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 cost is allocated to abnormal spoilage using the weighted-average process-costing method?

Accounting for rework in a process-costing system:

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: -Normal spoilage totals:

Counting spoiled units as part of output units in a process-costing system usually results in a higher cost per unit.

The costs of normal spoilage are typically included as a component of the costs of good units manufactured.

A difference between job costing and process costing is that:

Busy Hands Craft Company is a small manufacturing company that specializes in arts and crafts items. It recently bought an old textile mill that it has refurbished to manufacture and dye special cloth to be sold in its craft shops. However, it discovered something new for its accounting system. The company never before had finished goods that did not meet standard, leftover materials from processing runs, or unacceptable outputs. Required: As the business consultant for the company, explain how it can handle the items mentioned. Include any potential problems with the accounting procedures.

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

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

Answer the following questions using the information below: Cartwright 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 nondetectible material defects. Spoiled units generally constitute 3% of the good units. Data provided for March 20X5 are as follows: Costs: -What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing?

Abnormal spoilage is spoilage inherent in a particular production process.

A production process which involves spoilage and rework occurs in:

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

Under standard costing, there is no need to calculate a cost per equivalent unit.

Spoilage can be considered either normal or abnormal.

The accounting for scrap under process costing is similar to the accounting under:

Costs in beginning inventory are pooled with costs in the current period when determining the costs of good units under the weighted-average method of process costing.

Under the weighted-average method, the costs of normal spoilage are added to the costs of their related good units. Hence, the cost per good unit completed and transferred out equals the total costs transferred out divided by the number of good units produced.

Normal spoilage costs are usually deducted from the costs of good units.

Spoilage that is an inherent result of the particular production process and arises under efficient operating conditions is referred to as: