Exam 18: Spoilage, Rework, and Scrap

Dynalia Florists operate a flower shop. Because most of their orders are via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is $5.25: $3.50 for labor, $1.25 for more flowers, and $0.50 for overhead. This ratio of costs holds for the average original order. On a recent day, the shop reworked 40 orders out of 250. The original cost of the 40 orders totaled $700. The average cost of all orders is $18.34, including rework, with an average selling price of $25. Required: Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to Arrangement Department Overhead Control. Prepare a journal entry to transfer the finished goods to Finished Goods Inventory.

Outose Concept manufactures small tables in its Processing Department. Direct materials are added at the initiation of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Before inspection, some units are spoiled due to undetectable materials defects. Spoiled units generally constitute 4% of the good units. Data for December 2017 are as follows: Normal spoilage totals ________.

Scrap is usually divided between normal and abnormal scrap.

Units spoiled due to machine breakdowns and operator errors are normal spoilage.

Costs of abnormal spoilage are separately accounted for as losses of the period.

Which of the following statements is true of normal spoilage?

To simplify calculations under FIFO, spoiled units are accounted for as if they were started in the current period.

Costs of abnormal spoilage are considered inventoriable and are written off as a period expense.

Which of the following best describes scrap?

Cost of spoiled units equals ________.

Springfield Sign Shop manufactures only specific orders. It uses a standard cost system. During one large order for the airport authority, an unusual number of signs were spoiled. The normal spoilage rate is 10% of units started. The point of first inspection is half way through the process, the second is three-fourths through the process, and the final inspection is at the end of the process. Other information about the job is as follows: Signs started3,000 Signs spoiled450 Required: Make necessary journal entries to record all spoilage.

Which of the following is an example of spoilage?

Colil Computer Systems, Inc., manufactures printer circuit cards. All direct materials are added at the inception of the production process. During January, the accounting department noted that there was no beginning inventory. Direct materials of $301,000 were used during the month. Work-in-process records revealed that 11,000 card units were started in January, 5500 card units were complete, and 5400 card units were spoiled as expected. Ending work-in-process card units are complete in respect to direct materials costs. Spoilage is not detected until the process is complete. What is the amount allocated to the work-in-process ending inventory? (Round any cost per unit calculations to the nearest cent.)

The first step in the five-step procedure for process costing with spoilage is to compute the output in terms of equivalent units.

Reworked goods are unacceptable units of production usually NOT capable of being repaired or converted into a salable product.

The downside to conducting inspections at too early a stage is that units spoiled at later stages of the process may go undetected.

Identify the appropriate order of the following steps in the procedure for process costing with spoilage. a.summarize total costs to account for b.assign total costs to units completed, to spoiled units, and to units in ending inventory c.summarize the flow of physical units d.compute output in terms of equivalent units e.compute cost per equivalent unit Step 1 ________ Step 2 ________ Step 3 ________ Step 4 ________ Step 5 ________

How do job-costing systems account for spoilage?

Costs of abnormal spoilage are usually accounted for as ________.

When assigning costs, job-costing systems generally distinguish normal spoilage attributable to a specific job from normal spoilage common to all jobs.