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Solchap18(10e)

By Margaret Crawford,2014-05-23 13:55
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Solchap18(10e)10E,(8),10e,10e8,10E)

    CHAPTER 18

    SPOILAGE, REWORKED, AND SCRAP

    18-1 Managers have found that improved quality and intolerance for high spoilage have lowered overall costs and increased sales.

    18-2 Spoilageunacceptable units of production that are discarded or sold for net disposal proceeds.

     Reworkunacceptable units of production that are subsequently repaired and sold as acceptable finished goods.

     Scrapmaterial left over when making a product(s). It has low sales value compared with the sales value of the product(s).

    18-3 Yes. Normal spoilage is spoilage that arises under efficient operating conditions. Management plans for a specified amount of spoilage that it believes is inherent to the production process.

    18-4 Abnormal spoilage is spoilage that is not expected to arise under efficient operating conditions. Costs of abnormal spoilage are "lost costs," measures of inefficiency that should be written off directly as losses for the accounting period.

    18-5 Management effort can affect the spoilage rate. Many companies are relentlessly reducing their spoilage rate, spurred on by competitors who, likewise, are continuously reducing their own costs.

    18-6 Normal spoilage typically is expressed as a percentage of good units passing the inspection point. Given actual spoiled units, we infer abnormal spoilage as follows:

     Abnormal spoilage = Actual spoilage Normal spoilage

    18-7 Accounting for spoiled goods deals with cost assignment, rather than with cost incurrence, because the existence of spoiled goods does not involve any additional cost beyond the amount already incurred.

    18-8 Yes. Normal spoilage rates should be computed from the good output or from the normal input, not the total input. Normal spoilage is a given percentage of a certain output base. This base should never include abnormal spoilage, which is included in total input. Abnormal spoilage does not vary in direct proportion to units produced, and to include it would cause the normal spoilage count to fluctuate irregularly but not vary in direct proportion to the output base.

     18-1

    18-9 Yes, the point of inspection is the key to the assignment of spoilage costs. Normal spoilage costs do not attach solely to units transferred out. Thus, if units in ending work in process have passed inspection, they should have normal spoilage costs added to them.

    18-10 No. If abnormal spoilage is detected at a different point in the production cycle than normal spoilage, then unit costs would differ. If, however normal and abnormal spoilage are detected at the same point in the production cycle, their unit costs would be the same.

    18-11 No. The costs of specific spoilage caused by a random malfunction of a machine would be charged as a part of the manufacturing overhead allocated to all jobs.

    18-12 No. Unless there are special reasons for charging rework to jobs that contained the bad units, the costs of extra materials, labor, and so on are usually charged to manufacturing overhead and allocated to all jobs.

    18-13 Yes. Abnormal rework is a loss just like abnormal spoilage. By charging it to manufacturing overhead, the abnormal rework costs are spread over other jobs and also included in inventory to the extent a job is not complete. Abnormal rework is rework over and above what is expected during a period, and is recognized as a loss for that period.

    18-14 A company is justified in inventorying scrap when its estimated net realizable value is significant and the time between storing it and selling or reusing it is quite long. 18-15 Company managements measure scrap to measure efficiency and to also control a tempting source of theft. Managements of companies that report high levels of scrap focus attention on ways to reduce scrap and to use the scrap the company generates more profitably. Some companies, for example, might redesign products and processes to reduce scrap. Others may also examine if the scrap can be reused to save substantial input costs.

18-16 (5-10 min.) Normal and abnormal spoilage in units.

1. Total spoiled units 12,000

     Normal spoilage in units, 5% 132,000 6,600

     Abnormal spoilage in units 5,400

2. Abnormal spoilage, 5,400 $10 $ 54,000

     Normal spoilage, 6,600 $10 66,000

     Potential savings, 12,000 $10 $120,000

     Regardless of the targeted normal spoilage, abnormal spoilage is non-recurring and avoidable. The targeted normal spoilage rate is subject to change. Many companies have reduced their spoilage to almost zero, which would realize all potential savings. Of course, zero spoilage usually means higher-quality products, more customer satisfaction, more employee satisfaction, and various effects on nonmanufacturing (for example, purchasing) costs of direct materials.

     18-2

18-17 (20 min.) Weighted-average method, spoilage, equivalent units.

     Solution Exhibit 18-17 calculates equivalent units of work done to date for direct materials

    and conversion costs.

SOLUTION EXHIBIT 18-17

    Summarize Output in Physical Units and Compute Equivalent Units

    Weighted-Average Method of Process Costing with Spoilage Gray Manufacturing Company for November 2000

     (Step 1) (Step 2)

    Physical Equivalent Units

     Units Direct Conversion

    Flow of Production (given) Materials Costs

    Work in process, beginning 1,000

    Started during current period 10,150

    To account for 11,150

    Good units completed and transferred out

     during current period: 9,000 9,000 9,000

    Normal spoilage* 100

     100 100 100 100%; 100 100% 50 Abnormal spoilage

    50 50 50 100%; 50 100% Work in process, ending 2,000

     2,000 600 2,000 100%; 2,000 30%

     11,150 Accounted for

    11,150 9,750 Work done to date

*Degree of completion of normal spoilage in this department: direct materials, 100%; conversion costs, 100%. Degree of completion of abnormal spoilage in this department: direct materials, 100%; conversion costs, 100%. Degree of completion in this department: direct materials, 100%; conversion costs, 30%.

     18-3

18-18 (20;25 min.) Weighted-average method, assigning costs.

     (Continuation of 18-17)

     Solution Exhibit 18-18 calculates the costs per equivalent unit for direct materials and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process.

SOLUTION EXHIBIT 18-18

    Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed, to Spoilage Units, and to Units in Ending Work in Process Weighted-Average Method of Process Costing

    Gray Manufacturing Company, November 2000

     Total

    Production Direct Conversion

    Costs Materials Costs

    $ 2,533 $ 1,423 $ 1,110 (Step 3) Work in process, beginning (given)

    39,930 12,180 27,750 Costs added in current period (given)

     13,603 28,860

     Divided by equivalent units of work done to date 11,150 9,750

     Equivalent unit costs of work done to date $ 1.22 $ 2.96

    $42,463 (Step 4) Total costs to account for

    (Step 5) Assignment of costs

     Good units completed and transferred out (9,000 units) ##Costs before adding normal spoilage (9,000 $1.22) + (9,000 $37,620

    $2.96) Normal spoilage (100 units) 418 ## (100 $1.22) + (100 (A) Total cost of good units completed & transf. out 38,038 $2.96) (B) Abnormal spoilage (50 units) 209

     Work in process, ending (2,000 units) ## (50 $1.22) + (50 Direct materials 2,440 $2.96) Conversion costs 1,776

    (C) Total work in process, ending 4,216 # 2,000 $1.22 (A)+(B)+(C) Total costs accounted for $42,463 # 600 $2.96

     #Equivalent units of direct materials and conversion costs calculated in Step 2 in Solution Exhibit 18-17.

     18-4

18-19 (15 min.) FIFO method, spoilage, equivalent units.

    Solution Exhibit 18-19 calculates equivalent units of work done in the current period for

    direct materials and conversion costs.

SOLUTION EXHIBIT 18-19

    Summarize Output in Physical Units and Compute Equivalent Units. First-in, First-out (FIFO) Method of Process Costing with Spoilage Gray Manufacturing Company for November 2000

     (Step 2)

    (Step 1) Equivalent Units

     Physical Direct Conversion

    Flow of Production Units Materials Costs

Work in process, beginning (given) 1,000

    Started during current period (given) 10,150

    To account for 11,150

    Good units completed and transferred out

    during current period: ||From beginning work in process 1,000

    0 500 1,000 (100% ;100%); 1,000 (100% ; 50%) #8,000 Started and completed

     8,000 100%; 8,000 100% 8,000 8,000

    100 Normal spoilage*

     100 100 100 100%; 100 100% 50 Abnormal spoilage

    50 50 50 100%; 50 100% 2,000 Work in process, ending

     2,000 100%; 2,000 30% 2,000 600

    11,150 Accounted for

    Work done in current period only 10,150 9,250

     ||Degree of completion in this department: direct materials, 100%; conversion costs, 50%. #9,000 physical units completed and transferred out minus 1,000 physical units completed and transferred out from

    beginning work-in-process inventory.

    *Degree of completion of normal spoilage in this department: direct materials, 100%; conversion costs, 100%. Degree of completion of abnormal spoilage in this department: direct materials, 100%; conversion costs, 100%. Degree of completion in this department: direct materials, 100%; conversion costs, 30%.

     18-5

18-20 (20;25 min.) FIFO method, assigning costs. (Continuation of 18-19)

    Solution Exhibit 18-20 calculates the costs per equivalent unit for direct materials and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process

SOLUTION EXHIBIT 18-20

    Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed, to Spoilage Units, and to Units in Ending Work in Process FIFO Method of Process Costing

    Gray Manufacturing Company, November 2000

     Total

    Production Direct Conversion

    Costs Materials Costs

    $ 2,533 (Step 3) Work in process, beginning (given: $1,423 + $1,110)

    39,930 $12,180 $27,750 Costs added in current period (given)

     Divided by equivalent units of work done in current period 10,150 9,250

     Equivalent unit costs of work done in current period $ 1.20 $ 3

    $42,463 (Step 4) Total costs to account for

    (Step 5) Assignment of costs:

     Good units completed and transferred out (9,000 units) Work in process, beginning (1,000 units) $ 2,533 ? 0 $1.20 Direct materials added in current period 0 ? 500 $3 Conversion costs added in current period 1,500 Total from beginning inventory before normal spoilage 4,033 Started and completed before normal spoilage ??(8,000 $1.20) + (8,000 $3) (8,000 units) 33,600 ?? (100 $1.20) + (100 $3) Normal spoilage (100 units) 420

    (A) Total cost of good units transferred out 38,053 ? (50 $1.20) + (50 $3) (B) Abnormal spoilage (50 units) 210 Work in process, ending (2,000 units) ? 2,000 $1.20 Direct materials 2,400 ? 600 $3 Conversion costs 1,800

    (C) Total work in process, ending 4,200

    (A)+(B)+(C) Total costs accounted for $42,463

     ?Equivalent units of direct materials and conversion costs calculated in Step 2 in Solution Exhibit 18-19.

     18-6

18-21 (30 min.) Weighted-average method, spoilage.

    1. & 2. Solution Exhibit 18-21 calculates the cost per equivalent unit of work done to date for direct materials and conversion costs, summarizes the total costs to account for, and assigns these

    costs to units completed and transferred out (including normal spoilage), abnormal spoilage, and ending work in process using the weighted-average method.

    3. From Solution Exhibit 18-21, under the weighted-average method,

    Costs of a good unitTotal production costs of good units transferred outcompleted (and = Number of good units completedtransferred out)

    $433,550 = = $21.6775 20,000

    Note that this cost is higher than the cost per equivalent unit of $18.85 (direct materials, $8.25

    and conversion costs, $10.60). Why? Because the cost of good units completed and transferred out also includes the cost of normal spoilage of 15%. The costs of a good unit completed and transferred out equals $18.85 + 15% of $18.85 = $21.6775.

SOLUTION EXHIBIT 18-21

    Weighted-Average Method of Process Costing with Spoilage

    Anderson Plastics, April 2001

    PANEL A: Steps 1 and 2Summarize Output in Physical Units and Compute Equivalent Units

     (Step 1) (Step 2)

    Physical Equivalent Units

     Units Direct Conversion

    Flow of Production (given) Materials Costs

    Work in process, beginning 15,000

    Started during current period 25,000

    To account for 40,000

    Good units completed and transferred out

     during current period: 20,000 20,000 20,000

    Normal spoilage* 3,000

     3,000 3,000 3,000 100%; 3,000 100% 1,000 Abnormal spoilage

     1,000 1,000 1,000 100%; 1,000 100% 16,000 Work in process, ending

     16,000 12,000 16,000 100%; 16,000 75%

    40,000 Accounted for

    40,000 36,000 Work done to date

    *Normal spoilage is 15% of good units transferred out: 15% 20,000 = 3,000 units. Degree of completion of normal spoilage

    in this department: direct materials, 100%; conversion costs, 100%. Abnormal spoilage = Actual spoilage ; Normal spoilage = 4,000 ; 3,000 = 1,000 units. Degree of completion of abnormal

    spoilage in this department: direct materials, 100%; conversion costs, 100%. Degree of completion in this department: direct materials, 100%; conversion costs, 75%.

     18-7

18-21 (Cont’d.)

    Panel B: Steps 3, 4, and 5Compute Equivalent Unit Costs, Summarize Total Costs to Account For, and Assign Costs to Units Completed, to Spoilage Units, and to Units in Ending Work in Process

     Total

    Production Direct Conversion

    Costs Materials Costs

    $210,000 $120,000 $ 90,000 (Step 3) Work in process, beginning (given)

    501,600 210,000 291,600 Costs added in current period (given)

     330,000 381,600

     Divided by equivalent units of work done to

     date 40,000 36,000

     Equivalent unit costs of work done to date $ 8.25 $ 10.60

    $711,600 (Step 4) Total costs to account for

    (Step 5) Assignment of costs

     Good units completed and transferred out

    (20,000 units) ##Costs before adding normal spoilage 20,000 $8.25) + (20,000 $10.60) $377,000 (## Normal spoilage (3,000 units) (3,000 56,550 $8.25) + (3,000 $10.60)

     (A) Total cost of good units completed & transferred out 433,550 ## (1,000 $8.25) + (1,000 (B) Abnormal spoilage (1,000 units) 18,850

    $10.60) Work in process, ending (16,000 units) Direct materials 132,000 # 16,000 $8.25 Conversion costs 127,200 # 12,000 $10.60 (C) Total work in process, ending 259,200 (A)+(B)+(C) Total costs accounted for $711,600

     #Equivalent units of direct materials and conversion costs calculated in Step 2 in Panel A.

18-22 (25 min.) FIFO method, spoilage.

    1. & 2. Solution Exhibit 18-22 calculates the cost per equivalent unit of work done in the current period for direct materials and conversion costs, summarizes total costs to account for, and assigns these costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process using the FIFO method. 3. From Solution Exhibit 18-22, under the FIFO method,

    Costs of a good unitTotal production costs of good units transferred outcompleted (and= Number of good units completedtransferred out)

    $428,400 = = $21.42 20000,

    Note that this cost is higher than the cost per equivalent unit of $19.20 (direct materials, $8.40 and conversion costs, $10.80). Why? Because the costs of good units completed and transferred out also include the cost of normal spoilage of 15%.

     18-8

18-22 (Cont’d.)

SOLUTION EXHIBIT 18-22

    First-in, First-out (FIFO) Method of Process Costing with Spoilage Anderson Plastics, April 2001

    PANEL A: Steps 1 and 2Summarize Output in Physical Units and Compute Equivalent Units

     (Step 2)

    (Step 1) Equivalent Units

     Physical Direct Conversion

    Flow of Production Units Materials Costs

Work in process, beginning (given) 15,000

    Started during current period (given) 25,000

    To account for 40,000

    Good units completed and transferred out during

    current period: || From beginning work in process15,000

     0 6,000 15,000 (100% ;100%); 15,000 (100% ; 60%) # 5,000 Started and completed

    5,000 5,000 5,000 100%; 5,000 100%

    Normal spoilage* 3,000

    3,000 3,000 3,000 100%; 3,000 100% Abnormal spoilage 1,000

     1,000 100%; 1,000 100% 1,000 1,000 16,000 Work in process, ending

     16,000 12,000 16,000 100%; 2,000 75%

    40,000 Accounted for

    25,000 27,000 Work done in current period only

     ||Degree of completion in this department: direct materials, 100%; conversion costs, 60%. #20,000 physical units completed and transferred out minus 15,000 physical units completed and transferred out

    from beginning work-in-process inventory.

    *Normal spoilage is 15% of good units transferred out: 15% 20,000 = 3,000 units. Degree of completion of normal spoilage in this department: direct materials, 100%; conversion costs, 100%. Abnormal spoilage = Actual spoilage ; Normal spoilage = 4,000 ; 3,000 = 1,000 units. Degree of completion of abnormal spoilage in this department: direct materials, 100%; conversion costs, 100%. Degree of completion in this department: direct materials, 100%; conversion costs, 75%.

     18-9

18-22 (Cont’d.)

PANEL B: Steps 3, 4, and 5Compute Equivalent Unit Costs, Summarize Total Costs to

    Account For, and Assign Costs to Units Completed, to Spoilage Units, and to Units in Ending Work in Process

     Total

    Production Direct Conversion

    Costs Materials Costs

    $210,000 (Step 3) Work in process, beginning (given: $120,000 +

    501,600 $210,000 $291,600 $90,000)

     Costs added in current period (given) 25,000 27,000

     Divided by equivalent units of work done in current $ 8.40 $ 10.80

    $711,600 period

     Equivalent unit costs of work done in current period

    (Step 4) Total costs to account for

    (Step 5) Assignment of costs:

     Good units completed and transferred out (20,000 units) Work in process, beginning (15,000 units) $210,000 ? 0 $8.40 Direct materials added in current period 0 ? 6,000 $10.80 Conversion costs added in current period 64,800 Total from beginning inventory before normal spoilage 274,800 Started and completed before normal spoilage ?? (5,000 $8.40) + (5,000 (5,000 units) 96,000 $10.80) Normal spoilage (3,000 units) 57,600 ?? (3,000 $8.40) + (3,000 (A) Total cost of good units transferred out 428,400 $10.80) (B) Abnormal spoilage (1,000 units) 19,200 Work in process, ending (16,000 units) ? (1,000 $8.40) + (1,000 Direct materials 134,400 $10.80) Conversion costs 129,600 ?(C) Total work in process, ending 264,000 16,000 $8.40 ?(A)+(B)+(C) Total costs accounted for $711,600 12,000 $10.80 ?Equivalent units of direct materials and conversion costs calculated in Step 2 in Panel A.

18-23 (30 min.) Standard-costing method, spoilage.

    1. The cost per equivalent unit for direct materials and conversion costs equals the standard cost per unit given in the problem: direct materials, $8.20 per equivalent unit for direct materials in both beginning inventory and work done in the current period and $10.50 per equivalent unit for conversion costs in both beginning inventory and work done in the current period. The equivalent units of work done in the current period for direct materials and conversion costs are calculated in Solution Exhibit 18-22, Panel A.

    2. Solution Exhibit 18-23 summarizes the total costs to account for and assigns these costs to units completed and transferred out (including normal spoilage), to abnormal spoilage and to ending work in process using the standard costing method.

     18-10

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