24) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just–in-time
production and accounting methodology. At the beginning of January, selected account balances are shown in the
T-accounts below.
During January, the following 5 transactions take place:
1. Purchase $40,000 of materials on account.
2. Pay out $25,000 of direct labor costs.
3. Incur $9,000 of manufacturing overhead costs.
4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing
overhead costs.
5. Sell 10 of the 12 completed units at a price of $2,200.
Use the T-accounts shown above to record the transactions, and then answer the following question:
After transaction number 3, what was the balance in the Raw and in-process inventory account?
A) $40,000
B) $76,000
C) $67,000
D) $42,000
25) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just–in-time
production and accounting methodology. At the beginning of January, selected account balances are shown in the
T-accounts below.
During January, the following 5 transactions take place:
1. Purchase $40,000 of materials on account.
2. Pay out $25,000 of direct labor costs.
3. Incur $9,000 of manufacturing overhead costs.
4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing
overhead costs.
5. Sell 10 of the 12 completed units at a price of $2,200.
Use the T-accounts shown above to record the transactions, and then answer the following question:
After transaction number 3, what was the balance in the Conversion costs account?
A) $29,000
B) $74,000
C) $34,000
D) $25,000
26) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just–in-time
production and accounting methodology. At the beginning of January, selected account balances are shown in the
T-accounts below.
During January, the following 5 transactions take place:
1. Purchase $40,000 of materials on account.
2. Pay out $25,000 of direct labor costs.
3. Incur $9,000 of manufacturing overhead costs.
4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of
manufacturing overhead costs.
5. Sell 10 of the 12 completed units at a price of $2,200.
Use the T-accounts shown above to record the transactions, and then answer the following question:
After transaction number 4, what was the balance in the Raw and in-process inventory account?
A) $24,000
B) $22,000
C) $15,000
D) $25,000
27) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just–in-time
production and accounting methodology. At the beginning of January, selected account balances are shown in the
T-accounts below.
During January, the following 5 transactions take place:
1. Purchase $40,000 of materials on account.
2. Pay out $25,000 of direct labor costs.
3. Incur $9,000 of manufacturing overhead costs.
4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing
overhead costs.
5. Sell 10 of the 12 completed units at a price of $2,200.
Use the T-accounts shown above to record the transactions, and then answer the following question:
After transaction number 4, what was the balance in the Conversion costs account?
A) $28,600
B) $50,600
C) $21,400
D) $3,600
28) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just-in-time
production and accounting methodology. At the beginning of January, selected account balances are shown in the
T-accounts below.
During January, the following 5 transactions take place:
1. Purchase $40,000 of materials on account.
2. Pay out $25,000 of direct labor costs.
3. Incur $9,000 of manufacturing overhead costs.
4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing
overhead costs.
5. Sell 10 of the 12 completed units at a price of $2,200.
Use the T-accounts shown above to record the transactions, and then answer the following question:
After transaction number 4, what was the balance in the Finished goods inventory account?
A) $28,600
B) $18,600
C) $23,400
D) $26,900
29) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just–in-time
production and accounting methodology. At the beginning of January, selected account balances are shown in the
T-accounts below.
During January, the following 5 transactions take place:
1. Purchase $40,000 of materials on account.
2. Pay out $25,000 of direct labor costs.
3. Incur $9,000 of manufacturing overhead costs.
4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of
manufacturing overhead costs.
5. Sell 10 of the 12 completed units at a price of $2,200.
Use the T-accounts shown above to record the transactions, and then answer the following question:
After transaction number 5, what was the balance in the Conversion costs account?
A) $28,600
B) $19,600
C) $24,900
D) $16,400
30) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just–in-time
production and accounting methodology. At the beginning of January, selected account balances are shown in the
T-accounts below.
During January, the following 5 transactions take place:
1. Purchase $40,000 of materials on account.
2. Pay out $25,000 of direct labor costs.
3. Incur $9,000 of manufacturing overhead costs.
4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing
overhead costs.
5. Sell 10 of the 12 completed units at a price of $2,200.
Use the T-accounts shown above to record the transactions, and then answer the following question:
After transaction number 5, what was the balance in the Finished goods inventory account?
A) $3,900
B) $7,400
C) $13,900
D) $6,900
31) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just–in-time
production and accounting methodology. At the beginning of January, selected account balances are shown in the
T-accounts below.
During January, the following 5 transactions take place:
1. Purchase $40,000 of materials on account.
2. Pay out $25,000 of direct labor costs.
3. Incur $9,000 of manufacturing overhead costs.
4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing
overhead costs.
5. Sell 10 of the 12 completed units at a price of $2,200.
Use the T-accounts shown above to record the transactions, and then answer the following question:
After transaction number 5, what was the balance in the Raw and in-process inventory account?
A) $25,400
B) $36,600
C) $22,000
D) $24,000
32) Archetype Fabrication makes pre-stressed concrete forms for the building industry. They use just–in-time
production and accounting methodology. At the beginning of January, selected account balances are shown in the
T-accounts below.
During January, the following 5 transactions take place:
1. Purchase $40,000 of materials on account.
2. Pay out $25,000 of direct labor costs.
3. Incur $9,000 of manufacturing overhead costs.
4. Complete 12 units. Each unit includes $1,500 of materials, $300 of direct labor, and $150 of manufacturing
overhead costs.
5. Sell 10 of the 12 completed units at a price of $2,200.
Use the T-accounts shown above to record the transactions, and then answer the following question:
How much was the cost of goods sold?
A) $23,400
B) $19,500
C) $22,000
D) $25,600
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33) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson
purchased $4,000 of raw materials on account. Please provide the journal entry.
Raw and in-process inventory
34) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid
direct labor costs of $5,000 in cash. Please provide the journal entry.
Conversion costs
35) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid
$6,000 for factory repair and maintenance costs in cash. Please provide the journal entry.
Conversion costs
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36) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson
completed 400 units of product and moved the products to finished goods. Each unit included $8.00 of direct
materials cost and $2.00 of conversion costs. Please provide the journal entry.
Finished goods inventory
37) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson sold
200 units of product for $12.00 per unit. Each unit included $8.00 of direct materials cost and $2.00 of conversion
costs. Johnson recorded the revenues of $2,400 in one entry, and then recorded the cost of goods sold in a second
entry. Please provide the journal entry to record the cost of goods sold.
Cost of goods sold
Learning Objective 18-4
1) Inspection of incoming materials and production loss caused by downtime are examples of prevention costs.
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2) Internal failure costs occur when poor-quality goods or services are not detected until after delivery to customers.
3) Costs spent to avoid poor quality goods are considered internal failure costs.
4) Internal failure costs occur when the company detects and corrects poor-quality goods or services before delivery
to customers.
5) Costs spent to detect poor-quality goods are considered appraisal costs.
6) Costs incurred when the company corrects for poor-quality goods before they are delivered to the customer are
considered internal failure costs.
7) Costs incurred after the company sells poor-quality goods to the customer are considered external failure costs.
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8) Alonzo Company has been experiencing lost sales and high returns recently, so they decided to undertake a
comprehensive quality program. Here are factors being considered:
Estimated lost profits due to poor quality products $200,000
Excessive warranty repair costs $60,000
Costs of correcting for defective goods on the assembly line $10,000
If the cost of implementing the quality program is under $270,000, the company should go forward with it.
9) Nirvana Products Company has just gone through a rigorous evaluation due to sliding profits in the past year.
The engineers strongly recommend implementing an aggressive preventative maintenance program, but the
accountants say it will cost $50,000. The lawyers insist on a zero-defect product inspection as the units are being
packaged, but the accountants say it will cost $40,000. The vice president for production said he just thought it was
too expensive of a gamble to take, but the factory manager pointed out that if they did not look ahead at the
consequences, they could easily lose $100,000 of sales to their competitors because of shoddy goods, and a costly
production shutdown that would cost them another $100,000 if the machinery gives out unexpectedly.
In this situation, the company should not invest in the quality programs being recommended because they are not
justified on a cost/benefit basis.
10) Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti
immediately conducted a thorough study of the new company’s work processes, and produced a report including the
data shown below:
• A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to
implement.
• Shoddy business practices are resulting in excessive warranty costs $15,000 more than normal due mainly to
material failure.
• Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
• Inefficient workplace design is costing $5,000 in unnecessary rework costs.
• Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
Based on an analysis of costs and benefits, a quality improvement plan would not be recommended.
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11) Which of the following is NOT an internal failure cost?
A) Production losses caused by downtime
B) Warranty costs
C) Rework costs
D) Rejected product units
12) Which of the following categories includes costs incurred in detecting poor quality goods or services?
A) External failure costs
B) Prevention costs
C) Appraisal costs
D) Internal failure costs
13) Which of the following categories includes costs incurred when poor quality goods or services are detected
before delivery to customers?
A) Appraisal costs
B) Internal failure costs
C) Prevention costs
D) External failure costs
14) The cost of inspection at various stages of production is an example of what type of cost?
A) Appraisal cost
B) External failure cost
C) Prevention cost
D) Internal failure cost
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15) The cost of reengineering the production process to reduce defect rate is an example of which of the following?
A) Internal failure cost
B) Appraisal cost
C) External failure cost
D) Prevention cost
16) What do you call the costs incurred to avoid production of poor quality goods or services?
A) External failure costs
B) Internal failure costs
C) Appraisal costs
D) Prevention costs
17) The cost of warranty work comes under which of the following cost categories?
A) Appraisal cost
B) Internal failure cost
C) External failure cost
D) Prevention cost
18) The cost to improve equipment and processes comes under which of the following cost categories?
A) Prevention cost
B) External failure cost
C) Appraisal cost
D) Internal failure cost
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19) The cost of product liability claims comes under which category of costs?
A) Appraisal cost
B) Prevention cost
C) Internal failure cost
D) External failure cost
20) The lost profits from losing customers would come under which of the following categories?
A) Prevention cost
B) Appraisal cost
C) External failure cost
D) Internal failure cost
21) The cost of training personnel is an example of an:
A) appraisal cost.
B) prevention cost.
C) internal failure cost.
D) external failure cost.
22) Losses caused by downtime in the production process are considered a(n):
A) external failure cost.
B) prevention cost.
C) appraisal cost.
D) internal failure cost.
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23) Perkins Company has been experiencing lost sales and high returns recently, so they decided to undertake a
comprehensive quality program. Here are factors being considered:
Finished products need to be inspected before shipping Estimated cost: $45,000
Production equipment needs upgrading Estimated cost: $400,000
Perkins knows that if it undertakes this program, it will be able to reduce warranty repair costs by $25,000. They
also know they will be able to avoid lost profits by retaining customers, but they cannot quantify that benefit with
any degree of precision. Should Perkins go ahead with the quality program?
A) Yes, they should, regardless of any other considerations.
B) No, they should not.
C) They should, only if the benefit of avoiding lost profits is estimated to be over $420,000.
D) They should, only if the benefit of avoiding lost profits is estimated to be over $445,000.
24) Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti
immediately conducted a thorough study of the new company’s work processes, and produced a report including the
data shown below:
• A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to
implement.
• Shoddy business practices are resulting in excessive warranty costs $15,000 more than normal due mainly to
material failure.
• Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
• Inefficient workplace design is costing $5,000 in unnecessary rework costs.
• Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
Based on the above, what is the amount of prevention costs, if any, included here?
A) $18,000
B) $12,000
C) $15,000
D) Zero
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25) Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti
immediately conducted a thorough study of the new company’s work processes, and produced a report including the
data shown below:
• A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to
implement.
• Shoddy business practices are resulting in excessive warranty costs $15,000 more than normal due mainly to
material failure.
• Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
• Inefficient workplace design is costing $5,000 in unnecessary rework costs.
• Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
Based on the above, what is the amount of appraisal costs, if any, included here?
A) $18,000
B) $12,000
C) $15,000
D) Zero
26) Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti
immediately conducted a thorough study of the new company’s work processes, and produced a report including the
data shown below:
• A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to
implement.
• Shoddy business practices are resulting in excessive warranty costs $15,000 more than normal due mainly to
material failure.
• Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
• Inefficient workplace design is costing $5,000 in unnecessary rework costs.
• Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
Based on the above, what is the amount of internal failure costs, if any, included here?
A) $5,000
B) $12,000
C) $15,000
D) Zero
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27) Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti
immediately conducted a thorough study of the new company’s work processes, and produced a report including the
data shown below:
• A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to
implement.
• Shoddy business practices are resulting in excessive warranty costs $15,000 more than normal due mainly to
material failure.
• Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
• Inefficient workplace design is costing $5,000 in unnecessary rework costs.
• Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
Based on the above, what is the amount of external failure costs, if any, included here?
A) $5,000
B) $12,000
C) $95,000
D) Zero