Cost Accumulation Systems Paper 1

1

A metal fabricating company uses a job-order cost system. The company expects to have small residual pieces of metal cuttings and shavings from all of its jobs. Although the metal pieces and shavings cannot be reused, they can be sold for scrap. The scrap metal is sold when a ton of scrap has been accumulated. During the current month, 100,000 pounds of aluminum was requisitioned at $1.50 per pound. Aluminum scrap recovery totaled 800 pounds. This amount of scrap is within normal allowances for the company’s operations. The market price for scrap aluminum fluctuates greatly and has ranged from $.25 to $.40 per pound during the last 12 months. The accumulated scrap aluminum was sold last month for $.35 per pound. The appropriate accounting treatment for the scrap aluminum recovered during the current month is to






2

Kepler Optics makes lenses for telescopes. Because Kepler will only sell lenses of the highest quality, the normal spoilage during a reporting period is 1,000 units. At the beginning of the current reporting period, Kepler had 2,200 units in inventory, and during the period, production was started and completed on 4,000 units. Units in inventory at the end of the current reporting period were 1,500, and the units transferred out were 3,000. During this period, the abnormal spoilage for Kepler’s lens production was






3

A manufacturing firm may experience both normal and abnormal spoilage in its operations. The costs of both normal and abnormal spoilage are accounted for in the accounting records. The costs associated with any abnormal spoilage are






4

What is the journal entry to record the purchase of materials on account?






5

Darden Manufacturing, a calendar-year corporation, had $17,000 of spoilage during April that production management characterized as abnormal. The spoilage was incurred on Job No. 532, which was sold 3 months later for $459,000. Which of the following correctly describes the impact of the spoilage on Darden’s unit manufacturing cost for Job No. 532 and on the year’s operating income?
Unit Manufacturing Cost
Operating Income






6

A specialty instrument manufacturer is in the process of establishing a cost system. The company produces machines that are unique and distinctive. These machines are produced when purchase requests are received from customers. Although some common parts and sub-assemblies are to be held in inventory, no finished goods inventory is maintained since each purchase request is for a customized specialty instrument. The type of cost accumulation system that would be best suited for this type of environment would be






7

During the production of its single product, a company discovers that an unusual overnight power failure ruined an entire day’s in-process production. How should the cost of these spoiled units be charged?






8

Trout Company manufactures a single product. During the manufacturing process, a small number of units do not pass final inspection and are destroyed. What is the appropriate accounting treatment for the cost of these units? The cost should be






9

A company that uses a process costing system inspects its goods at the 60% stage of completion. If the firm’s ending work-in-process inventory is 80% complete, how would the firm account for its normal and abnormal spoilage?






10

When considering normal and abnormal spoilage, which one of the following is theoretically the best accounting method for spoilage in a process-costing system?






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