ACC 311 Final Exam

order of budgets

1. revenues budget (sales budget) 2. production budget 3. DM used/DM purchased 4. direct manufacturing labor budget 5. manufacturing overhead cost budget 6. ending inventories budget 7. cost of goods sold budget 8. nonmanufacturing cost budget 9. income statement

procedure for accounting for spoilage in the process costing procedure

1. summarize the flow of physical units of output- units of both normal and abnormal spoilage are identified 2. compute output in terms of equivalent units- include a calculation for equivalent units for spoilage 3. summarize total costs to account for- this is all costs debited to the WIP account 4. compute cost per equivalent unit 5. assigned total costs to units completed (which includes normal spoilage units) to abnormal spoiled units, and to units in ending WIP

Characteristics of Process Costing

A single product is produced either on a continuous basis or for long periods of time all units of product are identical costs are accumulated by department the production cost report is the key document; it shows the accumulation and disposition of costs

Price variance

Actual input X actual price - Actual input X budgeted price

Direct Materials Used

Beginning Direct Materials Inventory + Direct Materials Purchased - Ending Direct Materials Inventory

Cost of Goods Sold

Beginning finished goods + cost of goods manufactured - ending finished goods

Cost of goods manufactured

Direct materials used + Direct labor + Factory overhead + Beginning WIP - ending WIP

companies still calculate

POR's for overhead costs and apply the overhead costs in a manner similar to ob order costing.

Brief overview of Process Costing

The basic objective is to find a cost per unit for the product; this amount can then be allocated to ending work in process and goods transferred to the next department Costs we need to account for: Costs from the beginning WIP inventory, Costs "transferred-in" from another department; costs added in the department (material, labor, and overhead) We then assign to each unit that is processed the average cost of the material, labor and overhead used in the department. This "per unit cost" is then assigned to: ending WIP inventory for the department Units transferred out to the next department Equivalent units 1. because some of the units are partially complete, we must convert these partially converted units to whole units. 2. The two most common methods of computing equivalent units are wieghted average and FIFO

Which of the following entries reflects the original cost assignment before production items are reworked a. debit WIP control credit materials, wages payable, manufacturing OH controls b. debit Finished goods control credit WIP control c. debit manufacturing OH allocated and materials control credit wages payable control and WIP control d. debit materials control and wages payable control credit WIP control and manufacturing OH allocated

a. debit WIP control credit materials, wages payable, manufacturing OH controls

spoilage in job costing systems

abnormal spoilage is a period cost and treated as an expense of the period in which it occurs normal spoilage is inventoriable and included as a cost of the good product companies frequently distinguish between normal spoilage attributable to a specific job from normal spoilage common to all jobs - when normal spoilage is considered attributable to a specific job, that job bears the cost of the spoilage - when normal spoilage is considered attributable to all jobs, it is a characteristic of the production process and is allocated as a manufacturing overhead cost

loss from abnormal spoilage

account on a separate line in the income statement to highlight the abnormal spoilage companies calculate some companies regard all spoilage as abnormal in order to make all spoilage visible

Standard costs and spoilage issues

accounting for spoilage in process-costing systems using the stnadard costing method is very similar to the standard-costing method discussed int he previous chapter. the only difference is that the normal and abnormal units are treated as additioanl unit groups for which cost-per-equivalent unit needs to be calcualted and costs assigned costs are assigned to nromal and abnormal spoilage units using stnadard costs as the cost per equivalent unit as with the weighted-average and FIFO methods, the costs of normal spoilage are included in the total costs to account for and the costs assigned to units completed and transferred out

efficiency variance

actual input X budgeted Price- budgeted input X budgeted price

static budget variance

actual units sold X actual sales mix X actual CM/unit - budgeted units sold x budgeted sales mix X budgeted CM/unit

sales volume variance

actual units sold X actual sales mix X budgeted CM/unit - Budgeted units sold X budgeted sales mix X budgeted CM/unit

a difference between job costing and process costing is a. that job costing systems usually do not distinguish between normal spoilage attributable to all jobs and normal spoilage attributable to a specific job b. that job-costing systems usually distinguish between normal spoilge attributable to a specific job and spoilage common to all jobs c. that process costing normally does not distinguish between normal spoilage attributable to a specific job and spoilage common to all jobs d. both b and c

d. both b and c

The Weighted Average Method

assumes for equivalent unit calculations that any products completed during the period were also started during that period a. the weighted average method blends together the beginning WIP inventories with the units started during the period b. Normally, equivalent units are found for both materials and conversion costs c. Costs from beginning WIP are also blended with costs that are added during the period d. to find the weighted average equivalent units of production; simply add together the units complete during the period plus the percentage of ending WIP completed this period e. note: if materials are added at the beginning of the process, ending WIP for materials is the same as the number of units in ending WIP f. when finding the cost per unit, costs from beginning WIP plus costs added during the period are divided by the weighted average equivalent units of production

the FIFO Method

assumes that only the work actually completed during the period should be used in the calculations for equivalent units a. with the FIFo method, only current costs and current units are used in the equivalent unit and per unit computations b. once again, Equivalent units of production are found for both material and conversion costs c. to find the FIFO equivalent units of production, only use urrent units Work done to complete the beginning WIP + Units started and finished + work done to ending WIP = FIFO equivalent units of production d. when finding the cost per unit, divide current costs (costs added this period) by the equivalent units of production e. to fin the cost of the units transferred out, add the costs of beginning WIP plus the costs of finishing the beginning WIP to the costs of the units started and finished

The sale of scrap from a manufacturing process usually would be recorded as a(n) a. increase in manufacturing overhead control b. decrease in manufacturing overhead control c. increase in finished goods control d. decrease in finished goods control

b. decrease in manufacturing overhead control

the standard-costing method a. adds a layer of complexity to the calculation of equivalent unit costs in a process-costing environment b. makes calculating equivalent units unnecessary c. requires an analysis of the spoilage costs in beginning inventory d. requires an analysis fo the spoilage costs in ending inventory

b. makes calculating equivalent-unit costs unnecessary

spoilage from a manufacturing process was discovered ruing an inspection of work in process. In a process-costing system, the cost of the spoilage would be added to the cost of the good units produced if the spoilage is a. normal or abnormal b. normal but not abnormal c. neither normal nor abnormal d. abnormal but not normal

b. normal but not abnormal

costs of normal spoilage are usually accounted for as a. part of the cost of good sold b. part of the cost of good manufactured c. a separate line item in the income statement d. an asset in the balance sheet

b. part of the cost of goods manufactured

unacceptable units of production that are discarded or are sold for reduced prices are referred to as a. reworked units b. spoilage c. scrap d. defective units

b. spoilage

Accounting for spoilage using the FIFO method

based on costs of the current period and equivalent units of work done in current period normal and abnormal spoilage units are treated as additional unit groups for which cost-per-equivalent-unit needs to be calculated and costs assigned spoilage costs are always considered to have occurred int he current period and are not included in the cost of ending WIP inventory

flexible budget variance

budgeted input X budgeted price actual units sold X actual sales mix X actual CM/unit - actual units sold X actual sales mix X budgeted CM/unit

Assume the manufacturing cost of the spoiled goods is $6,000. the journal entry to record the spoilage is a. manufacturing overhead control ; WIP b. materials control;WIP c. loss from abnormal spoilage; WIP d. finished goods; WIP

c. loss from abnormal spoilage; WIP

Under process costing and job costing, the accounting treatment for the normal spoilage is a. process costing- a loss account is charged; job costing- loss account is charged b. process costing- upon transfer, spoilage costs are transferred along with other costs; job costing- loss account is charged c. process costing- upon transfer, spoilage costs are transferred along with other costs; job costing- manufacturing overhead control is charged d. process costing-manufacturing overhead control is charged; job costing- no entry

c. process costing- upon transfer, spoilage costs are transferred along with other costs; job costing- manufacturing overhead control is charged

The purpose of the equivalent-unit computation is a. to convert completed units into the amount of partially completed output units that could be made with that quantity of input b. to assist the business in determining ending inventory c. to convert partially completed units into the amount of complete output units that could be made with that quantity of input d. both b and c

c. to convert partially completed units into the amount of complete output units that could be made with that quantity of input

Which of the following manufactured products would not use process costing? a. 767 jet aircraft b. 19-inch television sets c. custom built houses d. a and c would not use process costing

d. a and c would not use process costing

transferred-in costs are treated as if they are a. conversion costs added at the beginning of the process b. costs of beginning inventory added at the beginning of the process c. direct labor costs added at the beginning of the process d. a separate direct material added at the beginning of the process

d. a separate direct material added at the beginning of the process

if scrap, common to all jobs, is returned to the storeroom and the time between the scrap being inventoried and its disposal is quite lengthy, the journal entry is: a. WIP control; materials control b. Materials control; WIP control c. manufacturing OH control; materials control d. materials control; manufacturing OH control

d. materials control; manufacturing OH control

Which one of the following conditional usually exists when comparing normal and abnormal spoilage to controllability? a. normal controllable; abnormal controllable b. normal controllable; abnormal uncontrollable c. normal uncontrollable; abnormal uncontrollable d. normal uncontrollable; abnormal controllable

d. normal uncontrollable; abnormal controllable

the weighted-average process-costing method calculates the equivalent units by a. considering only the work done during the current period b. the units started during th current period minus the units in ending inventory c. the units started during the current period plus the units in ending inventory d. the equivalent units completed during the current period plus the equivalent units in ending inventory

d. the equivalent units completed during the current period plus the equivalent units in ending inventory

On occasion, the FIFO and the weighted-average methods of process costing will result in the same dollar amount of costs being trasnferred to the next department. which of the following scenarios would have that restuls? a. when the beginning and ending inventories are equal in terms of unit numbers b. when the beginning and ending inventories are equal in terms of the percentage of completion for both direct materials and conversion costs c. when there is no ending inventory d. when there is no beginning inventory

d. when there is no beginning inventory

know that the basic flow diagram would still apply in process costing (same accounts used) however,

for each separate production department a separate WIP account is used (usually departments are separated by process/activity)

abnormal spoilage

is spoilage that is not considered a part of the production process and does not arise under efficient operating conditions. abnormal spoilage is regarded as avoidable and controllable taken separately to income statement as expense

Spoilage

is units of production that are not suitable for sale or further processing because the units are damaged or do not meet the specifications required by customers for good units. SPoiled units are discarded, reworked or sold at reduced prices as "seconds"

Rework

is units of production that do not meet the specifications required by customers but are reparied and sold as good finished units reworked items are not the smae as remanufactured items.

accounting for rework

process costing treats rework issues in the same manner as job order costing, thus the following points are true for both systems units that are reworked are units that have been inspected and found to be unacceptable. However, these unit defects are such that they can be repaired and sold as acceptable finished units normal rework attributable to a specific job is charged to that job if it is normal rework common to all jobs, the costs are charged to manufacturing overhead and spread over all jobs if the rework is considered abnormal, the costs of the rework are charged to a "loss from abnormal rework" account

scrap

residual material (or leftover material) that results from manufacturing a product. Scrap has a low or zero sales value, when compared to the sales value of "good product"

Net income

sales - variable costs =contribution margin - fixed costs =operating income - taxes = net income

income statement

sales - COGS = Gross Margin - operating expenses - selling expense - administrative expenses = net operating income COGS= beginning finished good inventory + COGM = Cost of goods available for sale - ending finished goods inventory = unadjusted COGS + underallocated (underallocated) MOH cost = adjusted COGS

accounting for scrap

scrap is the leftover material resulting from manufacturing a product. it may be considered a waste, but some amount of scrap is usually inevitable from the manufacturing process. Remember, scrap has a low (or zero) sales volume. in many ways, the two aspects of accounting for scrap are similar to the same issues as faced with by-products: - planning and control, including physical tracking which is necessary for inventory, efficiency calculations, and to prevent theft - inventory costing. this depends on how revenues are recognized from the sale of scrap one way of accounting for scrap is to recognize it at the time of sale. no inventory records are maintained for scrap because companies using this method have a type of scrap that is sold quickly. when sold, cash or accounts receivable is debited and scrap revenues are credited. if a specific job created the scrap, then the credit would be to the job's WIP account when scrap has more than an insignificant value, or it will not be sold quickly, it is assigned an inventory valuation equal to its sales value and a materials account is debited with a credit to WIP (if the scrap is attributed to a specific job) or to manufacturing overhead (if the scrap is common to all jobs). when sold, cash or accounts receivable is debited with the inventory account being credited NOte: no distinction is made between normal or abnormal scrap because no cost is assigned to scrap. Also, rework is never separated into normal and abnormal inventory categories (but there is normal rework and abnormal rework)

unit contribution margin

selling price per unit-variable cost per unit

normal spoilage

spoilage inherent in the production process. It is viewed arising even in an efficient manufacuturing process. Typically, normal spoilage is included as a part of the cost of good units (which are units that are completed and transferred out) manufactured

Process costing systems can use

standard costs within the process costing system and they can conduct standard variance calculations

inspection point

the stage of completion at which products are examined to determine if they are acceptable units. Spoilage is typically assumed to occur at the stage of completion where inspection takes place

In some industries a hybrid costing system is used, where

they combine elements of job order costing systems and process costing systems. A common name for these types of systems is operating costing systems. The most common situation where this system is used when the direct materials are different, but the conversion process is the same

POR

total budgeted manufacturing overhead cost/ total budgeted amount of allocation base

contribution margin ratio

total contribution margin/total sales X 100 unit contribution margin/selling price per unit X 100

breakeven point in sales

total fixed costs/ contribution margin ratio

Breakeven point in units

total fixed costs/unit contribution margin

Total contribution margin

total sales - total variable costs operating income + fixed expenses CM per unit X number of units sold

When units are completed in processing department and transferred-out to another processing department they become known as

transferred-in materials/units. Basically, you will need to create the transferred-in units in a manner similar to direct materials that are "all added at the beginning of the process" but give the transferred​-in units their own column

remanufactured items are

used items that have been returned by customers for various reasons, and once repaired or refurbished cannot be sold as "new" goods not the same as reworked items

job costing

used where each product or service are different (process used to make each is different) a company that utilizes this usually has multiple types of products, each product may even be unique (custom)

process costing

used where each product or service are the same (made the same way)