Exam 18: Spoilage, Rework, and Scrap

When the amount of scrap is material and the scrap is sold immediately after it is produced, which of the following is the journal entry if the scrap attributable to a specific job is sold on account?

If a company inspects units only at the end of the production process, the units in ending work-in-process inventory are not assigned any costs of normal spoilage.

700 shirts are sold as seconds at $18 per shirt. Cost of spoiled shirts is $501,400. Cost of shirts at inspection point equals $9,508,000. Calculate the net cost of the spoilage.

New Image Sports uses a process-costing system. For March, the company had the following activities: Direct materials are placed into production at the beginning of the process. All spoilage is normal and is detected at the end of the process. Ending WIP is 60% completed as to conversion. Required: Prepare a production cost worksheet using the FIFO method.

There is no difference between scrap which can be sold for relatively small amount and a byproduct.

If scrap, common to all jobs, is returned to the storeroom, the journal entry is ________.

An item classified as spoilage has no value.

When inventories are present, classifying spoilage as normal rather than abnormal results in an decrease in current operating income.

Spoilage and rework costs are thoroughly captured in the accounting system.

In job-costing systems, abnormal spoilage costs are considered to be inventoriable costs and normal spoilage costs are not considered to be inventoriable costs and are written off as costs of the accounting period in which the abnormal spoilage is detected.

Under the weighted-average method, the costs of normal spoilage are added to the costs of their related good units. Hence, the cost per good unit completed and transferred out equals the total costs transferred out divided by the number of good units produced.

Samantha's Office Supplies manufactures desk organizers in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for February 2017 are as follows: Which of the following journal entries correctly represents the transfer of completed goods begun during February using the FIFO method of process costing? (Round any cost per unit calculations to the nearest cent.)

The costs of normal spoilage are typically included as a component of the costs of good units manufactured.

Normal spoilage costs are usually deducted from the costs of good units.

Normal spoilage is spoilage that is NOT considered to be inherent in a production process.

Robolane Incorporated manufactures and distributes small robotic toys. Because most of its orders are via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is $12.45: $5 for labor, $5.15 for more materials, and $2.30 for overhead. This ratio of costs holds for the average original order. On a recent day, the shop reworked 80 orders out of 800. The original cost of the 80 orders totaled $2,000. The average cost of all orders is $26.245, including rework, with an average selling price of $35. Required: Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to Robo Department Overhead Control. Prepare journal entries to record all relevant rework charges as well as to transfer the reworked items finished goods to Finished Goods Inventory.

Under efficient operating conditions, all spoilage is considered to be abnormal spoilage.

Samantha's Office Supplies manufactures desk organizers in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to undetectable material defects. Spoiled units generally constitute 3% of the good units. Data provided for February 2017 are as follows: What are the direct material and conversion costs of all the units that were initially in the beginning work-in-process inventory and were subsequently shipped? Take into account the costs related to the completion of the conversion of the units during the month. Use the FIFO method of process costing. (Round any cost per unit calculations to the nearest cent.)

What are the advantages of costing rework?

Weather Instruments assembles products from component parts. It has two departments that process all products. During January, the beginning work in process in the assembly department was half complete as to conversion and complete as to direct materials. The beginning inventory included $12,000 for materials and $4,000 for conversion costs. Overhead is applied at the rate of 50% of direct manufacturing labor costs. Ending work-in-process inventory in the assembly department was 40% complete. All spoilage is considered normal and is detected at the end of the process. Required: Prepare a production cost worksheet using weighted-average for the assembly department>