Cost15EChapter18Solutions.docx
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Cost15EChapter18Solutions.docx
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Cost15EChapter18Solutions
CHAPTER18
SPOILAGE,REWORK,ANDSCRAP
18-1Managershavefoundthatimprovedqualityandintoleranceforhighspoilagehaveloweredoverallcostsandincreasedsales.
18-2Spoilage—unitsofproductionthatdonotmeetthestandardsrequiredbycustomersforgoodunitsandthatarediscardedorsoldatreducedprices.
Rework—unitsofproductionthatdonotmeetthespecificationsrequiredbycustomersbutthataresubsequentlyrepairedandsoldasgoodfinishedunits.
Scrap—residualmaterialthatresultsfrommanufacturingaproduct.Ithaslowtotalsalesvaluecomparedtothetotalsalesvalueoftheproduct.
18-3Yes.Normalspoilageisspoilageinherentinaparticularproductionprocessthatarisesevenunderefficientoperatingconditions.Managementdecidesthespoilagerateitconsidersnormaldependingontheproductionprocess.
18-4Abnormalspoilageisspoilagethatisnotinherentinaparticularproductionprocessandwouldnotariseunderefficientoperatingconditions.Costsofabnormalspoilageare“lostcosts,”measuresofinefficiencythatshouldbewrittenoffdirectlyaslossesfortheaccountingperiod.
18-5Managementeffortcanaffectthespoilagerate.Manycompaniesarerelentlesslyreducingtheirratesofnormalspoilage,spurredonbycompetitorswho,likewise,arecontinuouslyreducingcosts.
18-6Normalspoilagetypicallyisexpressedasapercentageofgoodunitspassingtheinspectionpoint.Givenactualspoiledunits,weinferabnormalspoilageasfollows:
Abnormalspoilage=Actualspoilage–Normalspoilage.
18-7Accountingforspoiledgoodsdealswithcostassignment,ratherthanwithcostincurrence,becausetheexistenceofspoiledgoodsdoesnotinvolveanyadditionalcostbeyondtheamountalreadyincurred.
18-8Yes.Normalspoilageratesshouldbecomputedfromthegoodoutputorfromthenormalinput,notthetotalinput.Normalspoilageisagivenpercentageofacertainoutputbase.Thisbaseshouldneverincludeabnormalspoilage,whichisincludedintotalinput.Abnormalspoilagedoesnotvaryindirectproportiontounitsproducedandtoincludeitwouldcausethenormalspoilagecounttofluctuateirregularlyandnotvaryindirectproportiontotheoutputbase.
18-9Yes,thepointofinspectionisthekeytotheassignmentofspoilagecosts.Normalspoilagecostsdonotattachsolelytounitstransferredout.Thus,ifunitsinendingworkinprocesshavepassedinspection,theyshouldhavenormalspoilagecostsaddedtothem.
18-10No.Ifabnormalspoilageisdetectedatadifferentpointintheproductioncyclethannormalspoilage,thenunitcostswoulddiffer.If,however,normalandabnormalspoilagearedetectedatthesamepointintheproductioncycle,theirunitcostswouldbethesame.
18-11No.Spoilagemaybeconsideredanormalcharacteristicofagivenproductioncycle.Thecostsofnormalspoilagecausedbyarandommalfunctionofamachinewouldbechargedasapartofthemanufacturingoverheadallocatedtoalljobs.Normalspoilageattributabletoaspecificjobischargedtothatjob.
18-12No.Unlesstherearespecialreasonsforchargingnormalreworktojobsthatcontainedthebadunits,thecostsofextramaterials,labor,andsoonareusuallychargedtomanufacturingoverheadandallocatedtoalljobs.
18-13Yes.Abnormalreworkisalossjustlikeabnormalspoilage.Bychargingittomanufacturingoverhead,theabnormalreworkcostsarespreadoverotherjobsandalsoincludedininventorytotheextentajobisnotcomplete.Abnormalreworkisreworkoverandabovewhatisexpectedduringaperiodandisrecognizedasalossforthatperiod.
18-14Acompanyisjustifiedininventoryingscrapwhenitsestimatednetrealizablevalueissignificantandthetimebetweenstoringitandsellingorreusingitisquitelong.
18-15Companiesmeasurescraptomeasureefficiencyandtoalsocontrolatemptingsourceoftheft.Managersofcompaniesthatreporthighlevelsofscrapfocusattentiononwaystoreducescrapandtousethescrapthecompanygeneratesmoreprofitably.Somecompanies,forexample,mightredesignproductsandprocessestoreducescrap.Othersmayalsoexamineifthescrapcanbereusedtosavesubstantialinputcosts.
18-16(5–10min.)Normalandabnormalspoilageinunits.
1.Totalspoiledunits12,600
Normalspoilageinunits,4%170,0006,800
Abnormalspoilageinunits5,800
2.Abnormalspoilage,5,800$11$63,800
Normalspoilage,6,800$1174,800
Potentialsavings,12,600$11$138,600
Regardlessofthetargetednormalspoilage,abnormalspoilageisnonrecurringandavoidable.Thetargetednormalspoilagerateissubjecttochange.Manycompanieshavereducedtheirspoilagetoalmostzero,whichwouldrealizeallpotentialsavings.Ofcourse,zerospoilageusuallymeanshigher-qualityproducts,morecustomersatisfaction,moreemployeesatisfaction,andvariousbeneficialeffectsonnonmanufacturing(forexample,purchasing)costsofdirectmaterials.
18-17(20min.)Weighted-averagemethod,spoilage,equivalentunits.
SolutionExhibit18-17calculatesequivalentunitsofworkdonetodatefordirectmaterialsandconversioncosts.
SOLUTIONEXHIBIT18-17
SummarizetheFlowofPhysicalUnitsandComputeOutputinEquivalentUnits;
Weighted-AverageMethodofProcessCostingwithSpoilage,
GrayManufacturingCompanyforNovember2014.
(Step1)
(Step2)
EquivalentUnits
FlowofProduction
Physical
Units
Direct
Materials
Conversion
Costs
Workinprocess,beginning(given)
Startedduringcurrentperiod
Toaccountfor
Goodunitscompletedandtransferredout
duringcurrentperiod:
Normalspoilage*
100100%;100100%
Abnormalspoilage†
50100%;50100%
Workinprocess,ending‡(given)
2,000100%;2,00030%
Accountedfor
Equivalentunitsofworkdonetodate
1,000
10,150a
11,150
9,000
100
50
2,000
11,150
9,000
100
50
2,000
11,150
9,000
100
50
600
9,750
aFrombelow,11,150totalunitsareaccountedfor.Therefore,unitsstartedduringcurrentperiodmustbe=11,150–1,000=10,150.
*Degreeofcompletionofnormalspoilageinthisdepartment:
directmaterials,100%;conversioncosts,100%.
†Degreeofcompletionofabnormalspoilageinthisdepartment:
directmaterials,100%;conversioncosts,100%.
‡Degreeofcompletioninthisdepartment:
directmaterials,100%;conversioncosts,30%.
18-18(2025min.)Weighted-averagemethod,assigningcosts(continuationof18-17).
SolutionExhibit18-18summarizestotalcoststoaccountfor,calculatesthecostsperequivalentunitfordirectmaterialsandconversioncosts,andassignstotalcoststounitscompletedandtransferredout(includingnormalspoilage),toabnormalspoilage,andtoendingworkinprocess.
SOLUTIONEXHIBIT18-18
SummarizetheTotalCoststoAccountfor,ComputetheCostperEquivalentUnit,andAssignCoststotheUnitsCompleted,SpoiledUnits,andUnitsinEndingWork-in-ProcessInventory;
Weighted-AverageMethodofProcessCosting,
GrayManufacturingCompany,November2014.
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step3)Workinprocess,beginning(given)
Costsaddedincurrentperiod(given)
Totalcoststoaccountfor
(Step4)Costsincurredtodate
Dividedbyequivalentunitsofworkdonetodate
Costperequivalentunit
(Step5)Assignmentofcosts
Goodunitscompletedandtransferredout(9,000units)
$2,533
39,930
$42,463
$1,423
12,180
$13,603
$13,603
11,150
$1.22
$1,110
27,750
$28,860
$28,860
9,750
$2.96
Costsbeforeaddingnormalspoilage
Normalspoilage(100units)
(A)Totalcostofgoodunitscompleted&transf.out
(B)Abnormalspoilage(50units)
(C)Workinprocess,ending(2,000units)
(A)+(B)+(C)Totalcostsaccountedfor
$37,620
418
38,038
209
4,216
$42,463
(9,000#$1.22)+(9,000#$2.96)
(100#$1.22)+(100#$2.96)
(50#$1.22)+(50#$2.96)
(2,000#$1.22)+(600#$2.96)
$13,603+$28,860
#EquivalentunitsofdirectmaterialsandconversioncostscalculatedinStep2inSolutionExhibit18-17.
18-19(15min.)FIFOmethod,spoilage,equivalentunits.
SolutionExhibit18-19calculatesequivalentunitsofworkdoneinthecurrentperiodfordirectmaterialsandconversioncosts.
SOLUTIONEXHIBIT18-19
SummarizetheFlowofPhysicalUnitsandComputeOutputinEquivalentUnits;
First-in,First-out(FIFO)MethodofProcessCostingwithSpoilage,
GrayManufacturingCompanyforNovember2014.
(Step1)
(Step2)
EquivalentUnits
FlowofProduction
Physical
Units
Direct
Materials
Conversion
Costs
Workinprocess,beginning(given)
Startedduringcurrentperiod
Toaccountfor
Goodunitscompletedandtransferredoutduringcurrentperiod:
Frombeginningworkinprocess||
1,000(100%100%);1,000(100%50%)
Startedandcompleted
8,000100%;8,000100%
Normalspoilage*
100100%;100100%
Abnormalspoilage†
50100%;50100%
Workinprocess,ending‡
2,000100%;2,00030%
Accountedfor
Equivalentunitsofworkdoneincurrentperiod
1,000
10,150a
11,150
1,000
8,000#
100
50
2,000
____
11,150
0
8,000
100
50
2,000
10,150
500
8,000
100
50
600
9,250
aFrombelow,11,150totalunitsareaccountedfor.Therefore,unitsstartedduringcurrentperiodmustbe11,150–1,000=10,150.
||Degreeofcompletioninthisdepartment:
directmaterials,100%;conversioncosts,50%.
#9,000physicalunitscompletedandtransferredoutminus1,000physicalunitscompletedandtransferredoutfrombeginningwork-in-processinventory.
*Degreeofcompletionofnormalspoilageinthisdepartment:
directmaterials,100%;conversioncosts,100%.
†Degreeofcompletionofabnormal
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