Exam 18: Spoilage, Rework, and Scrap

Dad's Bottling Company often has bottles that do not meet customer specifications although it does not allow for spoilage. Some of the rejects are immediately crushed and recycled while others are held for future use in other jobs. During May the company had bottles costing $1,000 that were recycled and $1,600 worth of bottles that were placed in inventory for later use. These bottles were sold in June for $2,000. Required: Record the journal entries associated with the above activities. Assume saleable scrap items are returned to inventory when rejected during inspection.

One of the major aspects of accounting for scrap is inventory costing, which includes when and how scrap affects operating income.

Process costing is simplified when using standard costs.

Units of production that can be reprocessed and then be sold as finished goods are best known as

The Clay Shop manufactures pottery products. All direct materials are included at the inception of the production process. For April, there was no beginning inventory in the processing plant. Direct materials totaled $310,000 for the month. Work-in-process records revealed that 5,000 kilograms were started in April and that 3,000 kilograms were finished; 1,000 kilograms were spoiled as expected. Ending work-in-process units are complete in respect to direct materials costs. Spoilage is not detected until the process is complete. Required: a. What is the cost per equivalent unit if spoiled units are recognized or ignored? b. What are the costs assigned to completed units when spoilage units are recognized or when they are not recognized? c. What are the costs transferred out if spoilage units are recognized or ignored? d. What are the amounts allocated to the work-in-process ending inventory when spoilage units are recognized or ignored?

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

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 normal and abnormal spoilage units, respectively, for March?

When scrap is returned to the storeroom, so that it may be used as direct material, which account is debited?

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

Costs of normal spoilage are usually accounted for as

There is no cost attached to scrap.

Under the FIFO method, all spoilage costs are assumed to be

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: -Assuming Hawk uses the weighted average method for process costing, the equivalent units for direct materials and conversion for October are:

Spoilage can be attributed to a particular job in a process costing system.

Spoilage issues arise in accounting for process costing but not in accounting for job costing.

Costs of spoilage include all of the following EXCEPT

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: -Assuming Hawk uses the weighted average method of process costing, the cost per equivalent unit for direct materials and conversion costs respectively are:

Use the information below to answer the following question(s). 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 non-detectable materials defects. Inspection occurs at the end of the process. Spoiled units generally constitute 5 percent of the good units. Data for December are as follows: -Normal spoilage totalled

Which account is debited when scrap is reused as direct material?

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