Cost Accounting, 15e (Horngren/Datar/Rajan)

Chapter 18 Spoilage, Rework, and Scrap Objective 18.1

1) Spoilage refers to ________.

A) units of production that do not meet the specifications required by customers but that are
subsequently repaired and sold as good finished units

B) units of production whether fully or partially completed, that do not meet the specifications
required by customers for good units and are discarded or sold at reduced prices
C) residual material that results from manufacturing a product

D) products of a joint production process that have low total sales values relative to the total
sales value of the main product

Answer: B

2) Rework refers to ________.

A) units of production that do not meet the specifications required by customers but that are
subsequently repaired and sold as good finished units

B) products of a joint production process that have low total sales values relative to the total
sales value of the main product

C) units of production whether fully or partially completed, that do not meet the specifications
required by customers for good units and are discarded or sold at reduced prices
D) residual material that results from manufacturing a product

Answer: A

3) Which of the following is an example of spoilage?

A) short lengths from woodworking operations
B) edges from plastic molding operations

C) defective units of laptops detected after the production process but reworked before the units
are sold as good products to customers

D) defective aluminum cans sold to aluminum manufacturers for remelting to produce other
aluminum products

Answer: D
4) Scrap is ________.
A) units of production that do not meet the specifications required by customers but that are
subsequently repaired and sold as good finished units

B) products of a joint production process that have low total sales values relative to the total
sales value of the main product
C) residual material that results from manufacturing a product

D) units of production whether fully or partially completed, that do not meet the specifications
required by customers for good units and are discarded or sold at reduced prices

Answer: C

5) A production process which involves spoilage and rework occurs in ________.

A) the manufacture of high precision machine tools
B) the manufacture of semiconductor units
C) the manufacture of clothing
D) the mining industry

Answer: A

6) Which of the following is an example of scrap?

A) short lengths from woodworking operations

B) defective units of laptops detected after the production process but reworked before the units
are sold as good products to customers

C) defective aluminum cans sold to aluminum manufacturers for remelting to produce other
aluminum products
D) defective shirts, jeans, shoes, and carpeting sold as seconds

Answer: A

7) Spoilage that is an inherent result of the particular production process and arises
even under efficient operating conditions is referred to as ________.
A) incremental spoilage
B) normal spoilage
C) irregular spoilage
D) direct spoilage

Answer: B

8) Spoilage that is not inherent in a particular production process and would not
arise under efficient operating conditions is referred to as ________.
A) incremental spoilage
B) usual spoilage
C) abnormal spoilage
D) indirect spoilage

Answer: C

9) Costs of normal spoilage are usually accounted for as ________.

A) a deduction from the cost of goods sold
B) a component of the costs of good units manufactured
C) a "loss from normal spoilage account" in income statement
D) a liability on a balance sheet

Answer: B

10) Costs of abnormal spoilage are usually accounted for as ________.

A) a deduction from the cost of goods sold
B) a component of the costs of good units manufactured
C) a separate line item in an income statement
D) an asset on a balance sheet
Answer: C
11) The loss from abnormal spoilage account would appear ________.
A) on a balance sheet
B) as a detailed item in the retained earnings schedule of a balance sheet
C) a separate line item on an income statement
D) a deduction from the cost of goods sold

Answer: C

12) Normal spoilage rates are computed by ________.

A) dividing the units of normal spoilage by total actual units started into production
B) dividing the units of normal spoilage by total good units completed
C) dividing total actual units started into production by the units of normal spoilage
D) dividing total good units completed by the units of normal spoilage

Answer: B

13) Companies that attempt to achieve zero defects in the manufacturing process
treat spoilage as ________.
A) scrap
B) reworked units
C) abnormal spoilage
D) indirect spoilage

Answer: C

14) Which one of the following conditions usually exists when comparing normal
and abnormal spoilage to controllability? Normal Spoilage Abnormal Spoilage
A) Controllable Controllable
B) Controllable Uncontrollable
C) Uncontrollable Uncontrollable
D) Uncontrollable Controllable
Answer: D c

Allocation of Joint Costs and Accounting for By-Products

15.If a company obtains two salable products from the refining of one ore, the refining process
should beaccounted for as a(n)
a.mixed cost process.
b.joint process.
c.extractive process.
d.reduction process.
ANS:B
2.Joint costs are allocated to joint products to

a. obtain a cost per unit for financial statement purposes.

b. provide accurate management information on production costs of each type of
product.

c. compute variances from expected costs for each joint product.

d. allow the use of high-low analysis by the company.

ANS: A

4.Joint cost allocation is useful for

a. decision making.

b. product costing.

c. control.

d. evaluating managers' performance.

ANS: B

5. Joint costs are useful for

a. setting the selling price of a product.

b. determining whether to continue producing an item.

c. evaluating management by means of a responsibility reporting system.

d. determining inventory cost for accounting purposes.

ANS: D

6.Which of the following components of production are allocable as joint costs when a single
manufacturing process produces several salable products?

a. direct material, direct labor, and overhead

b. direct material and direct labor only

c. direct labor and overhead only

d. overhead and direct material only

ANS: A

7.Each of the following is a method to allocate joint costs except

a. relative sales value.

b. relative net realizable value.

c. relative weight, volume, or linear measure.

d. average unit cost.

ANS: D

8.Joint costs are most frequently allocated based upon relative

a. profitability.

b. conversion costs.

c. prime costs.

d. sales value.

ANS: D

9.When allocating joint process cost based on tons of output, all products will

a. be salable at split-off.

b. have the same joint cost per ton.

c. have a sales value greater than their costs.

d. have no disposal costs at the split-off point.

ANS: B
10. If two or more products share a common process before they are separated, the joint costs
should be assigned in a manner that

a. assigns a proportionate amount of the total cost to each product on a quantitative

basis.

b. maximizes total earnings.

c. minimizes variations in unit production costs.

d. does not introduce an element of estimation into the process of accumulating costs
for each product.

ANS: A

11. Scrap is defined as a

a. finished unit of product that has no sales value.

b. residual of the production process that has limited sales value.

c. residual of the production process that can be reworked for sale as an irregular unit
of product.

d. residual of the production process that has no sales value.

ANS: B
Process costing
Cost of previous department is a part of
transferred-in costs
transferred-out costs
FIFO costs
LIFO costs
Answer A
Total costs incur in a production process, is divided by total number of output
units, to calculate the
cost of indirect labor
cost of direct labor
cost of direct material
unit costs
Answer D
A unit cost calculated in costing system, by assigning total costs incurred to many
similar units is categorized as
accounting period costing system
process costing system
job costing system
none of above
Answer B
Cost accounting mainly helps the management in
Earning profit
Providing information to management
Fixing prices of the products
All of the above
Answer B

Cost accounting provides all of the following information except

Product cost
Cost of goods sold
Inventory values
Cash forecasts
Answer D
3. Which of the following is cost – behavior oriented approach to product costing
Absorption cost
Process costing
Marginal costing.
Job – order costing
Answer B
 An item of cost that is direct for one business may be ……….for another business.
Direct
Indirect
Variable
Fixed

Answer B

The total of all direct expense is known as ……………… cost

Prime cost
Factory cost
Selling cost
Cost of products

Answer A

…………… costs are partly fixed and partly variable in relation to

Output
Variable
Fixed
Semi – variable
Marginal

Answer C

An opportunity cost is ……………………

The advantage foregone
Additional income
Cost incurred in post
Cost for replacement

Answer A

8. An opportunity cost does not involve

Incomes
Expenses
Cash outlays
Losses
Answer C
9. Total variable cost change ……….. With change in output

Constantly
Not proportionately
Proportionately
Answer C

10. Fixed cost per unit …………. With increase in output

Increases
Not –increase
Reduces
Not decrease

Answer C

Inventory Management
1) Which of the following industries would have the highest cost of goods sold percentage
relative to sales?
A) computer manufacturers
B) retail organizations
C) drug manufacturers
D) The percentage will usually depend on the success of a particular company.
Answer: B
2) The costs of goods acquired from suppliers including incoming freight or transportation costs
are:
A) purchasing costs
B) ordering costs
C) stockout costs
D) carrying costs
Answer: A

3) The costs of preparing, issuing, and paying purchase orders, plus receiving and inspecting the
items included in orders is:
A) purchasing costs
B) ordering costs
C) stockout costs
D) carrying costs
Answer: B
4) The costs that result from theft of inventory are:
A) shrinkage costs
B) external failure costs
C) stockout costs
D) costs of quality
Answer: A

5) The costs that result when a company runs out of a particular item for which there is a
customer demand are:
A) shrinkage costs
B) shortage costs
C) stockout costs
D) EOQ estimation costs
Answer: C
6) The costs that result when features and characteristics of a product or service are NOT in
conformance with the specifications are:
A) inspection costs
B) costs of quality
C) purchasing costs
D) design costs
Answer: B

7) The costs that result when a company holds an inventory of goods for sale:
A) purchasing costs
B) carrying costs
C) opportunity costs
D) interest costs
Answer: B
8) Quality costs include:
A) purchasing costs
B) ordering costs
C) stockout costs
D) prevention costs
Answer: D
2) The costs associated with storage are an example of which cost category?
A) quality costs
B) labor costs
C) ordering costs
D) carrying costs
Answer: D