Exam 18: Spoilage, Rework, and Scrap

Verer Custom Carpentry manufactures chairs 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 March 2017 are as follows: What are the normal and abnormal spoilage units, respectively, for March when using FIFO?

Which of the following entries reflects the original cost assignment to spoiled units before considering rework cost?

Early inspections can ________.

There is a tradeoff between the speed of production and the normal spoilage rate.

Rework is finished production that is NOT in accordance with customer desires. The product is redone and sold as finished goods.

Which one of the following conditions usually exists when comparing normal and abnormal spoilage to controllability?

When rework is normal and NOT attributable to a specific job, the costs of rework are charged to manufacturing overhead and are spread, through overhead allocation, over all jobs.

You are the chief financial officer of a lumber mill, and you are becoming quite concerned about the spoilage, scrap, and reworked items associated with your production processes. Your firm produces mainly products for the building industry. Required: Discuss the problems associated with these items and the methods your company can use to reduce spoilage, scrap, and reworked items.

Distinguish among spoilage, reworked units, and scrap. Give an example of each.

Firms often conduct multiple inspections to avoid instances of undetected spoiled units at later stages of the process.

How does inspecting at various stages of completion affect the amount of normal and abnormal spoilage?

Abnormal spoilage is spoilage that should arise under efficient operating conditions.

Venosis Sports is a manufacturer of sportswear. It produces all of its products in one department. The information for the current month is as follows: Beginning work in process was half complete as to conversion. Direct materials are added at the beginning of the process. Factory overhead is applied at a rate equal to 50% of direct manufacturing labor. Ending work in process was 60% complete. All spoilage is normal and is detected at end of the process. Required: Prepare a production cost worksheet if spoilage is recognized and the weighted-average method is used.

Recognizing the value of scrap in the accounting records is always done at the time the scrap is produced.

Under the FIFO method, all spoilage costs are assumed to be related to the units completed during this period using the unit costs of the current period.

The inspection point is the ________.

Which of the following statements is true of an abnormal spoilage?

Spoilage always occurs at beginning stages of a production process and can be detected only at the end of process.

Which of the following statement is true of costs of normal and abnormal spoilage?

Costs of abnormal spoilage are NOT considered to be inventoriable costs and are written off as costs of the accounting period in which the abnormal spoilage is detected.