Exam 18: Spoilage, Rework, and Scrap

Answer the following questions using the information below: Triboro 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 purchases totaled $200,000 during the month. Work-in-process records revealed that 8,000 card units were started in January, 4,000 card units were complete, and 3,000 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 cost transferred out assuming spoilage units are ignored?

Answer the following questions using the information below: Fish Fillet Incorporated obtains fish and then processes them into frozen fillets and then prepares the frozen fish fillets for distribution to its retail sales department. Direct materials are added at the initiation of the cycle. Conversion costs are incurred evenly throughout the production cycle. Before inspection, some fillets are spoiled due to nondetectible defects. Inspection occurs when units are 50% converted. Spoiled fillets generally constitute 3.5% of the good fillets. Data for April 2012 are as follows: Costs for April: -Abnormal spoilage totals:

Answer the following questions using the information below: Craft 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 nondetectible materials defects. Inspection occurs when units are 50% converted. Spoiled units generally constitute 5% of the good units. Data for December 2012 are as follows: Costs for December: -What are the amounts of direct materials and conversion costs assigned to ending work in process using the weighted-average process-costing method?

When the amount of scrap is immaterial, the easiest accounting entry when recording scrap sold for cash is:

Costs of abnormal spoilage are usually accounted for as:

Answer the following questions using the information below: 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 nondetectible material defects. Spoiled units generally constitute 4% of the good units. Data provided for February 2012 are as follows: Costs: -What costs are allocated to the ending work-in-process inventory for direct materials and conversion costs, respectively, using the FIFO method of process costing?

NOT counting spoiled units in the equivalent-unit calculation results in:

The standard-costing method:

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

Answer the following questions using the information below: 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 nondetectible material defects. Spoiled units generally constitute 4% of the good units. Data provided for February 2012 are as follows: Costs: -What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing?

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.

When spoiled goods have a disposal value, the net cost of spoilage is computed by adding the disposal value to the costs of the spoiled goods accumulated to the inspection point.

The Harleysville Manufacturing Shop produces motorcycle parts. Typically, 10 pieces out of a job lot of 1,000 parts are spoiled. Costs are assigned at the inspection point, $50.00 per unit. Spoiled pieces may be disposed at $10.00 per unit. The spoiled goods must be inventoried appropriately when the normal spoilage is detected. Job 101 requires the production of 2,500 good parts. Which of the following journal entries would be correct if the spoilage occurred due to specifications required for Job 101?

An item classified as spoilage has no value.

Answer the following questions using the information below: Triboro 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 purchases totaled $200,000 during the month. Work-in-process records revealed that 8,000 card units were started in January, 4,000 card units were complete, and 3,000 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 direct material cost assigned to good units completed when spoilage units are recognized?

When the dollar amount of scrap is immaterial, the simplest accounting is to record the physical quantity of scrap returned to the storeroom and to regard scrap sales as a separate line item in the income statement.

Endicott Shoes manufactures shoes. All direct materials are included at the inception of the production process. For March, there were 1,400 units in beginning inventory with a direct material cost of $700. Direct materials totaled $15,000 for the month. Work-in-process records revealed that 35,000 units were started in March and that 30,000 were finished. Normal spoilage of 2% 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. Endicott uses the weighted-average method. Required: a. What are the direct materials costs assigned to completed good units when spoilage units are recognized or when they are ignored? b. What are the direct material amounts allocated to the work-in-process ending inventory when spoilage units are recognized or ignored?

Which of the following journal entries correctly represents the transfer of completed goods for the current period using the FIFO method of process costing?

In general, it is presumed that normal spoilage occurs halfway between the beginning of the production process and the inspection point in the production cycle. This is because there is no easy way to determine where the spoilage has happened until the inspection has occurred.

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?