To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com CHAPTER DISCUSSION QUESTIONS Q7-1 Quality costs may be grouped into the following three classifications: Prevention costs are the costs incurred to prevent product failure They include the cost of designing high quality products and production systems, including the costs of implementing and maintaining such systems Appraisal costs are the costs incurred to detect product failure They include the cost of inspecting and testing materials, inspecting products during production, and the cost of obtaining information from customers about product satisfaction Failure costs are the costs incurred when a product fails, and may occur internally or externally Internal failure costs are those that occur during the manufacturing or production process (e.g., scrap, spoilage, and rework), and external failure costs are those that occur after the product has been sold (e.g., warranty repairs and replacements, sales refunds, handling customer complaints, and lost sales resulting from poor product quality) Q7-2 TQM stands for total quality management, which is a company-wide approach to quality improvement in all processes and activities TQM is a pervasive philosophy of doing business that applies to all functional areas of the company and to all personnel Q7-3 Five characteristics of TQM systems are: The company’s objective for all business activity is to serve its customers The term “product” is extended to include services as well as goods, and “customer” includes internal users as well as those outside of the company who purchase the company’s products Each employee’s activity is oriented to providing service to the customer Top management provides an active leadership role in the quality improvement movement All employees are actively involved in quality improvement Employees are not only asked to contribute ideas, but also to Q7-4 Q7-5 Q7-6 Q7-7 7-1 find better ways of doing things Involvement can be successful only when there is encouragement and an open and honest environment of trust The company has a system of identifying quality problems, developing solutions, and setting quality improvement objectives This typically involves organizing employees from all ranks and from different organizational units along with managers who have authority to take the necessary action to solve problems The company places a high value on its employees and provides continuous training, as well as recognition for achievement Employees perform best when they are well trained, and they have the greatest capacity to contribute when they are highly educated The concept of continuous quality improvement differs from the concept of quality optimization in that continuous quality improvement is a dynamic process of change under the assumption that the ideal is not an absolute known value; whereas quality optimization is a static approach to finding the best solution to a given set of fixed and known constraints The first problem with trying to inspect quality into the product is that it detects internal failures only after considerable cost has been incurred The second problem is that the magnitude of the cost of the internal failures, detected by inspection, is rarely measured and typically ignored Companies should concentrate their efforts on preventing poor quality rather than on trying to inspect it into the process, because it will result in less total quality cost The approach is founded on the belief that by increasing prevention costs, the cost of internal failures—such as scrap, spoilage, rework, and downtime—will decline by a larger amount than the increase in prevention costs Quality costs should be measured and reported to management in order to provide incentive and direction for improving quality To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-2 Large quality costs indicate large opportunities for improvement Also, measurements provide a basis for monitoring the cost of quality and evaluating improvements Q7-8 Scrap includes (1) the filings and trimmings remaining after processing materials, (2) defective materials that cannot be used or returned to the vendor, and (3) broken parts resulting from employee errors or machine failures Spoiled goods differ from scrap in that they are partially or fully completed units that are in some way defective and are not economically or physically correctable Spoiled goods may be units of the product or component parts, and they may or may not have a salvage value Rework is the process of correcting defective manufactured goods Q7-9 The cost of scrap, spoilage, and rework should not be ignored, because such costs Chapter are often quite high and often result from internal failures that can be eliminated Ignoring the cost of these internal failures sends a signal to managers that such costs are acceptable Reporting such costs provides incentive for improvement, particularly if the costs are large Q7-10 In order to know what to with the cost, the accountant must know whether the spoilage or rework is caused by the customer or by an internal failure If spoilage or rework is the result of a customer requirement, the unrecoverable cost should be charged to the job On the other hand, if the spoilage or rework is the consequence of an internal failure, the unrecoverable cost should be removed from the job (i.e., charged to Factory Overhead Control) and reported to responsible management To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-3 EXERCISES E7-1 (1) (2) (3) (4) E7-2 E7-3 E7-4 E7-5 Accounts Receivable Scrap Sales (or Other Income) 1,650 Accounts Receivable Cost of Goods Sold 1,650 Accounts Receivable Factory Overhead Control 1,650 Accounts Receivable Work in Process 1,650 Spoiled Goods Inventory Factory Overhead Control Work in Process 120 112 1,650 1,650 1,650 1,650 232 $27,000 total job cost/1,000 chairs = $27 cost per chair Spoiled Goods Inventory ($10 × 100 chairs) Factory Overhead Control (($27 – $10) × 100) Finished Goods Inventory ($27 × 900 chairs) Work in Process 1,000 1,700 24,300 Spoiled goods inventory ($100 × 100 units) Cost of Goods Sold Work in Process 10,000 94,000 Factory Overhead Control Materials (100 units × $1.50) Payroll (100 units × 1/4 hour × $10 per hour) Applied Factory Overhead (100 × 1/4 hr × $12 rate) 700 Finished Goods Inventory Work in Process 6,600 27,000 104,000 150 250 300 6,600 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-4 E7-6 Chapter Work in Process Materials (1,000 units × $1) Payroll (1,000 units × 1/6 hour × $15) Applied Factory Overhead (1,000 × 1/6 × $30) 8,500 Cost of Goods Sold Work in Process ($65,000 + $8,500) 73,500 Accounts Receivable ($73,500 × 150%) Sales 110,250 1,000 2,500 5,000 73,500 110,250 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-5 E7-7 (1) Island Company Forming Department Cost of Production Report For August Quantity Schedule Beginning inventory Started in process this period Materials Transferred to Finishing Department Ending inventory Spoiled in process 100% 100% Labor 60% 100% Cost Charged to Department Beginning inventory: Materials Labor Factory overhead Total cost in beginning inventory Cost added during current period: Materials Labor Factory overhead Total cost added during current period Total cost charged to department Cost Accounted for as Follows Transferred to Finishing Department Charge to Factory Overhead for spoilage: Materials Labor Factory overhead Work in Process, ending inventory: Materials Labor Factory overhead Total cost accounted for Units 8,000 Overhead 50% 100% Quantity 1,000 9,000 10,000 8,000 1,500 500 10,000 Total Cost $ 1,260 770 1,400 $ 3,430 Equivalent Units* Unit Cost** $36,240 10,510 21,725 $68,475 $71,905 10,000 9,400 9,250 $3.75 1.20 2.50 $7.45 % Complete Unit Cost 100% $7.45 Total Cost $59,600 500 500 500 100% 100% 100% $3.75 1.20 2.50 $1,875 600 1,250 1,500 1,500 1,500 100% 60% 50% $3.75 1.20 2.50 $5,625 1,080 1,875 3,725 8,580 $71,905 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-6 Chapter E7-7 (Concluded) *Total number of equivalent units required in the cost accounted for section determined as follows: Equivalent units transferred out Equivalent units in ending inventory Equivalent units of spoilage Total equivalent units Materials 8,000 1,500 500 10,000 Labor 8,000 900 500 9,400 Overhead 8,000 750 500 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 Factory Overhead Control Work in Process—Forming Department 59,600 3,725 63,325 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-7 E7-8 (1) Juniper Company Finishing Department Cost of Production Report For July Quantity Schedule Beginning inventory Received from Cutting Department Materials Labor Overhead 40% 100% 20% 100% 20% 100% Transferred to Finished Goods Ending inventory Spoiled in process Cost Charged to Department Beginning inventory: Cost from preceding department Materials Labor Factory overhead Total cost in beginning inventory Cost added during current period: Cost from preceding department Materials Labor Factory overhead Total cost added during current period Total cost charged to department Cost Accounted for as Follows Transferred to Finished Goods Transferred to Spoiled Goods inventory at salvage value Charge to Factory Overhead for spoilage: Cost of completed spoiled units Less salvage value of spoiled units Work in Process, ending inventory: Cost from preceding department Materials Labor Factory overhead Total cost accounted for Units 3,800 Quantity 500 4,500 5,000 3,800 800 400 5,000 Total Cost $ 5,500 1,950 1,180 1,770 $ 10,400 Equivalent Units* Unit Cost** $ 54,500 20,650 16,260 24,390 $115,800 $126,200 5,000 4,520 4,360 4,360 $12.00 5.00 4.00 6.00 $27.00 % Complete Unit Cost 100% $27.00 400 Total Cost $102,600 $10.00 400 400 100% 800 800 800 800 100% 40% 20% 20% 4,000 $27.00 10.00 $10,800 4,000 $12.00 5.00 4.00 6.00 $ 9,600 1,600 640 960 6,800 12,800 $126,200 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-8 Chapter E7-8 (Concluded) *Total number of equivalent units required in the cost accounted for section determined as follows: Equivalent units transferred out Equivalent units in ending inventory Equivalent units of spoilage Total equivalent units Prior Dept Cost Materials 3,800 3,800 800 320 400 400 5,000 4,520 Labor 3,800 160 400 4,360 Overhead 3,800 160 400 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 Spoiled Goods Inventory Factory Overhead Control Work in Process—Finishing Department 102,600 4,000 6,800 113,400 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter E7-9 (1) 7-9 Carver Petroleum Inc Cracking Department Cost of Production Report For May Quantity Schedule Beginning inventory Started in process this period Transferred to Refining Department Ending inventory Lost in process Materials Conversion Cost 100% 70% Cost Charged to Department Beginning inventory: Materials Conversion cost Total cost in beginning inventory Cost added during current period: Materials Conversion cost Total cost added during current period Total cost charged to department Cost Accounted for as Follows Transferred to Refining Department Work in Process, ending inventory: Materials Conversion cost Total cost accounted for Units 49,000 6,000 6,000 Quantity 5,000 55,000 60,000 49,000 6,000 5,000 60,000 Total Cost $ 1,900 240 $ 2,140 Equivalent Units* $20,100 5,080 $25,180 $27,320 55,000 53,200 40 10 $.40 10 $ % Complete Unit Cost 100% $.50 100% 70% Unit Cost** 50 Total Cost $24,500 $2,400 420 2,820 $27,320 *Total number of equivalent units required in the cost accounted for section determined as follows: Equivalent units transferred out Equivalent units in ending inventory Total equivalent units Materials 49,000 6,000 55,000 Conversion Cost 49,000 4,200 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 Work in Process—Cracking Department 24,500 24,500 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-10 Chapter E7-10 APPENDIX (1) Suarez Company Tooling Department Cost of Production Report For March Quantity Schedule Beginning inventory Started this period Transferred to Finishing Department Ending inventory Spoiled in process Materials 100% Labor 70% 100% 100% 60% 90% Overhead 60% 40% 90% Quantity 2,000 13,000 15,000 7,000 3,000 5,000 15,000 Cost Charged to Department Beginning inventory: Materials Labor Factory overhead Total cost in beginning inventory Cost added during current period: Materials Labor Factory overhead Total cost added during current period Total cost charged to department Total Cost $ 1,600 290 950 $ 2,840 Equivalent Units* $ 9,750 2,380 9,200 $21,330 $24,170 13,000 11,900 11,500 Cost Accounted for as Follows Transferred to Finishing Department: From beginning inventory Cost to complete this period: Materials Labor Factory overhead Started and completed this period Total cost transferred to Finishing Department Charge to Factory Overhead for spoilage: Materials Labor Factory overhead Work in Process, ending inventory: Materials Labor Factory overhead Total cost accounted for Unit Cost Units Current % Unit Cost** $.75 20 80 $1.75 Total Cost $2,840 2,000 2,000 2,000 5,000 0% 30% 40% 100% $ 75 20 80 $1.75 120 640 $ 3,600 8,750 $12,350 5,000 5,000 5,000 100% 90% 90% $ 75 20 80 $3,750 900 3,600 3,000 3,000 3,000 100% 60% 40% $ 75 20 80 $2,250 360 960 8,250 3,570 $24,170 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-19 P7-4 (Continued) Billingsley Company Assembling Department Cost of Production Report For April Quantity Schedule Beginning inventory Received from Cutting Department Materials Labor Overhead 80% 100% 20% 100% 20% 100% Transferred to Finished Goods Inventory Ending inventory Spoiled in process Cost Charged to Department Beginning inventory: Cost from preceding department Materials Labor Factory overhead Total cost in beginning inventory Cost added during current period: Cost from preceding department Materials Labor Factory overhead Total cost added during current period Total cost charged to department Cost Accounted for as Follows Transferred to Finished Goods Transferred to Spoiled Goods Inventory at salvage value Charge to Factory Overhead for spoilage: Cost of completed spoiled units Less salvage value of spoiled units Work in Process, ending inventory: Cost from preceding department Materials Labor Factory overhead Total cost accounted for Units 17,000 Quantity 4,000 18,000 22,000 17,000 4,000 1,000 22,000 Total Cost $ 12,000 38,028 3,356 5,034 $ 58,418 Equivalent Units* Unit Cost** 54,000 163,372 15,444 23,166 $255,982 $314,400 22,000 21,200 18,800 18,800 $ 3.00 9.50 1.00 1.50 $15.00 % Complete Unit Cost 100% $15.00 1,000 Total Cost $255,000 $ 3.00 1,000 1,000 100% 4,000 4,000 4,000 4,000 100% 80% 20% 20% 3,000 $15.00 3.00 $15,000 3,000 $3.00 9.50 1.00 1.50 $12,000 30,400 800 1,200 12,000 44,400 $314,400 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-20 Chapter P7-4 (Concluded) * Total number of equivalent units required in the cost accounted for section determined as follows: Equivalent units transferred out Equivalent units in ending inventory Equivalent units of spoilage Total equivalent units Prior Dept Cost Materials 17,000 17,000 4,000 3,200 1,000 1,000 22,000 21,200 Labor 17,000 800 1,000 18,800 Overhead 17,000 800 1,000 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 Factory Overhead Control Work in Process—Cutting Department 54,000 8,550 Finished Goods Inventory Spoiled Goods Inventory Factory Overhead Control Work in Process—Assembling Department 255,000 3,000 12,000 62,550 270,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-21 P7-5 (1) Hulvey Brewery Company Mixing and Brewing Department Cost of Production Report For January Quantity Schedule Beginning inventory Started in process this period Transferred to Canning Department Ending inventory Lost in process Materials 100% Labor 40% Cost Charged to Department Beginning inventory: Materials Labor Factory overhead Total cost in beginning inventory Cost added during current period: Materials Labor Factory overhead Total cost added during current period Total cost charged to department Cost Accounted for as Follows Transferred to Canning Department Work in Process, ending inventory: Materials Labor Factory overhead Total cost accounted for Units 28,000 % Complete 100% 6,000 6,000 6,000 100% 40% 40% Overhead 40% Quantity 4,000 36,000 40,000 28,000 6,000 6,000 40,000 Total Cost $ 600 88 128 $ 816 Equivalent Units* $4,840 824 1,088 $6,752 $7,568 34,000 30,400 30,400 $.16 03 04 $.23 Unit Cost $.23 $.16 03 04 Unit Cost** Total Cost $6,440 $960 72 96 1,128 $7,568 *Total number of equivalent units required in the cost accounted for section determined as follows: Equivalent units transferred out Equivalent units in ending inventory Total equivalent units Materials 28,000 6,000 34,000 Labor 28,000 2,400 30,400 Overhead 28,000 2,400 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 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-22 Chapter P7-5 (Continued) Hulvey Brewery Company Canning Department Cost of Production Report For January Quantity Schedule Beginning inventory Received from Mixing and Brewing Department Transferred to Finished Goods Inventory Ending inventory Spoiled in process Materials Labor Quantity 2,000 28,000 30,000 100% 100% 60% 80% Cost Charged to Department Beginning inventory: Cost from preceding department Materials Labor Factory overhead Total cost in beginning inventory Cost added during current period: Cost from preceding department Materials Labor Factory overhead Total cost added during current period Total cost charged to department Cost Accounted for as Follows Transferred to Finished Goods Inventory Charge to Factory Overhead for spoilage: Cost from preceding department Materials Labor Factory overhead Work in Process, ending inventory: Cost from preceding department Materials Labor Factory overhead Total cost accounted for Overhead 60% 80% 25,000 1,000 4,000 30,000 Total Cost $ 550 190 75 150 $ 965 Equivalent Units* Unit Cost** $ 6,440 1,520 789 1,578 $10,327 $11,292 30,000 30,000 28,800 28,800 $.233 057 030 060 $.380 Units 25,000 % Complete 100% Unit Cost $.380 4,000 4,000 4,000 4,000 100% 100% 80% 80% $.233 057 030 060 $932 228 96 192 1,000 1,000 1,000 1,000 100% 100% 60% 60% $.233 057 030 060 $233 57 18 36 Total Cost $ 9,500 1,448 344 $11,292 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-23 P7-5 (Concluded) *Total number of equivalent units required in the cost accounted for section determined as follows: Prior Dept Cost Materials Equivalent units transferred out 25,000 25,000 Equivalent units in ending inventory 1,000 1,000 Equivalent units of spoilage 4,000 4,000 Total equivalent units 30,000 30,000 Labor 25,000 600 3,200 28,800 Overhead 25,000 600 3,200 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 Work in Process—Mixing and Brewing Department 6,440 Finished Goods Inventory Factory Overhead Control Work in Process—Canning Department 9,500 1,448 6,440 10,948 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-24 Chapter P7-6 APPENDIX (1) Hadenville Tool Company Fabricating Department Cost of Production Report For April Quantity Schedule Beginning inventory Started this period Transferred to Finishing Department Ending inventory Spoiled in process Materials 100% Labor 70% 100% 100% 40% 60% Cost Charged to Department Beginning inventory: Materials Labor Factory overhead Total cost in beginning inventory Cost added during current period: Materials Labor Factory overhead Total cost added during current period Total cost charged to department Overhead 70% 40% 60% Quantity 2,000 9,000 11,000 9,000 1,500 500 11,000 Total Cost $ 1,900 340 1,020 $ 3,260 Equivalent Units* Unit Cost** $ 9,180 2,125 6,375 $17,680 $20,940 9,000 8,500 8,500 $1.02 25 75 $2.02 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-25 P7-6 APPENDIX (Continued) Cost Accounted for as Follows Transferred to Finishing Department: From beginning inventory Cost to complete this period: Labor Factory overhead Started and completed this period Total cost transferred to Finishing Department Charge to Factory Overhead for spoilage: Materials Labor Factory overhead Work in Process, ending inventory: Materials Labor Factory overhead Total cost accounted for Units Current % Unit Cost Total Cost $3,260 2,000 2,000 7,000 30% 30% 100% $ 25 75 $2.02 150 450 $ 3,860 14,140 $18,000 500 500 500 100% 60% 60% $1.02 25 75 $ 510 75 225 1,500 1,500 1,500 100% 40% 40% $1.02 25 75 $1,530 150 450 810 2,130 $20,940 *Number of equivalent units of cost added during the current period determined as follows: To complete beginning inventory Started and completed this period Ending inventory Spoiled units Total equivalent units Materials 7,000 1,500 500 9,000 Labor 600 7,000 600 300 8,500 Overhead 600 7,000 600 300 8,500 ** Cost added during the current period divided by the number of equivalent units of cost added during the current period To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-26 Chapter P7-6 APPENDIX (Continued) Hadenville Tool Company Finishing Department Cost of Production Report For April Quantity Schedule Beginning inventory Received from Fabricating Department Transferred to Finished Goods Ending inventory Spoiled in process Materials 100% Labor 40% Overhead 40% 100% 100% 60% 100% 60% 100% Cost Charged to Department Beginning inventory: Cost from preceding department Materials Labor Factory overhead Total cost in beginning inventory Cost added during current period: Cost from preceding department Materials Labor Factory overhead Total cost added during current period Total cost charged to department Quantity 3,000 9,000 12,000 9,900 2,000 100 12,000 Total Cost $ 6,100 3,500 520 780 $10,900 Equivalent Units* Unit Cost** $18,000 10,800 4,000 6,000 $38,800 $49,700 9,000 9,000 10,000 10,000 $2.00 1.20 40 60 $4.20 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-27 P7-6 APPENDIX (Concluded) Cost Accounted for as Follows Transferred to Finished Goods: From beginning inventory Cost to complete this period: Labor Factory overhead Started and completed this period Total cost transferred to Finished Goods Transferred to Spoiled Goods Inventory at salvage value Charge to Factory Overhead for spoilage: Cost of completed spoiled units Less salvage value of spoiled units Work in Process, ending inventory Cost from preceding department Materials Labor Factory overhead Total cost accounted for Units Current % Unit Cost Total Cost $10,900 3,000 3,000 6,900 60% 60% 100% 100 $ 40 60 $4.20 720 1,080 $1.00 100 100 100% 2,000 2,000 2,000 2,000 100% 100% 60% 60% $12,700 28,980 $41,680 100 $4.20 1.00 $ 420 100 $2.00 1.20 40 60 $ 4,000 2,400 480 720 320 7,600 $49,700 * Number of equivalent units of cost added during the current period determined as follows: To complete beginning inventory Started and completed this period Ending inventory Spoiled units Total equivalent units Prior Dept Cost Materials 0 6,900 6,900 2,000 2,000 100 100 9,000 9,000 Labor 1,800 6,900 1,200 100 10,000 Overhead 1,800 6,900 1,200 100 10,000 ** Cost added during the current period divided by the number of equivalent units of cost added during the current period (2) Work in Process—Finishing Department Factory Overhead Control Work in Process—Fabricating Department 18,000 810 Finished Goods Inventory Spoiled Goods Inventory Factory Overhead Control Work in Process—Finishing Department 41,680 100 320 18,810 42,100 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-28 Chapter P7-7 APPENDIX (1) Carlton Chemical Company Distillation Department Cost of Production Report For June Quantity Schedule Beginning inventory Started this period Transferred to Refining Department Ending inventory Lost in process Materials 100% Labor 20% 100% 80% Cost Charged to Department Beginning inventory: Materials Labor Factory overhead Total cost in beginning inventory Coat added during current period: Materials Labor Factory overhead Total cost added during current period Total cost charged to department Overhead 20% 80% Quantity 4,000 16,000 20,000 14,000 2,000 4,000 20,000 Total Cost $ 3,624 96 480 $ 4,200 Equivalent Units* Unit Cost** $10,800 1,480 7,400 $19,680 $23,880 12,000 14,800 14,800 $ 90 10 50 $1.50 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-29 P7-7 APPENDIX (Continued) Cost Accounted for as Follows Transferred to Refining Department: From beginning inventory Cost to complete this period: Labor Factory overhead Started and completed this period Total cost transferred to Refining Department Work in Process, ending inventory: Materials Labor Factory overhead Total cost accounted for Units Current % Unit Cost Total Cost $4,200 4,000 4,000 10,000 80% 80% 100% $ 10 50 $1.50 320 1,600 $ 6,120 15,000 $21,120 2,000 2,000 2,000 100% 80% 80% $ 90 10 50 $1,800 160 800 2,760 $23,880 * Number of equivalent units of cost added during the current period determined as follows: To complete beginning inventory Started and completed this period Ending inventory Total equivalent units Materials 10,000 2,000 12,000 Labor 3,200 10,000 1,600 14,800 Overhead 3,200 10,000 1,600 14,800 ** Cost added during the current period divided by the number of equivalent units of cost added during the current period To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-30 Chapter P7-7 APPENDIX (Continued) Carlton Chemical Company Refining Department Cost of Production Report For June Quantity Schedule Beginning inventory Received from Distillation Department Transferred to Finished Goods Inventory Ending inventory Lost in process Materials 100% Labor 50% 100% 30% Overhead 50% 30% Quantity 2,000 14,000 16,000 12,000 2,000 2,000 16,000 Cost Charged to Department Beginning inventory: Cost from preceding department Materials Labor Factory overhead Total cost in beginning inventory Cost added during current period: Cost from preceding department Materials Labor Factory overhead Total cost added during current period Total cost charged to department Total Cost $ 3,500 240 160 900 $ 4,800 Equivalent Units* Unit Cost** $21,120 1,440 1,740 10,440 $34,740 $39,540 12,000 12,000 11,600 11,600 $1.76 12 15 90 Cost Accounted for as Follows Transferred to Finished Goods: From beginning inventory Cost to complete this period: Labor Factory overhead Started and completed this period Total cost transferred to Finished Goods Work in Process, ending inventory: Cost from preceding department Materials Labor Factory overhead Total cost accounted for Unit Cost Units Current % $2.93 Total Cost $4,800 2,000 2,000 10,000 50% 50% 100% $ 15 90 $2.93 150 900 $ 5,850 29,300 $35,150 2,000 2,000 2,000 2,000 100% 100% 30% 30% $1.76 12 15 90 $3,520 240 90 540 4,390 $39,540 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-31 P7-7 APPENDIX (Concluded) *Number of equivalent units of cost added during the current period determined as follows: To complete beginning inventory Started and completed this period Ending inventory Total equivalent units Prior Dept Cost Materials 0 10,000 10,000 2,000 2,000 12,000 12,000 Labor 1,000 10,000 600 11,600 Overhead 1,000 10,000 600 11,600 ** Cost added during the current period divided by the number of equivalent units of cost added during the current period (2) Work in Process—Refining Department Work in Process—Distillation Department 21,120 Finished Goods Inventory Work in Process—Refining Department 35,150 21,120 35,150 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com 7-32 Chapter CASES C7-1 Although improvement in product quality was clearly a stated goal at Star Disk Corporation, the company’s reward structure suggests otherwise Employees cannot be expected to put quality first if rewards are dispensed for achieving objectives that are often in conflict with quality improvement (i.e., short-run production volume goals) The quality improvement effort seems to have been focused solely on manufacturing activity, and the approach taken seems to have been to improve quality by inspecting it into the product Such an approach is inadequate, because it waits too late in the process (i.e., after costs have been incurred in manufacturing defective products, instead of before) and focuses on only one piece of the problem rather than the whole problem In order to turn the problem around, top management must become actively involved The reward structure should be changed to ensure compatibility with quality goals Quality teams that include employees from all business functions (product design as well as manufacturing) and all levels (labor as well as management) should be created to help identify quality problems and find ways to solve the identified problems Top management should actively participate in these teams in order to emphasize the importance of quality, coordinate efforts between organization units, and provide direction Employees are more likely 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 respective customers The data presented in the case suggest that managers from the different departments put all their attention on meeting production volume goals rather than on meeting the needs of their customers (i.e., the department receiving their output) Although product inspection should be continued, emphasis should be shifted to preventing poor quality rather than detecting it Prevention should start with product design and extend throughout the entire manufacturing process 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 quality and reduce production variability To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 7-33 C7-1 (Concluded) A few of the biggest and most urgent problems should be identified and tackled In order to achieve results, effort should be concentrated on a few costly problems that can be solved Tackling too many problems results in dispersed efforts and little observable accomplishment Improving quality takes time and never ends The company and its employees need some successes to build confidence and create the momentum needed to turn the quality problem around 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 measured, management cannot evaluate the significance of the problem In addition, since these costs are not measured, employees have no incentive to reduce or eliminate them Treating scrap, spoilage, and rework as a normal production cost encourages such waste As a consequence, overall costs rise The company’s cost accountants should develop a system of determining the cost of scrap, spoilage, and rework; implement the system (i.e., begin measuring such costs); and report these costs to responsible managers If the cost of scrap, spoilage, and rework is high, management should initiate a quality improvement program that concentrates on preventing these internal failures This may involve organizing employee quality teams to identify problems and develop solutions, locating new vendors to obtain higher quality materials, redesigning products to improve quality, modifying or upgrading manufacturing machinery, training or retraining employees, and/or reorganizing the production processes ... Conversion Cost 49,000 4,200 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. .. Materials Conversion Cost 100% 70% Cost Charged to Department Beginning inventory: Materials Conversion cost Total cost in beginning inventory Cost added during current... 500 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