Exam 18: Spoilage, Rework, and Scrap

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 is the total cost per equivalent unit using the weighted-average method of process costing?

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 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.?

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

Spoilage that should NOT arise under efficient operating conditions is referred to as:

The last step in the five-step procedure for process costing with spoilage is to summarize total costs to account for.

In accounting for scrap, which one of the following statements is FALSE?

Silver Spoon Incorporated is a manufacturer of kitchen utensils. It produces all of its products in one department. The information for the current month is as follows: Beginning work in process was 25% complete as to conversion. Direct materials are added at the beginning of the process. Factory overhead is applied at a rate equal to 37.5% of direct manufacturing labor. Ending work in process was 60% complete. All spoilage is normal and is detected at the end of the process. Required: Prepare a production cost worksheet if spoilage is recognized and the weighted-average method is used.

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

For each of the following items identify whether it is spoilage, reworked units, or scrap.

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.

Normal spoilage rates are computed by dividing units of normal spoilage by total good units completed, NOT total actual units started in production.

Explain the meaning of the terms spoilage, scrap, and rework. Provide an example of each. Is it possible for a single firm to have all three from a single productive process?

Scrap is usually divided between normal and abnormal scrap.

Companies calculate the units of abnormal spoilage and record the cost in the Loss from Abnormal Spoilage account, which appears as a separate line item in the income statement.

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. -Spoilage costs allocated to ending work in process are larger by which method and by how much?

Some amounts of spoilage, rework, or scrap are inherent in many production processes.

How can a company account for scrap? Include in your explanation a discussion of the two aspects of accounting for scrap.

The loss from abnormal spoilage account would appear:

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.

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: -Abnormal spoilage totals: