Upload
nafisah-mambuay
View
67
Download
1
Tags:
Embed Size (px)
DESCRIPTION
Ch07SM
Citation preview
CHAPTER 7
DISCUSSION QUESTIONS
7-1
Q7-1. Quality costs may be grouped into the follow-ing three classifications:1. Prevention costs are the costs incurred to
prevent product failure. They include thecost of designing high quality productsand production systems, including thecosts of implementing and maintainingsuch systems.
2. Appraisal costs are the costs incurred todetect product failure. They include thecost of inspecting and testing materials,inspecting products during production,and the cost of obtaining information fromcustomers about product satisfaction.
3. Failure costs are the costs incurred when aproduct fails, and may occur internally orexternally. Internal failure costs are thosethat occur during the manufacturing or pro-duction process (e.g., scrap, spoilage, andrework), and external failure costs arethose that occur after the product hasbeen sold (e.g., warranty repairs andreplacements, sales refunds, handlingcustomer complaints, and lost salesresulting from poor product quality).
Q7-2. TQM stands for total quality management,which is a company-wide approach to qualityimprovement in all processes and activities.TQM is a pervasive philosophy of doing busi-ness that applies to all functional areas of thecompany and to all personnel.
Q7-3. Five characteristics of TQM systems are:1. The company’s objective for all business
activity is to serve its customers. The term“product” is extended to include servicesas well as goods, and “customer” includesinternal users as well as those outside ofthe company who purchase the company’sproducts. Each employee’s activity is ori-ented to providing service to the customer.
2. Top management provides an activeleadership role in the quality improvementmovement.
3. All employees are actively involved inquality improvement. Employees are notonly asked to contribute ideas, but also to
find better ways of doing things.Involvement can be successful only whenthere is encouragement and an open andhonest environment of trust.
4. The company has a system of identifyingquality problems, developing solutions,and setting quality improvement objec-tives. This typically involves organizingemployees from all ranks and from differ-ent organizational units along with man-agers who have authority to take thenecessary action to solve problems.
5. The company places a high value on itsemployees and provides continuous train-ing, as well as recognition for achieve-ment. Employees perform best when theyare well trained, and they have the great-est capacity to contribute when they arehighly educated.
Q7-4. The concept of continuous quality improvementdiffers from the concept of quality optimizationin that continuous quality improvement is adynamic process of change under the assump-tion that the ideal is not an absolute knownvalue; whereas quality optimization is a staticapproach to finding the best solution to agiven set of fixed and known constraints.
Q7-5. The first problem with trying to inspect qualityinto the product is that it detects internal fail-ures only after considerable cost has beenincurred.The second problem is that the mag-nitude of the cost of the internal failures,detected by inspection, is rarely measuredand typically ignored.
Q7-6. Companies should concentrate their effortson preventing poor quality rather than on try-ing to inspect it into the process, because itwill result in less total quality cost. Theapproach is founded on the belief that byincreasing prevention costs, the cost of inter-nal failures—such as scrap, spoilage, rework,and downtime—will decline by a largeramount than the increase in prevention costs.
Q7-7. Quality costs should be measured andreported to management in order to provideincentive and direction for improving quality.
Large quality costs indicate large opportuni-ties for improvement. Also, measurementsprovide a basis for monitoring the cost ofquality and evaluating improvements.
Q7-8. Scrap includes (1) the filings and trimmingsremaining after processing materials, (2)defective materials that cannot be used orreturned to the vendor, and (3) broken partsresulting from employee errors or machinefailures. Spoiled goods differ from scrap inthat they are partially or fully completed unitsthat are in some way defective and are noteconomically or physically correctable.Spoiled goods may be units of the product orcomponent parts, and they may or may nothave a salvage value. Rework is the processof correcting defective manufactured goods.
Q7-9. The cost of scrap, spoilage, and reworkshould not be ignored, because such costs
are often quite high and often result frominternal failures that can be eliminated.Ignoring the cost of these internal failuressends a signal to managers that such costsare acceptable. Reporting such costs pro-vides incentive for improvement, particularly ifthe costs are large.
Q7-10. In order to know what to do with the cost, theaccountant must know whether the spoilage orrework is caused by the customer or by aninternal failure. If spoilage or rework is theresult of a customer requirement, the unrecov-erable cost should be charged to the job. Onthe other hand, if the spoilage or rework is theconsequence of an internal failure, the unre-coverable cost should be removed from the job(i.e., charged to Factory Overhead Control)and reported to responsible management.
7-2 Chapter 7
EXERCISES
E7-1(1) Accounts Receivable ................................................... 1,650
Scrap Sales (or Other Income)........................... 1,650
(2) Accounts Receivable ................................................... 1,650Cost of Goods Sold............................................. 1,650
(3) Accounts Receivable ................................................... 1,650Factory Overhead Control ................................. 1,650
(4) Accounts Receivable ................................................... 1,650Work in Process ................................................. 1,650
E7-2 Spoiled Goods Inventory ............................................. 120Factory Overhead Control ........................................... 112
Work in Process ................................................. 232
E7-3 $27,000 total job cost/1,000 chairs = $27 cost per chair
Spoiled Goods Inventory ($10 × 100 chairs).............. 1,000Factory Overhead Control (($27 – $10) × 100)........... 1,700Finished Goods Inventory ($27 × 900 chairs)............ 24,300
Work in Process ................................................. 27,000
E7-4 Spoiled goods inventory ($100 × 100 units) .............. 10,000Cost of Goods Sold...................................................... 94,000
Work in Process ................................................. 104,000
E7-5 Factory Overhead Control ........................................... 700Materials (100 units × $1.50)............................... 150 Payroll (100 units × 1/4 hour × $10 per hour) ... 250 Applied Factory Overhead
(100 × 1/4 hr × $12 rate) ............................. 300
Finished Goods Inventory ........................................... 6,600Work in Process ................................................. 6,600
Chapter 7 7-3
E7-6 Work in Process............................................................ 8,500Materials (1,000 units × $1)................................. 1,000Payroll (1,000 units × 1/6 hour × $15) ................ 2,500Applied Factory Overhead (1,000 × 1/6 × $30).. 5,000
Cost of Goods Sold...................................................... 73,500Work in Process ($65,000 + $8,500)................... 73,500
Accounts Receivable ($73,500 × 150%) ..................... 110,250Sales ..................................................................... 110,250
7-4 Chapter 7
E7-7
(1) Island Company Forming Department
Cost of Production Report For August
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory ............................... 1,000Started in process this period .............. 9,000
10,000
Transferred to Finishing Department .... 8,000Ending inventory ..................................... 100% 60% 50% 1,500Spoiled in process .................................. 100% 100% 100% 500
10,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Materials .................................................................................... $ 1,260 Labor. .......................................................................................... 770 Factory overhead ...................................................................... 1,400
Total cost in beginning inventory...................................... $ 3,430Cost added during current period:
Materials .................................................................................... $36,240 10,000 $3.75Labor........................................................................................... 10,510 9,400 1.20Factory overhead....................................................................... 21,725 9,250 2.50
Total cost added during current period............................ $68,475Total cost charged to department .................................................. $71,905 $7.45
Cost Accounted for as Follows Units % Complete Unit Cost Total CostTransferred to Finishing Department .... 8,000 100% $7.45 $59,600 Charge to Factory Overhead for spoilage:
Materials ............................................ 500 100% $3.75 $1,875Labor .................................................. 500 100% 1.20 600Factory overhead .............................. 500 100% 2.50 1,250 3,725
Work in Process, ending inventory:Materials ............................................ 1,500 100% $3.75 $5,625 Labor .................................................. 1,500 60% 1.20 1,080 Factory overhead .............................. 1,500 50% 2.50 1,875 8,580
Total cost accounted for ........................ $71,905
Chapter 7 7-5
E7-7 (Concluded)
*Total number of equivalent units required in the cost accounted for section determined as follows:
Materials Labor OverheadEquivalent units transferred out......................... 8,000 8,000 8,000Equivalent units in ending inventory ................. 1,500 900 750Equivalent units of spoilage ............................... 500 500 500Total equivalent units........................................... 10,000 9,400 9,250
** Total cost (i.e., the cost in beginning inventory plus the cost added 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................... 59,600Factory Overhead Control ........................................... 3,725
Work in Process—Forming Department .. 63,325
7-6 Chapter 7
E7-8
(1) Juniper Company Finishing Department
Cost of Production Report For July
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 500Received from Cutting Department....... 4,500
5,000
Transferred to Finished Goods.............. 3,800Ending inventory ..................................... 40% 20% 20% 800Spoiled in process .................................. 100% 100% 100% 400
5,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Cost from preceding department............................................. $ 5,500Materials ..................................................................................... 1,950 Labor........................................................................................... 1,180Factory overhead....................................................................... 1,770
Total cost in beginning inventory .................................... $ 10,400Cost added during current period:
Cost from preceding department............................................. $ 54,500 5,000 $12.00 Materials .................................................................................... 20,650 4,520 5.00 Labor........................................................................................... 16,260 4,360 4.00 Factory overhead ...................................................................... 24,390 4,360 6.00
Total cost added during current period ........................... $115,800Total cost charged to department .................................................. $126,200 $27.00
Cost Accounted for as Follows Units % Complete Unit Cost Total CostTransferred to Finished Goods.............. 3,800 100% $27.00 $102,600 Transferred to Spoiled Goods inventory
at salvage value ................................ 400 $10.00 4,000 Charge to Factory Overhead for spoilage:
Cost of completed spoiled units ..... 400 100% $27.00 $10,800Less salvage value of spoiled units 400 10.00 4,000 6,800
Work in Process, ending inventory:Cost from preceding department.... 800 100% $12.00 $ 9,600Materials ............................................ 800 40% 5.00 1,600Labor .................................................. 800 20% 4.00 640Factory overhead .............................. 800 20% 6.00 960 12,800
Total cost accounted for ........................ $126,200
Chapter 7 7-7
E7-8 (Concluded)
*Total number of equivalent units required in the cost accounted for section determined as follows:
PriorDept. Cost Materials Labor Overhead
Equivalent units transferred out............ 3,800 3,800 3,800 3,800Equivalent units in ending inventory .... 800 320 160 160Equivalent units of spoilage .................. 400 400 400 400Total equivalent units ............................. 5,000 4,520 4,360 4,360
** Total cost (i.e., the cost in beginning inventory plus the cost added during the current period)divided by the total number of equivalent units required in the cost accounted for section
(2) Finished Goods Inventory ........................................... 102,600Spoiled Goods Inventory ............................................. 4,000Factory Overhead Control ........................................... 6,800
Work in Process—Finishing Department.......... 113,400
7-8 Chapter 7
E7-9(1) Carver Petroleum Inc.
Cracking Department Cost of Production Report
For May
Quantity Schedule Materials Conversion Cost QuantityBeginning inventory................................ 5,000Started in process this period ............... 55,000
60,000
Transferred to Refining Department...... 49,000Ending inventory ..................................... 100% 70% 6,000Lost in process ....................................... 5,000
60,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Materials .................................................................................... $ 1,900Conversion cost......................................................................... 240
Total cost in beginning inventory...................................... $ 2,140Cost added during current period:
Materials .................................................................................... $20,100 55,000 $.40Conversion cost......................................................................... 5,080 53,200 .10
Total cost added during current period............................ $25,180Total cost charged to department ................................................. $27,320 $ .50
Cost Accounted for as Follows Units % Complete Unit Cost Total CostTransferred to Refining Department...... 49,000 100% $.50 $24,500Work in Process, ending inventory:
Materials ............................................ 6,000 100% .40 $2,400Conversion cost................................ 6,000 70% .10 420 2,820
Total cost accounted for ........................ $27,320
*Total number of equivalent units required in the cost accounted for section determined as follows:
Materials Conversion CostEquivalent units transferred out ..... 49,000 49,000Equivalent units in ending inventory 6,000 4,200Total equivalent units ....................... 55,000 53,200
** Total cost (i.e., the cost in beginning inventory plus the cost added during the current period)divided by the total number of equivalent units required in the cost accounted for section
(2) Work in Process—Refining Department .................... 24,500Work in Process—Cracking Department .......... 24,500
Chapter 7 7-9
E7-10 APPENDIX
(1) Suarez Company Tooling Department
Cost of Production Report For March
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 100% 70% 60% 2,000Started this period .................................. 13,000
15,000
Transferred to Finishing Department .... 7,000Ending inventory ..................................... 100% 60% 40% 3,000Spoiled in process .................................. 100% 90% 90% 5,000
15,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Materials ..................................................................................... $ 1,600 Labor........................................................................................... 290Factory overhead....................................................................... 950
Total cost in beginning inventory...................................... $ 2,840Cost added during current period:
Materials ..................................................................................... $ 9,750 13,000 $.75 Labor........................................................................................... 2,380 11,900 .20 Factory overhead ...................................................................... 9,200 11,500 .80
Total cost added during current period............................ $21,330Total cost charged to department .................................................. $24,170 $1.75
Cost Accounted for as Follows Units Current % Unit Cost Total CostTransferred to Finishing Department:
From beginning inventory................ $2,840 Cost to complete this period:
Materials ............................... 2,000 0% $ .75 0Labor ..................................... 2,000 30% .20 120Factory overhead ................. 2,000 40% .80 640 $ 3,600
Started and completed this period . 5,000 100% $1.75 8,750Total cost transferred to
Finishing Department ................ $12,350 Charge to Factory Overhead for spoilage:
Materials ............................................ 5,000 100% $ .75 $3,750 Labor .................................................. 5,000 90% .20 900Factory overhead .............................. 5,000 90% .80 3,600 8,250
Work in Process, ending inventory:Materials ............................................ 3,000 100% $ .75 $2,250Labor .................................................. 3,000 60% .20 360Factory overhead .............................. 3,000 40% .80 960 3,570
Total cost accounted for ........................ $24,170
7-10 Chapter 7
E7-10 APPENDIX (Concluded)
* Number of equivalent units of cost added during the current period determined as follows:
Materials Labor OverheadTo complete beginning inventory ............................ 0 600 800Started and completed this period ........................... 5,000 5,000 5,000Ending inventory......................................................... 3,000 1,800 1,200Spoiled units ............................................................... 5,000 4,500 4,500Total equivalent units ................................................. 13,000 11,900 11,500
** Cost added during the current period divided by the number of equivalent units of cost added dur-ing the current period
(2) Work in Process—Finishing Department................... 12,350Factory Overhead Control ........................................... 8,250
Work in Process—Tooling Department ............. 20,600
Chapter 7 7-11
E7-11 APPENDIX
(1) Matrix Furniture Company Finishing Department
Cost of Production Report For September
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 80% 40% 40% 1,200Received from Fabricating Department 6,000
7,200
Transferred to Finished Goods.............. 5,000Ending inventory ..................................... 100% 60% 60% 1,500Spoiled in process .................................. 100% 100% 100% 700
7,200
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Cost from preceding department............................................. $ 14,160Materials ..................................................................................... 1,210 Labor........................................................................................... 1,300Factory overhead....................................................................... 3,250
Total cost in beginning inventory...................................... $ 19,920Cost added during current period:
Cost from preceding department............................................. $ 72,000 6,000 $12.00 Materials ..................................................................................... 6,240 6,240 1.00 Labor........................................................................................... 12,240 6,120 2.00 Factory overhead....................................................................... 30,600 6,120 5.00
Total cost added during current period............................ $121,080Total cost charged to department ................................................. $141,000 $20.00
7-12 Chapter 7
E7-11 APPENDIX (Concluded)
Cost Accounted for as Follows Units Current % Unit Cost Total CostTransferred to Finished Goods:
From beginning inventory................ $19,920 Cost to complete this period:
Materials ............................... 1,200 20% $ 1.00 240 Labor ..................................... 1,200 60% 2.00 1,440 Factory overhead ................. 1,200 60% 5.00 3,600 $ 25,200
Started and completed this period 3,800 100% $20.00 76,000Total cost transferred to
Finishing Department ................ $101,200Transferred to Spoiled Goods inventory
at salvage value ................................ 700 $12.00 8,400 Charge to Factory Overhead for spoilage:
Cost of completed spoiled units ..... 700 100% $20.00 $14,000Less salvage value of spoiled units 700 12.00 8,400 5,600
Work in Process, ending inventory:Cost from preceding department.... 1,500 100% $12.00 $18,000 Materials ............................................ 1,500 100% 1.00 1,500 Labor .................................................. 1,500 60% 2.00 1,800 Factory overhead .............................. 1,500 60% 5.00 4,500 25,800
Total cost accounted for ........................ $141,000
*Number of equivalent units of cost added during the current period determined as follows:
Prior Dept.Cost Material Labor Overhead
To complete beginning inventory ... 0 240 720 720Started and completed this period . 3,800 3,800 3,800 3,800Ending inventory............................... 1,500 1,500 900 900Spoiled units ..................................... 700 700 700 700Total equivalent units ....................... 6,000 6,240 6,120 6,120
** Cost added during the current period divided by the number of equivalent units of cost added dur-ing the current period
(2) Finished Goods Inventory ........................................... 101,200Spoiled Goods Inventory ............................................. 8,400Factory Overhead Control ........................................... 5,600
Work in Process—Finishing Department.......... 115,200
Chapter 7 7-13
E7-12 APPENDIX
(1) Lanai Pop Inc.Cooking Department
Cost of Production Report For December
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 75% 25% 25% 10,000Received from Mixing Department ........ 40,000
50,000
Transferred to Bottling Department ...... 37,000Ending inventory ..................................... 100% 75% 75% 8,000Lost in process........................................ 5,000
50,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Cost from preceding department............................................. $ 2,920 Materials ..................................................................................... 305Labor........................................................................................... 140Factory overhead....................................................................... 210
Total cost in beginning inventory...................................... $ 3,575Cost added during current period:
Cost from preceding department............................................. $10,850 35,000 $.31Materials .................................................................................... 1,500 37,500 .04 Labor........................................................................................... 2,430 40,500 .06 Factory overhead....................................................................... 3,645 40,500 .09
Total cost added during current period............................ $18,425Total cost charged to department .................................................. $22,000 $.50
Cost Accounted for as Follows Units Current % Unit Cost Total CostTransferred to Bottling Department:
From beginning inventory................ $3,575 Cost to complete this period:
Materials ............................... 10,000 25% $.04 100 Labor ..................................... 10,000 75% .06 450 Factory overhead ................ 10,000 75% .09 675 $ 4,800
Started and completed this period . 27,000 100% $.50 13,500Total cost transferred to
Finishing Department ................ $18,300 Work in Process, ending inventory:
Cost from preceding department.... 8,000 100% $.31 $2,480Materials ............................................ 8,000 100% .04 320 Labor .................................................. 8,000 75% .06 360 Factory overhead .............................. 8,000 75% .09 540 3,700
Total cost accounted for......................... $22,000
7-14 Chapter 7
E7-12 APPENDIX (Concluded)
*Number of equivalent units of cost added during the current period determined as follows:
PriorDept. Cost Materials Labor Overhead
To complete beginning inventory ... 0 2,500 7,500 7,500Started and completed this period . 27,000 27,000 27,000 27,000Ending inventory............................... 8,000 8,000 6,000 6,000Total equivalent units ....................... 35,000 37,500 40,500 40,500
** Cost added during the current period divided by the number of equivalent units of cost added dur-ing the current period
(2) Work in Process—Bottling Department ..................... 18,300Work in Process—Cooking Department .......... 18,300
Chapter 7 7-15
PROBLEMS
P7-1
(1) Spoiled Goods Inventory (200 units × $1.75)............. 350Factory Overhead Control ........................................... 1,450
Work in Process ................................................. 1,800
(2) Accounts Receivable ($550 + $350)............................ 900Scrap Sales ......................................................... 550Spoiled Goods Inventory ................................... 350
P7-2
$90,000 total job cost(1) 5,000 units on job
= $18 per unit
Spoiled Goods Inventory (200 units × $15 salvage) . 3,000Factory Overhead Control ........................................... 600
Work in Process (200 units × $18 cost)............. 3,600
Cost of Goods Sold...................................................... 86,400Work in Process ($90,000 – $3,600) .................. 86,400
Accounts Receivable ($86,400 × 140%) ..................... 120,960Sales ..................................................................... 120,960
(2) Spoiled Goods Inventory (200 units × $15 salvage) 3,000Work in Process ................................................. 3,000
Cost of Goods Sold...................................................... 87,000Work in Process ($90,000 – $3,000)................... 87,000
Accounts Receivable ($87,000 × 140%) ..................... 121,800Sales ..................................................................... 121,800
7-16 Chapter 7
P7-3
(1) Factory Overhead Control ........................................... 2,000Materials (100 units × $2).................................... 200Payroll (100 units × 1/2 hr × $12 rate) ............... 600Applied Factory Overhead
(100 × 1/2 hr × $24 rate) ............................. 1,200
Cost of Goods Sold...................................................... 200,000Work in Process ................................................. 200,000
Accounts Receivable ($200,000 × 150%) ................... 300,000Sales ..................................................................... 300,000
(2) Work in Process............................................................ 2,000Materials (100 units × $2).................................... 200Payroll (100 units × 1/2 hour × $12 rate) .......... 600Applied Factory Overhead
(100 × 1/2 hr × $24 rate) ............................. 1,200
Cost of Goods Sold...................................................... 202,000Work in Process ($200,000 + $2,000)................. 202,000
Accounts Receivable ($202,000 × 150%) ................... 303,000Sales ..................................................................... 303,000
Chapter 7 7-17
P7-4 (1) Billingsley Company Cutting Department
Cost of Production Report For April
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 5,000Started in process this period ............... 20,000
25,000
Transferred to Assembling Department 18,000Ending inventory ..................................... 100% 60% 60% 4,000Spoiled in process .................................. 100% 90% 90% 3,000
25,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Materials ..................................................................................... $ 1,260Labor .......................................................................................... 789Factory overhead....................................................................... 1,789
Total cost in beginning inventory .................................... $ 3,838Cost added during current period:
Materials ..................................................................................... $36,240 25,000 $1.50 Labor........................................................................................... 10,761 23,100 .50 Factory overhead ...................................................................... 21,311 23,100 1.00
Total cost added during current period............................ $68,312Total cost charged to department ................................................. $72,150 $3.00
Cost Accounted for as Follows Units % Complete Unit Cost Total CostTransferred to Assembling Department 18,000 100% $3.00 $54,000 Charge to Factory Overhead for spoilage:
Materials ............................................ 3,000 100% $1.50 $4,500 Labor .................................................. 3,000 90% .50 1,350Factory overhead .............................. 3,000 90% 1.00 2,700 8,550
Work in Process, ending inventory:Materials ............................................ 4,000 100% $1.50 $6,000 Labor ................................................. 4,000 60% .50 1,200 Factory overhead .............................. 4,000 60% 1.00 2,400 9,600
Total cost accounted for ........................ $72,150
*Total number of equivalent units required in the cost accounted for section determined as follows:
Materials Labor OverheadEquivalent units transferred out......................... 18,000 18,000 18,000Equivalent units in ending inventory ................. 4,000 2,400 2,400Equivalent units of ............................................... 3,000 2,700 2,700Total equivalent units ......................................... 25,000 23,100 23,100
** Total cost (i.e., the cost in beginning inventory plus the cost added during the current period)divided by the total number of equivalent units required in the cost accounted for section
7-18 Chapter 7
P7-4 (Continued)
Billingsley Company Assembling Department
Cost of Production Report For April
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 4,000Received from Cutting Department....... 18,000
22,000
Transferred to Finished Goods Inventory 17,000Ending inventory ..................................... 80% 20% 20% 4,000Spoiled in process .................................. 100% 100% 100% 1,000
22,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Cost from preceding department ........................................... $ 12,000Materials ..................................................................................... 38,028 Labor........................................................................................... 3,356Factory overhead....................................................................... 5,034
Total cost in beginning inventory...................................... $ 58,418Cost added during current period:
Cost from preceding department ........................................... 54,000 22,000 $ 3.00Materials ..................................................................................... 163,372 21,200 9.50Labor........................................................................................... 15,444 18,800 1.00Factory overhead....................................................................... 23,166 18,800 1.50
Total cost added during current period ........................... $255,982Total cost charged to department .................................................. $314,400 $15.00
Cost Accounted for as Follows Units % Complete Unit Cost Total CostTransferred to Finished Goods.............. 17,000 100% $15.00 $255,000 Transferred to Spoiled Goods Inventory
at salvage value ................................ 1,000 $ 3.00 3,000 Charge to Factory Overhead for spoilage:
Cost of completed spoiled units ..... 1,000 100% $15.00 $15,000Less salvage value of spoiled units 1,000 3.00 3,000 12,000
Work in Process, ending inventory:Cost from preceding department.... 4,000 100% $3.00 $12,000Materials ............................................ 4,000 80% 9.50 30,400Labor .................................................. 4,000 20% 1.00 800Factory overhead .............................. 4,000 20% 1.50 1,200 44,400
Total cost accounted for......................... $314,400
Chapter 7 7-19
P7-4 (Concluded)
* Total number of equivalent units required in the cost accounted for section determined as follows:
PriorDept. Cost Materials Labor Overhead
Equivalent units transferred out ..... 17,000 17,000 17,000 17,000Equivalent units in ending inventory 4,000 3,200 800 800Equivalent units of spoilage ............ 1,000 1,000 1,000 1,000Total equivalent units ....................... 22,000 21,200 18,800 18,800
** Total cost (i.e., the cost in beginning inventory plus the cost added 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 .............. 54,000Factory Overhead Control ........................................... 8,550
Work in Process—Cutting Department ............. 62,550
Finished Goods Inventory ........................................... 255,000Spoiled Goods Inventory ............................................. 3,000Factory Overhead Control ........................................... 12,000
Work in Process—Assembling Department ..... 270,000
7-20 Chapter 7
P7-5
(1) Hulvey Brewery Company Mixing and Brewing Department
Cost of Production Report For January
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 4,000Started in process this period ............... 36,000
40,000
Transferred to Canning Department...... 28,000Ending inventory ..................................... 100% 40% 40% 6,000 Lost in process ....................................... 6,000
40,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Materials ..................................................................................... $ 600Labor......................................................................................... 88Factory overhead....................................................................... 128
Total cost in beginning inventory...................................... $ 816Cost added during current period:
Materials ..................................................................................... $4,840 34,000 $.16 Labor........................................................................................... 824 30,400 .03 Factory overhead....................................................................... 1,088 30,400 .04
Total cost added during current period............................ $6,752Total cost charged to department .................................................. $7,568 $.23
%Cost Accounted for as Follows Units Complete Unit Cost Total CostTransferred to Canning Department...... 28,000 100% $.23 $6,440 Work in Process, ending inventory:
Materials ............................................ 6,000 100% $.16 $960 Labor .................................................. 6,000 40% .03 72 Factory overhead .............................. 6,000 40% .04 96 1,128
Total cost accounted for ........................ $7,568
*Total number of equivalent units required in the cost accounted for section determined as follows:
Materials Labor OverheadEquivalent units transferred out................................ 28,000 28,000 28,000Equivalent units in ending inventory ........................ 6,000 2,400 2,400Total equivalent units ................................................. 34,000 30,400 30,400
** Total cost (i.e., the cost in beginning 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 7-21
P7-5 (Continued)
Hulvey Brewery Company Canning Department
Cost of Production Report For January
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 2,000 Received from Mixing and
Brewing Department ........................ 28,00030,000
Transferred to Finished Goods Inventory 25,000Ending inventory ..................................... 100% 60% 60% 1,000Spoiled in process ................................. 100% 80% 80% 4,000
30,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Cost from preceding department............................................. $ 550 Materials .................................................................................... 190Labor........................................................................................... 75Factory overhead....................................................................... 150
Total cost in beginning inventory .................................... $ 965Cost added during current period:
Cost from preceding department ........................................... $ 6,440 30,000 $.233Materials .................................................................................... 1,520 30,000 .057Labor .......................................................................................... 789 28,800 .030 Factory overhead ...................................................................... 1,578 28,800 .060
Total cost added during current period............................ $10,327Total cost charged to department .................................................. $11,292 $.380
%Cost Accounted for as Follows Units Complete Unit Cost Total CostTransferred to Finished Goods Inventory 25,000 100% $.380 $ 9,500Charge to Factory Overhead for spoilage:
Cost from preceding department ... 4,000 100% $.233 $932Materials ........................................... 4,000 100% .057 228Labor ................................................. 4,000 80% .030 96Factory overhead ............................. 4,000 80% .060 192 1,448
Work in Process, ending inventory:Cost from preceding department ... 1,000 100% $.233 $233Materials ........................................... 1,000 100% .057 57Labor ................................................. 1,000 60% .030 18Factory overhead .............................. 1,000 60% .060 36 344
Total cost accounted for......................... $11,292
7-22 Chapter 7
P7-5 (Concluded)
*Total number of equivalent units required in the cost accounted for section determined as follows:
PriorDept. Cost Materials Labor Overhead
Equivalent units transferred out ..... 25,000 25,000 25,000 25,000Equivalent units in ending inventory 1,000 1,000 600 600Equivalent units of spoilage ............ 4,000 4,000 3,200 3,200Total equivalent units ....................... 30,000 30,000 28,800 28,800
** Total cost (i.e., the cost in beginning inventory plus the cost added during the current period)divided by the total number of equivalent units required in the cost accounted for section
(2) Work in Process—Canning Department .................... 6,440Work in Process—Mixing and
Brewing Department ................................. 6,440
Finished Goods Inventory ........................................... 9,500Factory Overhead Control ........................................... 1,448
Work in Process—Canning Department .......... 10,948
Chapter 7 7-23
P7-6 APPENDIX
(1) Hadenville Tool Company Fabricating Department
Cost of Production Report For April
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 100% 70% 70% 2,000Started this period .................................. 9,000
11,000
Transferred to Finishing Department .... 9,000Ending inventory ..................................... 100% 40% 40% 1,500Spoiled in process .................................. 100% 60% 60% 500
11,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Materials ..................................................................................... $ 1,900 Labor........................................................................................... 340Factory overhead....................................................................... 1,020
Total cost in beginning inventory...................................... $ 3,260Cost added during current period:
Materials ..................................................................................... $ 9,180 9,000 $1.02 Labor .......................................................................................... 2,125 8,500 .25Factory overhead ...................................................................... 6,375 8,500 .75
Total cost added during current period............................ $17,680Total cost charged to department ................................................. $20,940 $2.02
7-24 Chapter 7
P7-6 APPENDIX (Continued)
Cost Accounted for as Follows Units Current % Unit Cost Total CostTransferred to Finishing Department:
From beginning inventory .............. $3,260 Cost to complete this period:
Labor ..................................... 2,000 30% $ .25 150Factory overhead ................. 2,000 30% .75 450 $ 3,860
Started and completed this period . 7,000 100% $2.02 14,140Total cost transferred to Finishing
Department ................................ $18,000 Charge to Factory Overhead for spoilage:
Materials ............................................ 500 100% $1.02 $ 510Labor .................................................. 500 60% .25 75Factory overhead ............................. 500 60% .75 225 810
Work in Process, ending inventory:Materials ........................................... 1,500 100% $1.02 $1,530 Labor .................................................. 1,500 40% .25 150 Factory overhead .............................. 1,500 40% .75 450 2,130
Total cost accounted for ........................ $20,940
*Number of equivalent units of cost added during the current period determined as follows:
Materials Labor OverheadTo complete beginning inventory....................... 0 600 600Started and completed this period..................... 7,000 7,000 7,000Ending inventory .................................................. 1,500 600 600Spoiled units ........................................................ 500 300 300Total equivalent units ......................................... 9,000 8,500 8,500
** Cost added during the current period divided by the number of equivalent units of cost added dur-ing the current period
Chapter 7 7-25
P7-6 APPENDIX (Continued)
Hadenville Tool CompanyFinishing Department
Cost of Production ReportFor April
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 100% 40% 40% 3,000Received from Fabricating Department 9,000
12,000
Transferred to Finished Goods.............. 9,900Ending inventory ..................................... 100% 60% 60% 2,000Spoiled in process .................................. 100% 100% 100% 100
12,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Cost from preceding department............................................. $ 6,100Materials ..................................................................................... 3,500Labor .......................................................................................... 520Factory overhead....................................................................... 780
Total cost in beginning inventory...................................... $10,900Cost added during current period:
Cost from preceding department............................................. $18,000 9,000 $2.00Materials ..................................................................................... 10,800 9,000 1.20Labor .......................................................................................... 4,000 10,000 .40Factory overhead....................................................................... 6,000 10,000 .60
Total cost added during current period............................ $38,800Total cost charged to department ................................................. $49,700 $4.20
7-26 Chapter 7
P7-6 APPENDIX (Concluded)
Cost Accounted for as Follows Units Current % Unit Cost Total CostTransferred to Finished Goods:
From beginning inventory .............. $10,900 Cost to complete this period:
Labor ..................................... 3,000 60% $ .40 720Factory overhead ................. 3,000 60% .60 1,080 $12,700
Started and completed this period . 6,900 100% $4.20 28,980Total cost transferred to Finished Goods $41,680
Transferred to Spoiled Goods Inventoryat salvage value ............................... 100 $1.00 100
Charge to Factory Overhead for spoilage:Cost of completed spoiled units ..... 100 100% $4.20 $ 420Less salvage value of spoiled units 100 1.00 100 320
Work in Process, ending inventoryCost from preceding department.... 2,000 100% $2.00 $ 4,000 Materials ............................................ 2,000 100% 1.20 2,400 Labor .................................................. 2,000 60% .40 480Factory overhead .............................. 2,000 60% .60 720 7,600
Total cost accounted for ........................ $49,700
* Number of equivalent units of cost added during the current period determined as follows:
PriorDept. Cost Materials Labor Overhead
To complete beginning inventory ... 0 0 1,800 1,800Started and completed this period . 6,900 6,900 6,900 6,900Ending inventory............................... 2,000 2,000 1,200 1,200Spoiled units ..................................... 100 100 100 100Total equivalent units ....................... 9,000 9,000 10,000 10,000
** Cost added during the current period divided by the number of equivalent units of cost added dur-ing the current period
(2) Work in Process—Finishing Department................... 18,000Factory Overhead Control ........................................... 810
Work in Process—Fabricating Department ...... 18,810
Finished Goods Inventory ........................................... 41,680Spoiled Goods Inventory ............................................. 100Factory Overhead Control ........................................... 320
Work in Process—Finishing Department.......... 42,100
Chapter 7 7-27
P7-7 APPENDIX
(1) Carlton Chemical Company Distillation Department
Cost of Production ReportFor June
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 100% 20% 20% 4,000Started this period .................................. 16,000
20,000
Transferred to Refining Department...... 14,000Ending inventory. .................................... 100% 80% 80% 2,000Lost in process........................................ 4,000
20,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Materials .................................................................................... $ 3,624Labor........................................................................................... 96Factory overhead..................................................................... 480
Total cost in beginning inventory...................................... $ 4,200Coat added during current period:
Materials .................................................................................... $10,800 12,000 $ .90Labor .......................................................................................... 1,480 14,800 .10Factory overhead ...................................................................... 7,400 14,800 .50
Total cost added during current period............................ $19,680Total cost charged to department .................................................. $23,880 $1.50
7-28 Chapter 7
P7-7 APPENDIX (Continued)
Cost Accounted for as Follows Units Current % Unit Cost Total CostTransferred to Refining Department:
From beginning inventory .............. $4,200Cost to complete this period:
Labor ..................................... 4,000 80% $ .10 320Factory overhead ................. 4,000 80% .50 1,600 $ 6,120
Started and completed this period . 10,000 100% $1.50 15,000Total cost transferred to
Refining Department .................. $21,120Work in Process, ending inventory:
Materials ............................................ 2,000 100% $ .90 $1,800Labor .................................................. 2,000 80% .10 160Factory overhead .............................. 2,000 80% .50 800 2,760
Total cost accounted for......................... $23,880
* Number of equivalent units of cost added during the current period determined as follows:
Materials Labor OverheadTo complete beginning inventory....................... 0 3,200 3,200Started and completed this period..................... 10,000 10,000 10,000Ending inventory .................................................. 2,000 1,600 1,600Total equivalent units........................................... 12,000 14,800 14,800
** Cost added during the current period divided by the number of equivalent units of cost added dur-ing the current period
Chapter 7 7-29
P7-7 APPENDIX (Continued)
Carlton Chemical Company Refining Department
Cost of Production Report For June
Quantity Schedule Materials Labor Overhead QuantityBeginning inventory................................ 100% 50% 50% 2,000Received from Distillation Department . 14,000
16,000
Transferred to Finished Goods Inventory 12,000Ending inventory ..................................... 100% 30% 30% 2,000Lost in process ....................................... 2,000
16,000
Cost Charged to Department Total Equivalent UnitBeginning inventory: Cost Units* Cost**
Cost from preceding department............................................. $ 3,500Materials .................................................................................... 240Labor .......................................................................................... 160Factory overhead....................................................................... 900
Total cost in beginning inventory...................................... $ 4,800.Cost added during current period:
Cost from preceding department............................................. $21,120 12,000 $1.76Materials ..................................................................................... 1,440 12,000 .12Labor........................................................................................... 1,740 11,600 .15Factory overhead....................................................................... 10,440 11,600 .90
Total cost added during current period............................ $34,740Total cost charged to department .................................................. $39,540 $2.93
Cost Accounted for as Follows Units Current % Unit Cost Total CostTransferred to Finished Goods:.............
From beginning inventory................ $4,800 Cost to complete this period:
Labor .................................... 2,000 50% $ .15 150Factory overhead ................. 2,000 50% .90 900 $ 5,850
Started and completed this period . 10,000 100% $2.93 29,300Total cost transferred to Finished
Goods .......................................... $35,150Work in Process, ending inventory:
Cost from preceding department.... 2,000 100% $1.76 $3,520Materials ............................................ 2,000 100% .12 240 Labor .................................................. 2,000 30% .15 90 Factory overhead .............................. 2,000 30% .90 540 4,390
Total cost accounted for ........................ $39,540
7-30 Chapter 7
P7-7 APPENDIX (Concluded)
*Number of equivalent units of cost added during the current period determined as follows:
PriorDept. Cost Materials Labor Overhead
To complete beginning inventory ... 0 0 1,000 1,000Started and completed this period . 10,000 10,000 10,000 10,000Ending inventory............................... 2,000 2,000 600 600Total equivalent units ....................... 12,000 12,000 11,600 11,600
** Cost added during the current period divided by the number of equivalent units of cost added dur-ing the current period
(2) Work in Process—Refining Department .................... 21,120Work in Process—Distillation Department ....... 21,120
Finished Goods Inventory ........................................... 35,150Work in Process—Refining Department ........... 35,150
Chapter 7 7-31
CASES
C7-1 Although improvement in product quality was clearly a stated goal at Star DiskCorporation, the company’s reward structure suggests otherwise. Employeescannot be expected to put quality first if rewards are dispensed for achievingobjectives that are often in conflict with quality improvement (i.e., short-runproduction volume goals). The quality improvement effort seems to have beenfocused solely on manufacturing activity, and the approach taken seems tohave been to improve quality by inspecting it into the product. Such anapproach is inadequate, because it waits too late in the process (i.e., after costshave been incurred in manufacturing defective products, instead of before) andfocuses on only one piece of the problem rather than the whole problem.
In order to turn the problem around, top management must becomeactively involved. The reward structure should be changed to ensure compati-bility with quality goals. Quality teams that include employees from all businessfunctions (product design as well as manufacturing) and all levels (labor as wellas management) should be created to help identify quality problems and findways to solve the identified problems. Top management should actively partic-ipate in these teams in order to emphasize the importance of quality, coordinateefforts between organization units, and provide direction. Employees are morelikely to become motivated when they understand the importance of quality,and top management participation and leadership underscore that importance.In addition, all employees must refocus their efforts on serving their respectivecustomers. The data presented in the case suggest that managers from the dif-ferent departments put all their attention on meeting production volume goalsrather than on meeting the needs of their customers (i.e., the departmentreceiving their output).
Although product inspection should be continued, emphasis should beshifted to preventing poor quality rather than detecting it. Prevention shouldstart with product design and extend throughout the entire manufacturingprocess. Some things to be considered include:(a) reducing the number of parts required in the product;(b) using higher quality materials;(c) using standardized parts;(d) using well-known production technologies where possible;(e) minimizing retoolings;(f) increasing employee training;(g) reorganizing the manufacturing facility from production departments to
manufacturing cells to promote teamwork and decrease inventory costs;(h) upgrading or modifying machinery;(i) installing a statistical process control system to monitor production qual-
ity and reduce production variability.
7-32 Chapter 7
C7-1 (Concluded)
A few of the biggest and most urgent problems should be identified andtackled. In order to achieve results, effort should be concentrated on a fewcostly problems that can be solved. Tackling too many problems results in dis-persed efforts and little observable accomplishment. Improving quality takestime and never ends. The company and its employees need some successes tobuild confidence and create the momentum needed to turn the quality problemaround.
C7-2 Product cost may be increasing as a result of an increasing amount of scrap,spoilage, and rework. Since the costs of these internal failures are not meas-ured, management cannot evaluate the significance of the problem. In addition,since these costs are not measured, employees have no incentive to reduce oreliminate them. Treating scrap, spoilage, and rework as a normal productioncost encourages such waste. As a consequence, overall costs rise. The com-pany’s cost accountants should develop a system of determining the cost ofscrap, spoilage, and rework; implement the system (i.e., begin measuring suchcosts); and report these costs to responsible managers. If the cost of scrap,spoilage, and rework is high, management should initiate a quality improve-ment program that concentrates on preventing these internal failures.This mayinvolve organizing employee quality teams to identify problems and developsolutions, locating new vendors to obtain higher quality materials, redesigningproducts to improve quality, modifying or upgrading manufacturing machinery,training or retraining employees, and/or reorganizing the production processes.
Chapter 7 7-33