Exam 18: Spoilage, Rework, and Scrap

Distinguish among spoilage, reworked units, and scrap. Give an example of each.

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 are allocated to the ending work-in-process inventory for direct materials and conversion costs, respectively, using the FIFO method of process costing?

For each of the following (actual real-world examples), develop products that can be sold from the listed scrap. a. The Federal Reserve Banks destroy old money. Burning this money is usually forbidden under the environmental laws of most municipalities. b. A manufacturer of cotton undergarments for prisoners has much cotton left over. The manufacturer is located in a very rural area of Alabama. c. A hog renderer has hog bristles as a result of the slaughtering process.

Managers often cite reductions in the costs of spoilage as a(n):

Normal spoilage is spoilage that is NOT considered to be inherent in a production process.

Harriet has been reviewing the accounting system for her company and she 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, Harriet 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 Harriet is having with the accounting system.

Unacceptable units of production that are subsequently repaired and sold as acceptable finished goods are:

You are the chief financial officer of a lumber mill, and you are becoming quite concerned about the spoilage, scrap, and reworked items associated with your production processes. Your firm produces mainly products for the building industry. Required: Discuss the problems associated with these items and the methods your company can use to reduce spoilage, scrap, and reworked items.

The costs of normal spoilage are allocated to the units in ending work-in-process inventory, in addition to completed units if the units:

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 total costs of all the units that were started during February and subsequently shipped before the end of the period?

What are the objectives in accounting for spoilage?

Recognition of spoiled units when computing output units:

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: -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 normal and abnormal spoilage units, respectively, for February when using FIFO?

New Image Sports uses a process-costing system. For March, the company had the following activities: Direct materials are placed into production at the beginning of the process. All spoilage is normal and is detected at the end of the process. Ending WIP is 50% completed as to conversion. Required: Prepare a production cost worksheet using the FIFO method.

Spoilage is typically assumed to occur at the stage of completion where inspection takes place.

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

Costs are assigned to scrap only if it is normal scrap.

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 total 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.

Normal spoilage is computed on the basis of the number of: