Exam 18: Spoilage, Rework, and Scrap

Spoilage can be a significant cost for many organizations.Discuss when spoilage might happen and how the costs of normal spoilage get allocated.

Answer the following question(s)using the information below.Samantha's Office Supplies manufactures desk organizers in its Processing Department.Direct materials are added at the beginning of the process and conversion costs are incurred evenly throughout the production cycle.Inspection takes place at the end of the process and spoiled units generally constitute 4% of the good units.Data provided for February are as follows: -What are the normal and abnormal spoilage units, respectively, for February when using FIFO?

Which of the following entries would correctly record costs associated with reworked items?

When calculating normal spoilage rates, the base should be the actual units started in production.

For each of the following items identify whether it is spoilage, reworked units, or scrap. A)spoilage B)spoilage and rework -Complex defective products such as semiconductors

For each of the following items identify whether it is spoilage, reworked units, or scrap. A)spoilage B)spoilage and rework -Carpets sold as seconds

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

Accounting for rework in process-costing requires that abnormal rework be distinguished from normal rework.

Which of the following can be used in accounting for spoilage?

Harriette has been reviewing the accounting system for her company and is very concerned about the accounting for spoilage.It appears that spoilage is accounted for only at the end of the processing cycle.While this concept is acceptable in general, Harriette believes that a better method can be found to properly account for the spoilage when it occurs.She believes that there must be something better than the weighted-average method of accounting for spoilage.She would like the company to use a method that provides closer tracking of the spoilage with the accounting for the spoilage.Required: Discuss the problems Harriette is having with the accounting system.

Use the information below to answer the following question(s).Cartwright Custom Carpentry manufactures chairs in its Processing Department, and uses the FIFO cost flow assumption.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 at the end of the process, and spoiled units generally constitute 3 percent of the good output.Information provided for March is as follows: -Boss Cycle generally has spoiled goods during each job.Costs are assigned to normal spoilage at $10.00 per unit and abnormal spoilage at $20.00 per unit.Disposal fees typically run $5.00 per item.Boss Cycle has a policy never to rework spoiled units.Management believes that once a unit is damaged it cannot be reworked into a quality product.The losses are charged back to the specific job.What is the appropriate journal entry if 300 units are considered abnormal spoilage and are not disposed of in a process costing system?

There is no cost attached to scrap.

Shazam Machines produces numerous types of money change machines.All machines are made in the same production department and many use exactly the same processes.Because customers have such different demands for the machine characteristics, the company uses a job costing system.Unfortunately, some of the production managers have been upset for the last few months when their jobs were charged with the spoilage that occurred over an entire processing run of several types of machines.Some of the best managers have even threatened to quit unless the accounting system is changed.Required: What recommendations can you suggest to improve the accounting for spoilage?

Answer the following question(s)using the information below: Hawk Ltd.uses process costing in its Fabricating Department.At the beginning of October, it had 12,000 units in beginning work-in-process that were 40% complete with respect to conversion.During October it put 87,000 units into production and completed 89,000 good units.At October 31, there were 3,000 units in ending work-in-process that were 70% complete with respect to conversion.Direct materials are added at the beginning of the process.Inspection occurs at the end of the process and normal spoilage is 6% of good output.Costs related to the beginning inventory were $36,800 for direct materials and $28,600 for conversion costs.During the month, the company issued $280,000 of direct materials and incurred $599,400 of conversion costs. -Assuming Hawk uses the weighted average method for process costing, the total cost of goods completed and transferred to finished goods is

Viking Sports is a manufacturer of sport swear.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 percent of direct manufacturing labour.Ending work-in-process was 60 percent complete.All spoilage is normal and is detected at end of the process.Required: Prepare a production cost worksheet assuming that spoilage is recognized and the weighted-average method is used.

Marvin Randall had a background in the manufacturing of building bricks.The building brick industry used clay and other material which were first mixed, then aged.After aging, they were molded into shapes, retouched and fired in kilns.The materials were fairly durable and spoilage was not significant.As a result, any spoilage that did occur was not specifically accounted for.Marvin saw the similarities between brick and tile manufacturing and felt that he could apply his knowledge successfully in tile manufacturing and started his business, Randall Tile Ltd.on July 1.In tile manufacturing, as it brick manufacturing, the process starts with the selection of the raw materials including clays.However feldspar, sand, and other materials are used.In the initial stages, it is important that all materials are homogenized; this is done through a wet grinding process.The material output of this process is known as slip.Water content is then removed from the slip through spray-drying .After, the material is moulded , pressed and dried before the tiles are fired.Hydraulic presses are used to guarantee maximum compaction.Consistency in the press cycle time is critical to ensure the tiles have the correct moisture content.If the water content is too high, the tiles will crack or break.Unglazed tiles proceed to firing, whereas glazed tiles must first be covered with one or more layers of glaze.Firing time and temperature are important in the firing process to ensure the resulting product meets required specifications for strength, stability, resistance and easy cleaning.After firing, tiles are inspected for quality.Irregularities in size, shape or colouring will lead to spoiled units.The final step is packing the ceramic tiles.Randall Tile was organized into 4 main departments.: 1)Mixing & Grinding, 2)Moulding & Pressing, 3)Glazing & Firing and 4)Inspecting & Packing.Randall was not manufacturing many glazed tiles, so any glazing that was required was done in the Firing department.The weighted average method of process costing was used in each department, however spoilage was not tracked.Marvin quickly realized that, although the processes in brick and tile manufacturing processes were similar, tile manufacturing required much more precision.After 3 months of operations, he estimated that he had a 50% defect rate when considering all stages of manufacturing.Employees were frustrated by the constant changes in manufacturing as pressing times, firing times, and temperatures were all altered in attempts to improve quality.Furthermore, Marvin believed that both frustration and nervousness led to high spoilage in the packing process.Required: What factors might have contributed to the high defect rate that Marvin noted? What steps might Marvin have taken prior to starting production to minimize defects? What recommendations would you make to Marvin regarding the management accounting system at Randall Tile?

Use the information below to answer the following question(s).Cartwright Custom Carpentry manufactures chairs in its Processing Department, and uses the FIFO cost flow assumption.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 at the end of the process, and spoiled units generally constitute 3 percent of the good output.Information provided for March is as follows: -What are the costs per equivalent unit for direct materials and conversion respectively?

Answer the following questions using the information below: The following table presents the flow of production in units.Assume that there are 5,000 total spoiled units at each stage of completion and that the normal spoilage rate is 3% of good units passing the inspection point. -What is the number of normal spoiled units recognized at the 100% stage of completion?

Starbright Ltd.manufactures sun roof kits.All direct materials are included at the inception of the production process.For June there were 1,500 units in beginning inventory with a direct material cost of $225,000.Direct materials totalled $3,100,000 for the month.Work-in-process records revealed that 20,000 sun roof kits were started in June and that 18,000 were finished.Normal spoilage of 2 percent of units finished was incurred.Ending work-in-process units are complete in respect to direct materials costs.Spoilage is not detected until the process is complete.Starbright Ltd.uses the weighted-average method.Required: a.What are the costs assigned to completed units when spoilage units are recognized and when they are not recognized in the cost per equivalent unit? b.What are the costs transferred out if spoilage units are recognized and if they are ignored? c.What are the amounts allocated to the work-in-process ending inventory when spoilage units are recognized and when spoilage units are ignored?

Companies that attempt to achieve zero defects in the manufacturing process treat all spoilage as which of the following?