Exam 18: Spoilage, rework, and 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 3% of the good units. Data provided for February 2015 are as follows: WIP, beginuing inventory 2/1/2015 51,000 units Direct materials ( 100 \% complete) Conversion costs ( 50\% complete) Started during February 170,000 units Completed and transferred out 180,000 units WIP, ending inventory 2/28/2015 26,000 units Direct materials ( 100\% complete) Conversion costs ( 25\% complete) Costs: WIP, beginning inventory: Direct materials \ 280,000 Conversion costs 80,000 Direct materials added 408,000 Conversion costs added 264,000 -What are the direct material and conversion 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.

Firms often conduct multiple inspections to avoid instances of undetected spoiled units at later stages of the process.

In general,it is presumed that normal spoilage occurs halfway between the beginning of the production process and the inspection point in the production cycle.This is because there is no easy way to determine where the spoilage has happened until the inspection has occurred.

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.

Which of the following sentences is true of classification of spoilage as normal or abnormal when inventories are present?

What are the advantages of costing rework?

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

An item classified as spoilage has no value.

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

Costs of abnormal spoilage are separately accounted for as losses of the period.

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

Springfield Sign Shop manufactures only specific orders.It uses a standard cost system.During one large order for the airport authority,an unusual number of signs were spoiled.The normal spoilage rate is 10% of units started.The point of first inspection is half way through the process,the second is three-fourths through the process,and the final inspection is at the end of the process.Other information about the job is as follows: Signs started $\quad 3,000$ Signs spoiled $\quad450$ Direct materials put into process at beginning \ 60,000 Conversion costs for job \ 120,000 Standard direct material costs per sign \ 27 Standard conversion cost per sign \ 54 Average point of spoilage is the 3/4 completion point Average current disposal cost per spoiled sign \ 15 Required: Make necessary journal entries to record all spoilage.

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

If a company set a standard of zero rework ________.

How does inspecting at various stages of completion affect the amount of normal and abnormal spoilage?

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 4% of the good fillets. Data for April 2015 are as follows: WIP, beginuing inventory 4/1/2015 85,000 fillets Direct materials (100\% complete) Conversion costs ( 50 \% complete) Started during April 130,000 fillets Completed and transferred out 4/31/2015 180,000 fillets WIP, ending inventory 4/31/2015 22,000 fillets Direct materials ( 100\% complete) Conversion costs ( 20\% complete) Costs for April: WIP, beginuning Inventory: Direct materials \ 130,000 Conversion costs 95,910 Direct materials added 300,000 Conversion costs added 383,130 -What cost is allocated to abnormal spoilage using the weighted-average process-costing method?

Excluding spoiled units in the equivalent-unit calculation results in ________.

Which of the following entries is correct when the costs of the rework is normal and common to all the jobs?

Companies that attempt to achieve zero defects in the manufacturing process treat spoilage as ________.

When a unit has to be reworked,the rework may be classified in three ways.What are those ways,and how does the accounting for each differ?