Ch 19 (MIDTERM 2)

Question 1

What is spoilage in production?

Answer 1

Spoilage refers to output that fails to meet a specified performance level or standard of composition, leading to products being discarded or deemed unusable.

Question 2

What is the difference between normal and abnormal spoilage?

Answer 2

Normal spoilage is inherent in the production process under efficient conditions, while abnormal spoilage is avoidable and arises from unexpected or controllable factors.

Question 3

How is normal spoilage accounted for?

Answer 3

Normal spoilage is considered part of the cost of good units produced because some level of spoilage is unavoidable. It is included in the manufacturing costs.

Question 4

how is abnormal spoilage treated in accounting?

Answer 4

Abnormal spoilage is treated as a separate loss and recorded in the “Loss from Abnormal Spoilage” account, which is reported on the income statement.

Question 5

What is the importance of inspection points in spoilage?

Answer 5

Inspection points are stages in the production process where products are examined for quality.

Spoilage is detected at these points, allowing for
cost allocation
potential corrections

Question 6

How does normal spoilage affect work-in-progress (WIP)?

Answer 6

Normal spoilage is allocated to units that have passed the inspection point and are part of the WIP, ensuring that costs reflect only the acceptable units produced.

Question 7

What is the five-step procedure for process costing with spoilage?

Answer 7

Summarize the flow of physical units
Compute output in equivalent units,
Summarize total costs,
Compute cost per equivalent unit, Assign costs to completed units, spoilage, and WIP.

Question 8

Q: How is spoilage handled in FIFO method for process costing?

Answer 8

: FIFO splits the cost of normal spoilage between units started and completed in the current period and those from beginning WIP. Modified FIFO uses only current-period costs for spoilage allocation.

Question 9

How does rework differ from spoilage?

Answer 9

Rework involves fixing unacceptable products to make them saleable again, whereas spoilage refers to products that are discarded due to defects or damage.

Question 10

How is normal rework accounted for in job costing?

Answer 10

Normal rework is treated as part of manufacturing overhead and is allocated across all jobs, as it is common to all production processes.

Question 11

How is abnormal rework treated in job costing?

Answer 11

Abnormal rework is treated as a separate loss and is recorded in the “Loss from Abnormal Rework” account, appearing on the income statement.

Question 12

What is the difference between normal and abnormal rework?

Answer 12

Normal rework occurs regularly and is expected in the production process, while abnormal rework happens due to unexpected issues and is considered an additional loss.

Question 13

What is scrap in production?

Answer 13

residual materials that have minimal or zero sales value
often discarded
may sometimes be reused or sold at a very low value.

Question 14

How is scrap treated in job costing systems?

Answer 14

: If scrap is common to all jobs, its revenue is credited to the overhead budget. If scrap is specific to a job, the revenue from scrap reduces that job’s cost.

Question 15

When should scrap be recognized in accounting?

Answer 15

scrap should be recognized either at the time of production (if significant) or when sold, based on the firm’s accounting policies and the materiality of the scrap value.

Question 16

How does scrap affect the overhead budget in manufacturing?

Answer 16

scrap is considered when setting the overhead budget, which lowers the budgeted overhead rate by accounting for expected scrap revenues.

Question 17

How do you handle scrap that is specific to a particular job?

Answer 17

The revenue from scrap is traced back to the specific job, reducing the cost of that job, but no cost is assigned to the scrap itself.

Question 18

What is the treatment of abnormal spoilage in process costing?

Answer 18

Abnormal spoilage is recorded separately as an expense (Loss from Abnormal Spoilage), and does not impact the cost of good units.

Question 19

Why are spoilage costs important in production accounting?

Answer 19

Spoilage costs need to be identified and tracked separately to avoid distorting the cost of good units produced and to provide insight into inefficiencies in the production process.

Question 20

How is scrap treated in the context of the electronics industry?

Answer 20

n electronics, scrap like damaged screens may be sold or repurposed. The revenue from scrap helps offset production costs and is accounted for in the overhead budget or traced to specific jobs.

Question 21

How is abnormal spoilage recognized in food manufacturing?

Answer 21

In food manufacturing, abnormal spoilage (e.g., unusually high defect rates) is recorded separately as a loss, ensuring that it does not impact the cost of normal good units.

Question 22

How do inspection points impact scrap and spoilage?

Answer 22

Inspection points help detect defects early, reducing the amount of abnormal spoilage and scrap. This improves cost management and minimizes waste.

Question 23

What is the role of planning and control in scrap management?

Answer 23

Planning and control help track scrap materials, minimize waste, and improve overall production efficiency by adjusting processes to reduce scrap.

Question 24

In construction, scrap may be tracked back to specific jobs. If scrap occurs due to a specific error or issue, its revenue reduces the job’s overall cost

Answer 24

How is scrap handled in job-costing systems in construction?

Question 25

How is abnormal spoilage treated in construction?

Answer 25

If an unusually high amount of material spoilage occurs due to error, it is recorded as an abnormal loss in the income statement and not charged to the specific job cost.

Question 26

How can rework affect the financial reporting of a construction project?

Answer 26

Rework increases the cost of a construction project and is charged either to manufacturing overhead (for normal rework) or separately (for abnormal rework).

Question 27

How can a company reduce spoilage costs?

Answer 27

identify and control sources of abnormal spoilage through better quality control, preventive maintenance, and improved production processes.

Question 28

What is the significance of recognizing scrap at the time of production?

Answer 28

Recognizing scrap at production allows for accurate cost accounting, aligning production costs with any potential revenue from scrap in the same accounting period.

Question 29

Why is scrap revenue credited to the overhead budget in manufacturing?

Answer 29

Scrap revenue is credited to reduce overall production costs, helping to adjust the overhead rate and reflect a more accurate cost of production.

Question 29

What is the accounting treatment for scrap in manufacturing?

Answer 29

Scrap is either recorded at the time of production or when sold, with its revenue reducing overall production costs or being credited to specific jobs in job-costing systems.

Question 30

How does abnormal spoilage affect the overall production cost?

Answer 30

Abnormal spoilage increases the cost of production since it is treated as a separate loss and not allocated to the good units produced.

Question 31

How can early inspection help in managing spoilage costs?

Answer 31

Early inspection helps identify spoilage before further costs are incurred, minimizing waste and improving cost control by stopping defective units from progressing further

Question 32

What is the treatment of reworked units in job costing?

Answer 32

Reworked units are charged back to the job, and their costs are either absorbed into overhead or directly allocated to the specific job, depending on whether the rework is normal or abnormal.

Question 33

How does the food industry manage spoilage?

Answer 33

In the food industry, normal spoilage is accepted as part of the process, while abnormal spoilage due to issues like faulty machinery is minimized through better production practices.

Question 34

How are scrap costs managed in the textile industry?

Answer 34

In the textile industry, scrap is accounted for by crediting the scrap sales revenue against the cost of the job or included in the overhead, depending on whether it’s job-specific or common.

Question 35

What is the role of the Loss from Abnormal Rework account?

Answer 35

The Loss from Abnormal Rework account records the costs of rework that go beyond normal expectations, helping to track and manage unexpected production losses.

Question 36

How can a construction company control rework costs?

Answer 36

A construction company can control rework costs by ensuring that quality standards are met at each stage, thus preventing the need for costly repairs or rebuilds later in the project.

Question 37

What is the purpose of allocating spoilage costs in process costing?

Answer 37

Allocating spoilage costs ensures that the costs of wasted or defective units are appropriately included in the cost of production, providing a more accurate picture of total manufacturing costs.

Question 38

How do companies handle abnormal spoilage in electronic manufacturing?

Answer 38

In electronics, abnormal spoilage is treated as a separate loss and recorded separately in financial statements, ensuring that the cost of good units is not distorted.

Question 39

Why is it important to distinguish between normal and abnormal spoilage?

Answer 39

Distinguishing between normal and abnormal spoilage helps in accurately allocating costs to good units, controlling unnecessary waste, and identifying areas for process improvement.