1,500 1,500

100% 100% 60% 60%

8,400

$20.00 12.00

$14,000 8,400

$12.00 1.00 2.00 5.00

$18,000 1,500 1,800 4,500

5,600

25,800 $141,000

*Number of equivalent units of cost added during the current period determined as follows:

To complete beginning inventory ... Started and completed this period . Ending in inventory............................... Spoiled units ....................................... Total eq equivalent un units .. .......................

Prior Dept. Cost 0 3,800 1,500 700 6,000

Material 240 3,800 1,500 700 6,240

Labor 720 3,800 900 700 6,120

Overhead 720 3,800 900 700 6,120

** Cost added during the current period period divided by the number of equivalent units units of cost added during the current period

(2)

Finished Goods Inventory ........................................... Spoi Sp oilled Go Good ods s In Inve vent ntor ory y ... ...... .... .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .. Fac acto tory ry Ov Over erhe head ad Co Cont ntrrol .. .... .... .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .. Work in Process—Finishing Depar tment ..........

101,200 8,40 8, 400 0 5,60 5, 600 0 115,200

 

7-14

Chapter 7

E7-12 APPENDIX (1)

Lanai Pop Inc. Cooking Department Cost of Production Report For December

Quantity Schedule Beginning inventory ................................ Received from Mixing Department ........ Transferred to Bottling Department ...... Ending in i nventory ....................................... Lost in process ........................................

Materials 75%

100%

Labor 25%

75%

Overhead 25%

75%

Cost Charged to Department Beginning inventory: Costt from Cos from precedi preceding ng depar departme tment. nt.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. Mate Ma teri rial als s .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Labor.. Lab or..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Fact Fa ctor ory y ov over erhe head. ad... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Tota otall cost cost in begi beginn nning ing in inven vento tory.. ry..... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ..... Cost added during current period: Cost from preceding department............................................. Materials .................................................................................... Labor. r............................................................................................ Factory overhead .........................................................................

Total Cost $ 2,9 2,920 20 305 30 5 140 210 21 0 $ 3,5 3,575 75

Tota otall cost added added during during curre current nt period.. period..... ...... ...... ...... ...... ...... ...... ...... ..... .. Total cost charged to department .. ..................................................

$18,425 $18,42 5 $22,000

Cost Accounted for as Follows Transferred to Bottling Department: From beginning inventory................ Cost to complete this period: Materials .. ............................... Labor ..................................... Factory overhead ................ Started and completed this period . Total cost transferred to Finishing Department ................ Work Wo rk in Process, ending inventory: inventory: Cost from preceding department .... Materials .. ............................................ Labor .................................................. Factory overhead .............................. Total cost accounted for .........................

Unit Cost

Units

Current %

$10,850 1,500 2,430 3,645

Quantity 10,000 40,000 50,000 37,000 8,000 5,000 50,000 Equivalent Units*

35,000 37,500 40,500 40,500

Unit Cost**

$.31 .04 .06 .09 $.50 Total Cost

$3,575 10,000 10,000 10,000 27,000

25% 75% 75% 100%

$.04 .06 .09 $.50

100 450 675

$ 4,800 13,500 $18,300

8,000 8,000 8,000 8,000

100% 100% 75% 75%

$.31 .04 .06 .09

$2,480 320 360 540

3,700 $22,000

 

Chapter 7

7-15

E7-12 APPENDIX (Concluded) *Number of equivalent units of cost added during the current period determined as follows:

To complete beginning inventory ..... Started and completed this period . Ending in inventory............................... Total equivalent units .. .......................

Prior Dept. Co Cost Materials 0 2,500 27,000 27,000 8,000 8,000 35,000 37,500

Labor 7,500 27,000 6,000 40,500

Overhead 7,500 27,000 6,000 40,500

** Cost added during the current period period divided by the number of equivalent units units of cost added during the current period

(2)

Work in Process—Bottling Department ..................... Work in Process—Cooking Department ..........

18,300 18,300

 

7-16

Chapter 7

PROBLEMS P7-1 (1)

(2)

Spoiled Goods Inventory (200 units × $1.75)............. Fac acto tory ry Ov Over erhe head ad Con ontr trol ol .. .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .... ..... Work in Process .. .................................................

350 1,45 1, 450 0

Accounts Receivable ($550 + $350) .............................. Scrap Sales .. ......................................................... Spoiled Goods Inventory .. ...................................

900

1,800 550 350

P7-2 (1)

(2)

$90,000 total job cost = $1 $18 8 per per un uniit 5,000 units on job Spoiled Goods Inventory (200 units × $15 salvage) . Factory Overhead Contr tro ol ........................................... Work in Process (200 units × $18 cost) .............

3,000 600

Cost Co st o off Good Goods s Sold.. Sold.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Work in Process ($90,000 – $3,600) ..................

86,4 86 ,400 00

Acco Ac coun unts ts Rec Recei eiv vab ablle ($86 ($86,4 ,400 00 × 140 140% %) .. .... .... .... ...... .... ...... .... .... .... Sales .....................................................................

120, 12 0,96 960 0

Spoiled Goods Inventory (200 units × $15 salvage) Work in Process .. .................................................

3,000

Cost Co st o off Good Goods s Sold.. Sold.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Work in Process ($90,000 – $3,000) ...................

87,0 87 ,000 00

Acco Ac coun unts ts Rec Recei eiv vab ablle ($87 ($87,0 ,000 00 × 140 140% %) .. .... .... .... ...... .... ...... .... .... .... Sales .....................................................................

121, 12 1,80 800 0

3,600 86,400 120,960 3,000 87,000 121,800

 

Chapter 7

7-17

P7-3 (1)

(2)

Factory Ove Overhead Con Control ........................................... Materials (100 units × $2) .................................... Payroll (100 units × 1/2 hr × $12 rate) ............... Applied Factory Overhead (100 × 1/2 hr × $24 rate) .. .............................

2,000

Cost Co st of Go Good ods s So Sold.. ld.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Work in Process .................................................

200, 20 0,00 000 0

Acco Ac coun unts ts Rec Recei eiv vab ablle ($20 ($200, 0,00 000 0 × 150% 150%)) ... ...... .... .... ...... .... ...... .... Sales .....................................................................

300, 30 0,00 000 0

Work in Process. s............................................................. Materials (100 units × $2) .................................... Payroll (100 units × 1/2 hour × $12 rate) .. .......... Applied Factory Overhead (100 × 1/2 hr × $24 rate) .. .............................

2,000

Cost Co st of Go Good ods s So Sold.. ld.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Work in Process ($200,000 + $2,000) .................

202, 20 2,00 000 0

Acco Ac coun unts ts Rec Recei eiv vab ablle ($20 ($202, 2,00 000 0 × 150% 150%)) ... ...... .... .... ...... .... ...... .... Sales .....................................................................

303, 30 3,00 000 0

200 600 1,200 200,000 300,000 200 600 1,200 202,000 303,000

 

7-18

P7-4 (1)

Chapter 7

Billingsley Company Cutting Department Cost of Production Report For April

Quantity Schedule Beginning inventory ................................ Started in process this period ............... Transferred to Assembling Department Ending in i nventory ....................................... Spoiled in process .. ..................................

Materials

100% 100%

Labor

60% 90%

Cost Charged to Department Beginning inventory: Materials Mater ials.... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... Labor Lab or .. ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Facto Fa ctory ry overh overhead. ead.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. Tota otall cost cost in beg begin innin ning g in inven vento tory ry ... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... Cost added during current period: Materials.. s...................................................................................... Labor. r............................................................................................ Factory ov overhead .. ...................................................................... Tota otall cost added added during during curre current nt period.. period..... ...... ...... ...... ...... ...... ...... ...... ..... .. Total co cost ch charged to to de department .. . ................................................ Cost Accounted for as Follows Transferred to Assembling Department Charge to Factory Overhead for spoilage: Materials .. . ........................................... Labor .................................................... Factory overhead .............................. Work Wo rk in Process, ending inventory: inventory: Materials .. . ........................................... Labor ................................................. Factory overhead .............................. Total cost accounted for ........................

Units 18,000

Overhead

60% 90%

Total Cost $ 1,260 789 1,789 1,7 89 $ 3,8 3,838 38 $36,240 10,761 21,311 $68,31 $68 ,312 2 $72,150

Quantity 5,000 20,000 25,000 18,000 4,000 3,000 25,000 Equivalent Units*

25,000 23,100 23,100

Unit Cost**

$1.50 .50 1.00 $3.00

% Complete Unit Cost 100% $3.00

Total Cost $54,000

3,000 3,000 3,000

100% 90% 90%

$1.50 .50 1.00

$4,500 1,350 2,700

4,000 4,000 4,000

100% 60% 60%

$1.50 .50 1.00

$6,000 1,200 2,400

8,550

9,600 $72,150

*Total number of equivalent units required in the cost accounted for section determined as follows:

Equivalent un units tr transferred out .. ......................... Equivalent units in ending inventory .. ................. Equivalent units of .. ............................................... Total equivalent units .........................................

Materials 18,000 4,000 3,000 25,000

Labor 18,000 2,400 2,700 23,100

Overhead 18,000 2,400 2,700 23,100

** Total Total cost (i.e., the cost in beginnin beginning g inventory plus the cost added during the current period) divided by the total number of equivalent units required in the cost accounted for section

 

Chapter 7

7-19

P7-4 (Continued) Billingsley Company Assembling Department Cost of Production Report For April Quantity Schedule Beginning inventory ................................ Received from Cutting Department .......

Materials

Transferred to Finished Goods Inventory Ending inventory ....................................... Spoiled in in pr process .. ..................................

80% 100%

Labor

20% 100%

Cost Charged to Department Beginning inventory: Cost fro from m prece precedin ding g depa departmen rtmentt .... ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... ... Materials Mater ials.... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... Labor.. Lab or..... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ..... Facto Fa ctory ry overh overhead. ead.... ...... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ... Total cost in begi beginni nning ng in invento ventory.... ry........ ........ ........ ........ ........ ........ ........ ........ ...... .. Cost added during current period: Cost from preceding department ........................................... Materials.. s...................................................................................... Labor. r............................................................................................ Factory ove overhead. d........................................................................ Total cost cost added added durin during g current current period period ....... ........... ........ ........ ........ ........ .... Total cost charged to department .. .................................................. Cost Accounted for as Follows Transferred to Finished Goods .............. Transferred to Spoiled Goods Inventory at salvage value ................................ Charge to Factory Overhead for spoilage: Cost of completed spoiled units ..... Less salvage value of spoiled units Work Wo rk in Process, ending inventory: inventory: Cost from preceding department .... Materials .. . ........................................... Labor .................................................. Factory overhead .............................. Total cost accounted for .........................

Units 17,000

Overhead

20% 100%

Total Cost $ 12,00 12,000 0 38,028 38,02 8 3,356 3,3 56 5,034 5,0 34 $ 58,41 58,418 8 54,000 163,372 15,444 23,166 $255,982 $255, 982 $314,400

Quantity 4,000 18,000 22,000 17,000 4,000 1,000 22,000 Equivalent Units*

22,000 21,200 18,800 18,800

Total Cost $255,000

$ 3.00

1,000 1,000

100%

4,000 4,000 4,000 4,000

100% 80% 20% 20%

$ 3.00 9.50 1.00 1.50 $15.00

% Complete Unit Cost 100% $15.00

1,000

Unit Cost**

3,000

$15.00 3.00

$15,000 3,000

$3.00 9.50 1.00 1.50

$12,000 30,400 800 1,200

12,000

44,400 $314,400

 

7-20

Chapter 7

P7-4 (Concluded) * Total number of equivalent units required in the cost accounted for section determined as follows:

Equivalent units transferred out .. . .... Equivalent units in ending inventory Equivalent units of spoilage ............ Total equivalent units .. .......................

Prior Dept. Co C ost Materials 17,000 17,000 4,000 3,200 1,000 1,000 22,000 21,200

Labor 17,000 800 1,000 18,800

Overhead 17,000 800 1,000 18,800

** Total cost (i.e., the cost in beginning beginning inventory inventory plus the cost added during during the current period) divided by the total number of equivalent units required in the cost accounted for section

(2)

Work in Process—Assembling Department .............. Fac acto tory ry Ov Over erhe head ad Con ontr trol ol .. .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .... ..... Work in Process—Cutting Department .. .............

54,000 8,55 8, 550 0

Finish Fini shed ed Go Good ods s In Inve vent ntor ory y .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Spoi Sp oilled Goo oods ds Inve vent ntor ory y .. .... .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .... ..... Fact Fa ctor ory y Ov Over erhe head ad Co Cont ntro roll .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Work in Process—Assembling Department .....

255,00 255, 000 0 3,00 3, 000 0 12,0 12 ,000 00

62,550

270,000

 

Chapter 7

7-21

P7-5 (1)

Hulvey Brewery Company Mixing and Brewing Department Cost of Production Report For January

Quantity Schedule Beginning inventory ................................ Started in process this period ............... Transferred to Canning Department...... Ending inventory ....................................... Lost in process .......................................

Materials

100%

Labor

40%

Cost Charged to Department Beginning inventory: Materi Mat erials.... als....... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ..... Labo La bor... r..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Fact Fa ctor ory y ov over erhe head. ad... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Tot otal al cos costt in beg begin inni ning ng in inve vent ntor ory.. y.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Cost added during current period: Materials.. s...................................................................................... Labor ............................................................................................. Factory overhead....................................................................... Tot otal al cos costt add added ed du durin ring g cur curren rentt peri period... od...... ...... ...... ...... ...... ...... ...... ...... ..... Total co cost ch charged to to de department .. ..................................................

Cost Accounted for as Follows Transferred to Canning Department...... Work Wo rk in Process, ending inventory: inventory: Materials .. ............................................ Labor .................................................. Factory overhead .............................. Total cost accounted for ........................

Units 28,000

% Complete 100%

6,000 6,000 6,000

100% 40% 40%

Overhead

40%

Total Cost $ 600 88 128 12 8 $ 81 816 6 $4,840 824 1,088 $6,752 $6, 752 $7,568

Quantity 4,000 36,000 40,000 28,000 6,000 6,000 40,000 Equivalent Units*

34,000 30,400 30,400

$.16 .03 .04 $.23

Unit Cost $.23 $.16 .03 .04

Unit Cost**

Total Cost $6,440 $960 72 96

1,128 $7,568

*Total number of equivalent units required in the cost accounted for section determined as follows:

Equivalent un units tr transferred ou out................................ Equivalent un units in in en ending in inventory .. ........................ Total equivalent units.. s..................................................

Materials 28,000 6,000 34,000

Labor 28,000 2,400 30,400

Overhead 28,000 2,400 30,400

** Total Total cost (i.e., the cost in beginnin beginning g inventory plus the cost added during the current period) divided by the total number of equivalent units required in the cost accounted for section

7-22

Chapter 7

P7-5 (Continued) Hulvey Brewery Company Canning Department Cost of Production Report For January Quantity Schedule Beginning inventory ................................ Received from Mixing and Brewing Department ........................ Transferred to Finished Goods Inventory Ending in i nventory ....................................... Spoiled in process .................................

Materials

Labor

Quantity 2,000 28,000 30,000

100% 100%

60% 80%

Cost Charged to Department Beginning inventory: Cost Co st from from prec preced edin ing g depart departme ment nt.. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Materi Mat erials als ... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Labo La bor.. r.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Fact Fa ctor ory y ov over erhe head. ad... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Tot otal al cos costt in be begi ginn nnin ing g inve invent ntor ory y .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Cost added during current period: Cost from preceding department ........................................... Materials .................................................................................... Labor .......................................................................................... Factory overhead ...................................................................... Tota otall cost added added during during curre current nt period.. period..... ...... ...... ...... ...... ...... ...... ...... ..... .. Total co cost ch charged to to de department .. ..................................................

Cost Accounted for as Follows Transferred to Finished Goods Inventory Charge to Factory Overhead for spoilage: Cost from preceding department ... Materials .. ........................................... Labor ................................................. Factory overhead ............................... Work Wo rk in Process, ending inventory: inventory: Cost from preceding department ... Materials .. . .......................................... Labor ................................................. Factory overhead .............................. Total cost accounted for .........................

Overhead

60% 80%

Total Cost $ 55 550 0 190 75 150 15 0 $ 965 965 $ 6,440 1,520 789 1,578 $10,32 $10 ,327 7 $11,292

25,000 1,000 4,000 30,000 Equivalent Units*

30,000 30,000 28,800 28,800

Unit Cost**

$.233 .057 .030 .060 $.380

Units 25,000

% Complete 100%

Unit Cost $.380

4,000 4,000 4,000 4,000

100% 100% 80% 80%

$.233 .057 .030 .060

$932 228 96 192

1,000 1,000 1,000 1,000

100% 100% 60% 60%

$.233 .057 .030 .060

$233 57 18 36

Total Cost $ 9,500

1,448

344 $11,292

 

Chapter 7

7-23

P7-5 (Concluded) *Total number of equivalent units required in the cost accounted for section determined as follows:

Equivalent units transferred out .. . .... Equivalent units in ending inventory Equivalent units of spoilage ............ Total equivalent units .. .......................

Prior Dept. Co Cost Materials 25,000 25,000 1,000 1,000 4,000 4,000 30,000 30,000

Labor 25,000 600 3,200 28,800

Overhead 25,000 600 3,200 28,800

** Total cost (i.e., the cost in beginning beginning inventory inventory plus the cost added during the the current period) divided by the total number of equivalent units required in the cost accounted for section

(2)

Work iin n Pr Process—Canning De Department .................... Work in Process—Mixing and Brewing Department .................................

6,440

Finish Fini shed ed Goo oods ds Inve vent ntor ory y .. .... .... .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .. Fac acto tory ry Ov Over erhe head ad Co Cont ntrrol .. .... .... .... ...... .... .... ...... .... .... ...... .... .... .... ...... .... .... ...... .... .. Work in Process—Canning Department ..........

9,500 9,50 0 1,44 1, 448 8

6,440

10,948

 

7-24

Chapter 7

P7-6 APPENDIX (1)

Hadenville Tool Company Fabricating Department Cost of Production Report For April

Quantity Schedule Beginning inventory ................................ Started this period .................................. Transferred to Finishing Department .... Ending in i nventory ....................................... Spoiled in process .. ..................................

Materials 100%

100% 100%

Labor 70%

40% 60%

Cost Charged to Department Beginning inventory: Materials Mater ials.... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... Labor.. Lab or..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Facto Fa ctory ry overh overhead. ead.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. Tota otall cost cost in begi beginn nning ing in inven vento tory.. ry..... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ..... Cost added during current period: Materials.. s...................................................................................... Labor .......................................................................................... Factory overhead ...................................................................... Tota otall cost added added during during curre current nt period.. period..... ...... ...... ...... ...... ...... ...... ...... ..... .. Total co cost ch charged to to de department .. . ................................................

Overhead 70%

40% 60%

Quantity 2,000 9,000 11,000 9,000 1,500 500 11,000

Total Cost $ 1,900 340 1,020 1,0 20 $ 3,2 3,260 60

Equivalent Units*

Unit Cost**

$ 9,180 2,125 6,375 $17,68 $17 ,680 0 $20,940

9,000 8,500 8,500

$1.02 .25 .75 $2.02

 

Chapter 7

7-25

P7-6 APPENDIX (Continued) Cost Accounted for as Follows Transferred to Finishing Department: From beginning inventory .............. Cost to complete this period: Labor ..................................... Factory overhead ................. Started and completed this period . Total cost transferred to Finishing Department ................................ Charge to Factory Overhead for spoilage: Materials .. ............................................ Labor .................................................. Factory overhead ............................. Work Wo rk in Process, ending inventory: inventory: Materials ............................................. Labor .................................................. Factory overhead .............................. Total cost accounted for ........................

Units

Current %

Unit Cost

Total Cost $3,260

2,000 2,000 7,000

30% 30% 100%

$ .25 .75 $2.02

150 450

$ 3,860 14,140 $18,000

500 500 500

100% 60% 60%

$1.02 .25 .75

$ 510 75 225

1,500 1,500 1,500

100% 40% 40%

$1.02 .25 .75

$1,530 150 450

810

2,130 $20,940

*Number of equivalent units of cost added during the current period determined as follows:

To complete beginning inventory ....................... Started and completed this period ..................... Ending inventory .. .................................................. Spoiled units ........................................................ Total equivalent units .........................................

Materials 0 7,000 1,500 500 9,000

Labor 600 7,000 600 300 8,500

Overhead 600 7,000 600 300 8,500

** Cost added during the current period period divided by the number of equivalent units units of cost added during the current period

 

7-26

Chapter 7

P7-6 APPENDIX (Continued) Hadenville Tool Company Finishing Department Cost of Production Report For April Quantity Schedule Beginning inventory ................................ Received from Fabricating Department Transferred to Finished Goods .............. Ending in i nventory ....................................... Spoiled in process .. ..................................

Materials 100%

100% 100%

Labor 40%

60% 100%

Cost Charged to Department Beginning inventory: Costt from Cos from precedi preceding ng depar departme tment. nt.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. Materi Mat erials..... als........ ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Labor Lab or .. ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Fact Fa ctor ory y ov over erhe head. ad... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Total cost in begi beginnin nning g in invent ventory... ory....... ........ ........ ........ ........ ........ ........ ........ ....... ... Cost added during current period: Cost from preceding department............................................. Materials.. s...................................................................................... Labor .......................................................................................... Factory overhead ......................................................................... Tota otall cost added added during during curre current nt period.. period..... ...... ...... ...... ...... ...... ...... ...... ..... .. Total co cost ch charged to to de department .. . ................................................

Overhead 40%

60% 100%

Total Cost $ 6,1 6,100 00 3,500 3,5 00 520 780 78 0 $10,900 $10,9 00 $18,000 10,800 4,000 6,000 $38,80 $38 ,800 0 $49,700

Quantity 3,000 9,000 12,000 9,900 2,000 100 12,000 Equivalent Units*

9,000 9,000 10,000 10,000

Unit Cost**

$2.00 1.20 .40 .60 $4.20

 

Chapter 7

7-27

P7-6 APPENDIX (Concluded) Cost Accounted for as Follows Units Transferred to Finished Goods: From beginning inventory .............. Cost to complete this period: Labor ..................................... 3,000 Factory ov overhead ................. 3,000 Started and completed this period . 6,900 Total cost transferred to Finished Goods Transferred to Spoiled Goods Inventory at salvage value ............................... 100 Charge to Factory Overhead for spoilage: Cost of completed spoiled units ..... 100 Less salvage value of spoiled units 100 Work Wo rk in Process, ending inventory inventory Cost from preceding department .... 2,000 Materials .. . ........................................... 2,000 Labor .................................................. 2,000 Factory overhead .............................. 2,000 Total cost accounted for ........................

Current %

Unit Cost

Total Cost $10,900

60% 60% 100%

$ .40 .60 $4.20

720 1,080

$1.00 100%

100% 100% 60% 60%

$12,700 28,980 $41,680 100

$4.20 1.00

$

420 100

$2.00 1.20 .40 .60

$ 4,000 2,400 480 720

320

7,600 $49,700

* Number of equivalent units of cost added during the current period determined as follows:

To complete beginning inventory ... Started and completed this period . Ending in inventory............................... Spoiled units ....................................... Total equivalent units .. .......................

Prior Dept. Co C ost Materials 0 0 6,900 6,900 2,000 2,000 100 100 9,000 9,000

Labor 1,800 6,900 1,200 100 10,000

Overhead 1,800 6,900 1,200 100 10,000

** Cost added during the current period period divided by the number of equivalent units units of cost added during the current period

(2)

Work in Process—Finishing Depart rtm ment. t.................... Fact cto ory Over erh head Contr tro ol ........................................... Work in Process—Fabricating Department .. . .....

18,000 810

Finish Fini shed ed Go Good ods s In Inve vent ntor ory y .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Spoiled Goods Inve ven ntory.. ry.............................................. Fact cto ory Over erh head Contr tro ol ........................................... Work in Process—Finishing Depar tment ..........

41,6 41 ,680 80 100 320

18,810

42,100

 

7-28

Chapter 7

P7-7 APPENDIX (1)

Carlton Chemical Company Distillation Department Cost of Production Report For June

Quantity Schedule Beginning inventory ................................ Started this period .................................. Transferred to Refining Department...... Ending in i nventory. .. .................................... Lost in process ........................................

Materials 100%

100%

Labor 20%

80%

Cost Charged to Department Beginning inventory: Materials Mater ials .... ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... Labo La bor.. r.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Fact Fa ctor ory y ov over erhe head.. ad.... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Tota otall cost cost in begi beginn nning ing in inven vento tory.. ry..... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ..... Coat added during current period: Materials .. .................................................................................... Labor .......................................................................................... Factory ov overhead .. ...................................................................... Tota otall cost added added during during curre current nt period.. period..... ...... ...... ...... ...... ...... ...... ...... ..... .. Total co cost ch charged to to de department .. ..................................................

Overhead 20%

80%

Total Cost $ 3,624 96 480 48 0 $ 4,2 4,200 00 $10,800 1,480 7,400 $19,68 $19 ,680 0 $23,880

Quantity 4,000 16,000 20,000 14,000 2,000 4,000 20,000 Equivalent Units*

12,000 14,800 14,800

Unit Cost**

$ .90 .10 .50 $1.50

 

Chapter 7

7-29

P7-7 APPENDIX (Continued) Cost Accounted for as Follows Transferred to Refining Department: From beginning inventory .............. Cost to complete this period: Labor ..................................... Factory overhead ................. Started and completed this period . Total cost transferred to Refining Department .................. Work Wo rk in Process, ending inventory: inventory: Materials .. . ........................................... Labor .................................................. Factory overhead .............................. Total cost accounted for .........................

Units

Current %

Unit Cost

Total Cost $4,200

4,000 4,000 10,000

80% 80% 100%

$ .10 .50 $1.50

320 1,600

$ 6,120 15,000 $21,120

2,000 2,000 2,000

100% 80% 80%

$ .90 .10 .50

$1,800 160 800

2,760 $23,880

* Number of equivalent units of cost added during the current period determined as follows:

To complete be beginning inventory ....................... Started and completed this period ....................... Ending inventory .. .................................................. Total equivalent units...........................................

Materials 0 10,000 2,000 12,000

Labor 3,200 10,000 1,600 14,800

Overhead 3,200 10,000 1,600 14,800

** Cost added during the current period period divided by the number of equivalent units units of cost added during the current period

 

7-30

Chapter 7

P7-7 APPENDIX (Continued) Carlton Chemical Company Refining Department Cost of Production Report For June Quantity Schedule Beginning inventory ................................ Received from Distillation Department . Transferred to Finished Goods Inventory Ending in i nventory ....................................... Lost in process .......................................

Materials 100%

100%

Labor 50%

30%

Cost Charged to Department Beginning inventory: Costt from Cos from precedi preceding ng depar departme tment. nt.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... .. Materi Mat erials als ... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Labor Lab or .. ..... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... ... Fact Fa ctor ory y ov over erhe head. ad... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .. Tota otall cost cost in begi beginn nning ing in inven vento tory.. ry..... ...... ...... ...... ...... ...... ..... ..... ...... ...... ...... ...... ...... Cost added during current period: Cost from preceding department............................................. Materials.. s...................................................................................... Labor. r............................................................................................ Factory overhead. d........................................................................ Tota otall cost added added during during curre current nt period.. period..... ...... ...... ...... ...... ...... ...... ...... ..... .. Total co cost ch charged to to de department .. .................................................. Cost Accounted for as Follows Transferred to Finished Goods:............. From beginning inventory................ Cost to complete this period: Labor .................................... Factory overhead ................. Started and completed this period . Total cost transferred to Finished Goods .......................................... Work Wo rk in Process, ending inventory: inventory: Cost from preceding department .... Materials .. ............................................ Labor .................................................. Factory overhead .............................. Total cost accounted for ........................

Units

Current %

Overhead 50%

30%

Total Cost $ 3,5 3,500 00 240 160 900 90 0 $ 4,8 4,800 00 $21,120 1,440 1,740 10,440 $34,74 $34 ,740 0 $39,540

Quantity 2,000 14,000 16,000 12,000 2,000 2,000 16,000 Equivalent Units*

12,000 12,000 11,600 11,600

Unit Cost**

$1.76 .12 .15 .90 $2.93

Unit Cost

Total Cost $4,800

2,000 2,000 10,000

50% 50% 100%

$ .15 .90 $2.93

150 900

$ 5,850 29,300 $35,150

2,000 2,000 2,000 2,000

100% 100% 30% 30%

$1.76 .12 .15 .90

$3,520 240 90 540

4,390 $39,540

 

Chapter 7

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P7-7 APPENDIX (Concluded) *Number of equivalent units of cost added during the current period determined as follows:

To complete beginning inventory ... Started and completed this period . Ending in inventory............................... Total equivalent units .. .......................

Prior Dept. Co Cost Materials 0 0 10,000 10,000 2,000 2,000 12,000 12,000

Labor 1,000 10,000 600 11,600

Overhead 1,000 10,000 600 11,600

** Cost added during the current period period divided by the number of equivalent units units of cost added during the current period

(2)

Work iin n Pr Process—Refining De Department .................... Work in Process—Distillation Depar tment .. . ......

21,120

Fini Fi nish shed ed Go Good ods s In Inve vent ntor ory y .. .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... Work in Process—Refining Department .. . ..........

35,1 35 ,150 50

21,120 35,150

7-32

Chapter 7

CASES C7-1 C71

Although Althou gh impro improvem vement ent in pro produc ductt quality quality was was clearl clearly y a stated stated goal goal at Star Star Disk  Disk  Corporation, Corpora tion, the company’ company’s s reward reward structure suggests suggests otherwise. otherwise. Emplo Employees yees cannot be expected to put quality first if rewards are dispensed for achieving objectives objecti ves that are often in conflict with quality quality improvement improvement (i.e., (i.e., short-run production volume goals). The quality improvement effort seems to have been focused solely on manufacturing activity, activity, and the approach approach taken seems to have been been to improve improve quality quality by inspecting inspecting it it into the product. product. Such an approach appro ach is inadequate, inadequate, becaus because e it waits too late in the process process (i.e., after costs have been incurred in manufacturing manufacturing defective products, instead of before) and focuses on only one piece of the problem rather than the whole problem. In order order to turn the problem problem around around,, top management management must must become become actively involved. involved. The reward structure should be changed to ensure compatibility with quality goals. Quality teams that include employees employees from all business business functions (product design as well as manufacturing) and all levels (labor as well as management) should be created to help identify quality problems and find ways to solve the identified problems. problems. Top management should actively participate in these teams in order order to emphasize the importance of quality, quality, coordinate efforts between between organization organization units, and provide provide direction. direction. Emplo Employees yees are more likely to become motivated when they understand the importance of quality, and top management participation and leadership underscore that importance. In addition, all employees employees must refocus refocus their efforts on serving their respective customers. The data presented in the case suggest suggest that managers from the different departments put all their attention on meeting production volume goals rather than on on meeting the the needs of their their customers customers (i.e., (i.e., the department department receiving their output). Although Althou gh product inspection inspection should should be continued, continued, emphas emphasis is should be shifted to preventing preventing poor quality quality rather than detecting it. Preve Prevention ntion should should start with product design and extend throughout the entire manufacturing process. proce ss. Some things to be considered considered include: include: (a) red reduc ucin ing g the the numb number er of part parts s requi required red in in the pro produ duct ct;; (b)) us (b usin ing g high higher er qua quali lity ty mat mater eria ials ls;; (c)) us (c usiing st stan anda darrdi dize zed d par parts ts;; (d) usi using ng wellwell-kno known wn prod producti uction on techn technolo ologie gies s where where possi possible ble;; (e)) mi (e mini nimi mizi zing ng re reto tool oliing ngs; s; (f)) (f incr in crea easi sing ng em empl plo oyee tra traiini ning ng;; (g) reor reorgan ganizi izing ng the manuf manufact acturi uring ng facilit facility y from from produc productio tion n departmen departments ts to manufacturing cells to promote teamwork and decrease inventory costs; (h) up upgra gradi ding ng or mo modi difyi fying ng ma mach chin inery ery;; (i) instal ins tallin ling g a stati statisti stical cal pro proces cess s contro controll syste system m to moni monitor tor prod product uction ion qua quallity and reduce production variability variability..

 

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C7-1 (Concluded) A few of the biggest and most urgent problems should be identified and tackled. tackl ed. In order order to achie achieve ve results, results, effort should should be concentrated concentrated on a few few costly problems that can be solved. Tackling too many problems results in dispersed efforts and little observable accomplishment. accomplishment. Improving quality takes time and never ends. The company and its employees need some successes to build confidence and create the momentum needed to turn the quality problem around. C7-2 C72

Productt cost Produc cost may may be incr increasi easing ng as a result result of of an incre increasi asing ng amoun amountt of scrap, scrap, spoilage, spoil age, and rework. rework. Since the costs costs of these these internal internal failures failures are not measmeasured, manage management ment cannot evaluate evaluate the significance significance of the prob problem. lem. In addition, addition, since these costs are not measured, employees have have no incentive to reduce or eliminate elimi nate them. Treatin reating g scrap, scrap, spoil spoilage, age, and rewo rework rk as a normal normal prod production uction cost encoura encourages ges such such waste. waste. As a consequ consequence, ence, overa overall ll costs costs rise. rise. The comcompany’s cost accountants should develop a system of determining the cost of scrap, spoil spoilage, age, and rew rework; ork; imple implement ment the system (i.e., begin measuri measuring ng such such costs); and report report these costs to respons responsible ible manage managers. rs. If the cost of scrap, scrap, spoilage, spoil age, and rework rework is high, high, manage management ment should should initiate initiate a quality quality impro improvevement program that concentrates on preventing these internal failures. This may involve organizing employee quality teams to identify problems and develop solutions, soluti ons, locati locating ng new vendors to obtain higher quality quality materials, materials, redesi redesigning gning products to improve quality, quality, modifying or upgrading manufacturing machinery, machinery, training or retraining employees, employees, and/or reorganizing the production processes.