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Kinney and Raiborn - Chapter 6

Cost Accounting (Polytechnic University of the Philippines)

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LO.2; LO.4 & LO.8 (Appendix 2; WA; normal and abnormal loss) Turkburg produces frozen turkey
patties. In the Forming Department, ground turkey is formed into patties and cooked; an acceptable
shrinkage loss for this department is 1 percent of the pounds started. Th e patties are then transferred to
the Finishing Department where they are placed on buns, boxed, and frozen. Turkburg uses a weighted
average process costing system and has the following production and cost data for the Forming
Department for May 2010:

Beginning WIP Inventory (80% complete as to conversion) 2,000 pounds

Started 250,000 pounds
Transferred to Finishing (357,300 patties) 238,200 pounds
Ending inventory (30% complete as to conversion) 6,000 pounds
Beginning inventory cost of turkey $ 1,807
May cost of turkey $240,208
Beginning inventory conversion cost $ 150
May conversion cost $ 24,380

a. What is the total shrinkage (in pounds)?

b. How much of the shrinkage is classified as normal? How is it treated for accounting purposes?
c. How much of the shrinkage is classified as abnormal? How is it treated for accounting purposes?
d. What are the May 2010 equivalent units of production in the Forming Department for direct materials
and conversion?
e. What is the total cost of the patties transferred to the Finishing Department? Cost of ending inventory?
Cost of abnormal spoilage?
f. How might Turkburg reduce its shrinkage loss? How, if at all, would your solution(s) affect costs and
selling prices?
g. What might have been the cause of the abnormally high spoilage in May? Use calculations to support
your answer.

65.a
.Be
ginni
ngpounds 2,
000
St
art
ed 250,
000
Poundst
oac
countf
or 252,
000
Poundst
rans
fer
red (
238,
200)
Poundsi
nEI (
6,000)
Poundsofs
hri
nka
ge 7,
800

b
.Nor malshr
inka
ge=250,000×0. 01=2,500pounds
Forac
counti
ngpurpos
es,nor
ma lshr
inkag
eissi
mplyignor
ed,whi
chme
ansi
tsc
ost
swi
ll
bes pr
eadoveral
lgoodunit
sproduced.

c
.Abnormalshri
nkage=7,800–2,
500=5,300pounds
Thec
ostofabnor
ma ls
hrinka
gei
str
eat
edasalossoft
hepe
riod
.

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d
. To
tal Ma
ter
ial Con
ver
si
on
Be
ginni
ngWI
PIn
vent
ory 2,
000
St
art
ed 250,
000
Uni
tst
oac
countf
or 252,
000

Be
ginni
ngWI
PIn
vent
ory 2,
000 2,
000 2,
000
St
art
ed&c
ompl
et
ed 236,
200 236,
200 236,
200
Endi
ngWI
PIn
vent
ory 6,
000 6,
000 1,
800
Nor
mall
oss 2,
500
Abnor
mall
oss 5,
300 5,
300 5,
300
EUP(
WA) 252,
000 249,
500 245,
300

e
. To
tal Ma
ter
ial Con
ver
si
on
Be
ginni
ngWI
Pcos
ts $ 1,
957 $ 1,
807 $ 150
Cur
rentc
ost
s 264,
588 240,
208 24,
380
To
talc
ost
s $266,
545 $242,
015 $24,
530
Di
videb
yEUP ÷249,
500 ÷245,
300
Cos
tpe
rEUP $1.
07 $0.
97 $0.
10

Tr
ans
fer
redout(
238,
200 $1.
07) $254,
874
Endi
ngi
nve
ntor
y:
Ma
ter
ial(
6,000 $0.
97) $5,
820
Con
ver
si
on(
1,800 $0.
10) 180 6,
000
Abnor
mals
poi
la
ge(
5,300 $1.
07) 5,
671
To
talc
osta
ccount
edf
or $266,
545

f
.Thee a
s i
estwaytor e
duc eshrinkagelos
sistobu yhighe
rq uali
tyturk
eyatah i
gherin
put
cos
tpe rpound.Thehi gherqua l
it
ywoul dhav
eal owe rf
atcontentandwouldshri
nkless
.
Becauseoft her
e duce
ds hr
inkage,conver
si
onc ostperpoundoffinishedproductmi
ght
dec
li
ne ,andthecompan ywouldpr obabl
ybeabletoselli
tsproducta
tah i
gherpri
ce.

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g
.Thea ppr
oxi
ma t
ec ostofApr iltur
keywa s$1.
13perpound($1,807BIc os toft ur
key÷
1,600EUPpoundsi nBI ),whil
ethea ve
ragecos
tperpoundinMa ywa sa pproximate
ly
$0.97perpound.Itishi ghl
yl i
kel
ythatbuyingt
hel o
wer-
pric
edgr oundt urke
ywa sthe
causeofthea bnorma l
ly hi
ghs poil
agerate
.Thei nf
ormati
on ont hec ostdiffere
nces
betweenApri
landMa yisnotclea
rwhe nusi
ngweigh
tedave
rageprocessc
os ti
ng.

LO.2 & LO.8 (Appendix 2; WA; normal and abnormal discrete spoilage) LaToya Company produces
door pulls, which are inspected at the end of production. Spoilage may occur because the door pull is
improperly stamped or molded. Any spoilage in excess of 3 percent of the completed good units is
considered abnormal. Direct material is added at the start of production. Labor and overhead are incurred
evenly throughout production.

Th e company’s May 2010 production and cost data follow:

Beginning WIP Inventory (50% complete) 5,600
Units started 74,400
Good units completed 70,000
Ending WIP Inventory (1/3 complete) 7,500

DM Conversion Total
Beginning inventory $ 6,400 $ 1,232 $ 7,632
Current period 74,400 31,768 106,168
Total $80,800 $33,000 $113,800

Calculate the equivalent units schedule, prepare a weighted average cost of production report, and assign
all costs. LaToya extends both the normal and abnormal spoilage units in the EUP schedule to all cost
components that have been incurred to the point of detection (100 percent completion). Th e cost of
normal spoilage is attached to the units transferred to Finished Goods Inventory; the cost of abnormal
spoilage is considered a period loss.

68.Ma
ximum nor
mals
poi
la
ge=70,
000×0.
03=2,
100uni
ts

La
Toy
aCompa
ny
Cos
tofPr
oduc
ti
onRe
por
t
Fort
heMont
hEnde
dMa
y31,2013

Uni
ts Ma
ter
ial Con
ver
si
on
Be
ginni
ngWI
PIn
vent
ory 5,
600
Uni
tss
tar
ted 74,
400
Uni
tst
oac
countf
or 80,
000

Be
ginni
ngWI
PIn
vent
ory 5,
600 5,
600 5,
600
St
art
ed&c
ompl
et
ed 64,
400 64,
400 64,
400

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Endi
ngWI
PIn
vent
ory 7,
500 7,
500 2,
500
Nor
mals
poi
la
ge 2,
100 2,
100 2,
100
Abnor
mals
poi
la
ge 400 400 400
Uni
tsa
ccount
edf
or 80,
000 80,
000 75,
000

To
tal Ma
ter
ial Con
ver
si
on
Be
ginni
ngWI
PIn
vent
ory $ 7,
632 $6,
400 $ 1,
232
Cur
rentc
ost
s 106,
168 74,
400 31,
768
Cos
ttoa
ccountf
or $113,
800 $80,
800 $33,
000
Di
vide
dbyEUP ÷80,
000 ÷75,
000
Cos
tpe
rEUP $1.
45 $1.
01 $0.
44

Cos
tAs
signme
nt:
Uni
tsc
ompl
et
ed(
70,
000×$1.
45) $101,
500
Nor
mals
poi
la
ge:
*
Di
rec
tma
ter
ial(
2,100×$1.
01) $2,
121
Con
ver
si
on(
2,100×$0.
44) 924 3,
045 $104,
545
Endi
ngi
nve
ntor
y:
Di
rec
tma
ter
ial(
7,500×$1.
01) $ 7,
575
Con
ver
si
on(
2,500×$0.
44) 1,
100 8,
675
Abnor
mals
poi
la
ge:
*
Di
rec
tma
ter
ial(
400×$1.
01) $ 404
Con
ver
si
on(
400×$0.
44) 176 580
To
talc
osta
ccount
edf
or $113,
800

*Spoi
lagewa sfoundatthee
ndofthepr
oduct
ionpro
c es
swhe nunit
sareful
lycomplet
e;thus
,
computa
tionscou l
dhavebeenmadeatt
heful
lcostof$1.
45pe runi
t.Hadthespoi
lag
ebe enf
oundear
li
er,
theDM andc onvers
ionwouldno
thavebee
natthesames t
ageo fpr
oduct
ionandsepar
atecal
cul
at
ions
wouldhavebe e
nne eded
.

LO.3 & LO.8 (Appendix 2; FIFO; normal and abnormal discrete spoilage) Use the LaToya Company
data given in Problem 66. However, assume that the spoiled goods were detected when conversion was
30 percent complete. Prepare a May 2010 cost of production report using the FIFO method. Th e cost of

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normal spoilage is attached to the units transferred to Finished Goods Inventory; the cost of abnormal
spoilage is considered a period loss. Round all cost calculations to the nearest penny.

.Ma
ximum nor
mals
poi
la
ge=70,
000×0.
03=2,
100un
its

La
Toy
aCompa
ny
Cos
tofPr
oduc
ti
onRe
por
t
Fort
heMont
hEnde
dMa
y31,2013

Uni
ts Ma
ter
ial Con
ver
si
on
Be
ginni
ngWI
PIn
vent
ory 5,
600
Uni
tss
tar
ted 74,
400
Uni
tst
oac
countf
or 80,
000

Be
ginni
ngWI
PIn
vent
ory 5,
600 0 2,
800
St
art
ed&c
ompl
et
ed 64,
400 64,
400 64,
400
Endi
ngWI
PIn
vent
ory 7,
500 7,
500 2,
500
Nor
mals
poi
la
ge 2,
100 2,
100 630
Abnor
mals
poi
la
ge 400 400 120
Uni
tsa
ccount
edf
or 80,
000 74,
400 70,
450

To
tal Ma
ter
ial Con
ver
si
on
Be
ginni
ngWI
PIn
vent
ory $ 7,
632
Cur
rentc
ost
s 106,
168 $74,
400 $31,
768
To
talc
ostt
oac
countf
or $113,
800
Di
vide
dbyEUP ÷74,
400 ÷70,
450
Cos
tpe
rEUP $1.
45 $1.
00 $0.
45*
*Rounde
d

Cos
tAs
signme
nt:
Tr
ans
fer
redou
t:

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Be
ginni
ngWI
PIn
vent
oryc
ost $ 7,
632.
00
Cos
ttoc
ompl
et
e
Con
ver
si
on(
2,800×$0.
45) 1,
260.
00
To
talc
ostofBI $ 8,
892.
00
St
art
ed&c
ompl
et
ed(
64,
400×$1.
45) 93,
380.
00
Nor
mals
poi
la
ge:*
Di
rec
tma
ter
ial(
2,100×$1.
00) $2,
100.
00
Con
ver
si
on(
630×$0.
45) 283.
50 2,
383.
50
To
talc
ostt
rans
fer
redout $104,
655.
50
Endi
ngWI
PIn
vent
ory
:
Di
rec
tma
ter
ial(
7,500×$1.
00) $7,
500.
00
Con
ver
si
on(
2,500×$0.
45) 1,
125.
00 8,
625.
00
Abnor
mals
poi
la
ge:
Di
rec
tma
ter
ial(
400×$1.
00) $ 400.
00
Con
ver
si
on(
120×$0.
45) 54.
00 454.
00
To
talc
osta
ccount
edf
or(
offduet
oroundi
ng) $113,
734.
50

LO.2, LO.4, & LO.8 (Appendix 2; WA; normal and abnormal discrete spoilage)
Strongarm manufactures various lines of bicycles. Because of the high volume of each type of product,
the company employs a process cost system using the weighted average method to determine unit costs.
Bicycle parts are manufactured in the Molding Department and transferred to the Assembly Department
where they are partially assembled. After assembly, the bicycle is sent to the Packing Department.

Annual cost and production figures for the Assembly Department follow:

PRODUCTION DATA

Beginning WIP Inventory (100% complete as to transferred in;

100% complete as to material; 80% complete as to conversion) 3,000 units
Transferred in during the year (100% complete as to transferred in) 45,000 units
Transferred to Packing 40,000 units
Ending WIP Inventory (100% complete as to transferred in;
50% complete as to material; 20% complete as to conversion) 4,000 units

COST DATA
Transferred In Direct Material Conversion
Beginning WIP Inventory $ 82,200 $ 6,660 $ 13,930
Current period 1,237,800 96,840 241,430
Totals $1,320,000 $103,500 $255,360

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Damaged bicycles are identified on inspection when the assembly process is complete. The normal
rejection rate for damaged bicycles is 5 percent of those reaching the inspection point. Any damaged
bicycles above the 5 percent quota are considered to be abnormal. Damaged bikes are removed from the
production process, and, when possible, parts are reused on other bikes. However, such salvage is
ignored for the purposes of this problem.

Strongarm does not want to assign normal spoilage cost either to the units in ending inventory (because
they have not yet been inspected) or to the bikes that are considered “abnormal spoilage.” Th us, the
company includes both normal and abnormal spoilage in the equivalent units’ schedule (at the
appropriate percentage of completion). The cost of the normal spoilage is then added to the bikes
transferred to the Packing Department. Abnormal spoilage is treated as a period loss.

a. Compute the number of damaged bikes that are considered to be

1. Normal spoilage.
2. Abnormal spoilage.
b. Compute the weighted average equivalent units of production for the year for
1. Bicycles transferred in from the Molding Department.
2. Bicycles produced with regard to Assembly material.
3. Bicycles produced with regard to Assembly conversion.
c. Compute the cost per equivalent unit for the fully assembled bicycle.
d. Compute the amount of total production cost that will be associated with the following items:
1. Normal damaged units.
2. Abnormal damaged units.
3. Good units completed in the Assembly Department.
4. Ending Work in Process Inventory in the Assembly Department.
e. What amount will be transferred to the Packing Department?
f. Discuss some potential reasons for spoilage to occur in this company. Which of these reasons would
you consider important enough to correct and why? How might you attempt to correct these problems?

67.a
.Be
ginni
ngi
nve
ntor
y 3,
000
Tr
ans
fer
redi
n 45,
000
Uni
tst
oac
countf
or 48,
000

Tr
ans
fer
redout 40,
000
Endi
ngi
nve
ntor
y 4,
000
Bi
kesl
ost 4,
000
Uni
tsa
ccount
edf
or 48,
000

(
1) Bi
kespa
ssi
ngt
hrou
ghAs
sembl
y 48,
000
Mi
nusbi
kesi
nEI(
hav
eno
tre
ache
dthe
i
nspe
cti
onpoi
nt,s
othe
rei
snowa
y
t
ode
ter
minea
cce
pta
bil
it
y) (
4,000)
Bi
kesr
eac
hin
gthei
nspe
cti
onpoi
nt 44,
000

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 lOMoARcPSD|4494859

Nor
malde
fec
ti
ver
ate ×0.
05
Nor
malnumbe
rofde
fec
ti
vebi
kes 2,
200

(
2) To
talbi
kesl
ost 4,
000
Nor
malnumbe
rofde
fec
ti
vebi
kes (
2,200)
Abnor
malnumbe
rofde
fec
ti
vebi
kes 1,
800

b
. Uni
ts Tr
ans
.In Ma
ter
ial Con
ver
si
on
Tr
ans
fer
redout 40,
000 40,
000 40,
000 40,
000
Endi
ngWI
P
I
nve
ntor
y 4,
000 4,
000 2,
000 800
Nor
mall
oss 2,
200 2,
200 2,
200 2,
200
Abnor
mall
oss 1,
800 1,
800 1,
800 1,
800
EUP(
WA) 48,
000 48,
000 46,
000 44,
800

c
. To
tal Tr
ans
.In Ma
ter
ial Con
ver
si
on
Be
ginni
ngWI
P $ 102,
790 $ 82,
200 $ 6,
660 $13,
930
Cur
rentc
ost
s 1,
576,
070 1,
237,
800 96,
840 241,
430
To
talc
ost $1,
678,
860 $1,
320,
000 $103,
500 $255,
360
Di
vide
dbyEUP ÷48,
000 ÷46,
000 ÷44,
800
Cos
tpe
rEUP $35.
45 $27.
50 $2.
25 $5.
70

d.(
1) Normalde
fec
ti
vebi
kes
:2,
200×$35.
45=$77,
990(
none
edt
oma
keaf
orma
lcos
tof
pr
oduct
ionr
eport
)

(
2) Abnor
malde
fec
ti
vebi
kes
:1,
800×$35.
45=$63,
810

(
3) Goodbi
kesc
ompl
et
ed:40,
000×$35.
45=$1,
418,
000+77,
990

(
4)Endi
ngWI
PIn
vent
ory

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 lOMoARcPSD|4494859

Tr
ans
fer
redi
n(4,
000×$27.
50) $110,
000
Ma
ter
ial(
2,000×$2.
25) 4,
500
Con
ver
si
on(
800×$5.
70) 4,
560
To
tal $119,
060

e
.Totalcostt
rans
fer
red=Costofgoodbi
kes+Normalspoi
la
gec
ost=$1,
418,
000+$77,
990
=$1,495,
990(oranav
era
gec os
tperbi
keof$37.
40)

f
.Nor ma lspoila
g ec ostisa ne xpec
tedc os
tofpr oduc i
ngg oodunit
s.Ass uch,itisno ta n
extr
ac ostbutthou ghttobei nherentinproduc i
ngg oodunits
.Norma ls
poil
a g
ema yoc c
ur
becauseofma terialorl aborq ua
li
ty,ma c
hinema l
functi
ons,orhumane r
ror.Ma nag
eme nt
should do cost-benefits t
udiesto deter
mi nei fiti seconomical
lysensibl
et or educ e
spoil
age.Threeq uest
ionss houldbea ddr
essed:(1)Wha tdoesthespoi
lageactual
lyc ost?
(2)Wh ydoe sitoc cur
?( 3)Ho wc anitbecon t
roll
ed?
(
CMAa dapted)

LO.5 (Standard process costing; variances) Alberton Co. uses a standard costing system to account
for its production of toys. Plastic is added at the start of production; labor and overhead are incurred at
equal rates throughout the process. The standard cost of one toy is as follows:

Direct material $ 0.10

Direct labor 0.02
Overhead 0.09
Total cost $ 0.21

The following production and cost data are applicable to April 2010:

Beginning WIP Inventory (45% complete) 180,000 units

Units started in April 1,300,000 units
Ending WIP Inventory (65% complete) 144,000 units

Current cost of direct material $ 184,000

Current cost of direct labor 27,126
Current cost of overhead 118,500

a. What amount is carried as the April beginning balance of WIP Inventory?

b. What amount is carried as the April ending balance of WIP Inventory?
c. What amount is transferred to Finished Goods Inventory for April?
d. What are the total direct material, direct labor, and overhead variances for April?
e. Record the journal entries to recognize the direct material, direct labor, and overhead variances.

a
.DM (
180,
000×100% ×$0.
10) $18,
000
CC(
180,
000×45% ×$0.
11) 8,
910
To
talc
osti
nBI $26,
910

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 lOMoARcPSD|4494859

b
.DM (
144,
000×100% ×$0.
10) $14,
400
CC(
144,
000×65% ×$0.
11) 10,
296
To
talc
osti
nEI $24,
696

c
.Be
ginni
ngWI
PIn
vent
ory 180,
000
St
art
ed 1,
300,
000
Uni
tst
oac
countf
or 1,
480,
000

To
taluni
tst
oac
countf
or 1,
480,
000
Endi
ngWI
PIn
vent
ory (
144,
000)
Uni
tst
rans
fer
redout 1,
336,
000

Cos
ttr
ans
fer
redout=1,
336,
000×$0.
21=$280,
560

d
. Ma
ter
ial La
bor OH
Toc
ompl
et
eBI(
uni
ts
) 0 99,
000 99,
000
St
art
ed&c
ompl
et
ed 1,
156,
000 1,
156,
000 1,
156,
000
Endi
ngi
nve
ntor
y 144,
000 93,
600 93,
600
Eq
uiv
ale
ntuni
ts(
FIFO) 1,
300,
000 1,
348,
600 1,
348,
600
Mul
ti
plyb
yuni
tcos
t ×0.
10 ×0.
02 ×0.
09
St
anda
rdc
ostofpe
riod $130,
000 $ 26,
972 $121
,374
Ac
tua
lcos
tofpe
riod (
184,
000) (
27,
126) (
118,
500)
Va
ria
nce $(
54,
000)U $ (
154)U $ 2,
874F

e
.Wor
kinPr
oce
ssI
nve
ntor
y 130,
000
Ma
ter
ialVa
ria
nce 54,
000
Ra
wMa
ter
ialI
nve
ntor
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