Exam 18: Spoilage, Rework, and Scrap

Normal spoilage is usually computed on the basis of

There are two alternative points in time for recognizing scrap in the accounting records. What are these two points in time? Explain why a company might choose one over the other.

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.

Weather Instruments assembles products from component parts. It has two departments that process all products. During January the beginning work in process in the assembly department was half completed as to conversion and complete as to direct materials. The beginning inventory included $12,000 for materials and $4,000 for conversion costs. Overhead is applied at the rate of 50 percent of direct manufacturing labour costs. Ending work in process inventory in the assembly department was 40 percent complete. All spoilage is considered normal and is detected at the end of the process. Beginning work in process in the finishing department was 75 percent complete as to conversion and ending work in process was 25 percent converted. Direct materials are added at the end of the process. Beginning inventories included $16,000 for transferred-in costs and $10,000 for conversion costs. Overhead in this department is equal to direct manufacturing labour costs. Additional information about the two departments follows: Required: Prepare a production cost worksheet using weighted-average for the assembly department and FIFO for the finishing department.

The Hawg Manufacturing Shop produces motorcycle parts. Typically, 20 pieces out of a job lot of 2,000 parts are normally spoiled. Costs are assigned at the inspection point, $100.00 per unit. Spoiled pieces may be disposed of for proceeds of $20.00 per unit. When the normal spoilage is detected, the spoiled goods must be inventoried appropriately. The current job requires the production of 5,000 good parts. Which of the following journal entries would be correct if the spoilage occurred due to specifications required for Job 101?

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: -Using the FIFO method of process costing, what are the total costs of all the units that were initially in the beginning work-in-process inventory and were subsequently shipped?

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 FIFO method of process costing, the cost of the ending work in process inventory is:

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: -What is the number of total spoiled units?

Which of the following journal entries could appropriately record the cash sale of scrap?

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

When calculating normal spoilage rates, the base should be the actual units started in production.

The costs of abnormal spoilage are written off as a loss; however, the costs of normal spoilage are treated as part of cost of goods manufactured.

All spoilage costs are related to the units completed during the period using the unit costs of the current period under FIFO.

The calculation of equivalent units under standard costing is the same as under FIFO.

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

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: -Abnormal spoilage totalled

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.

Sales of scrap may be traced to the individual jobs in which it occurred when the ________ system is used.

An example of rework is when a shoe manufacturer uses leftover leather from shoes to make leather watch bands.

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