Exam 18: Spoilage, rework, and Scrap

IFRS/ASPE permits normal spoilage costs to be part of cost of goods sold.

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

Busy Hands Craft Company is a small manufacturing company that specialized 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 had 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.

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

Assume the amount of scrap is material and the scrap is sold immediately after it is produced.If the scrap attributable to a specific job is sold on account,the journal entry is

There is no cost attached to scrap.

Answer the following questions using the information below: Jansen Corporation uses job costing in its' metal fabrication plant.During February Job 117 was completed and the scrap generated was not usable by other jobs.Job 124 was also completed in February and the scrap created was usable by other jobs. -Which of the following is the correct journal entry if the scrap created by Job 124 is subsequently used by another job?

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?

In job costing,costs of abnormal spoilage are not considered as inventoriable costs and are therefore written off as costs of the period in which detection occurs.

If the inspection point occurs at 33% into the production cycle,which of the following units would be allocated costs of spoilage detected at inspection?

Answer the following question(s)using the information below: Hawk Ltd.uses process costing in its Fabricating Department.At the beginning of October,it had 12,000 units in beginning work-in-process that were 40% complete with respect to conversion.During October it put 87,000 units into production and completed 89,000 good units.At October 31,there were 3,000 units in ending work-in-process that were 70% complete with respect to conversion.Direct materials are added at the beginning of the process.Inspection occurs at the end of the process and normal spoilage is 6% of good output. Costs related to the beginning inventory were $36,800 for direct materials and $28,600 for conversion costs.During the month,the company issued $280,000 of direct materials and incurred $599,400 of conversion costs. -Assuming Hawk uses the FIFO method of process costing,the equivalent units for direct materials and conversion costs respectively for October are

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

Under efficient operating conditions,all spoilage is considered to be abnormal spoilage.

Companies that attempt to achieve zero defects in the manufacturing process treat all spoilage as which of the following?

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

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.

Spoilage can be a significant cost for many organizations.Discuss when spoilage might happen and how the costs of normal spoilage get allocated.