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SPOILAGE, REWORK, AND SCRAP

 

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CHAPTER 18

SPOILAGE, REWORK, AND SCRAP

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 beneficial effects on nonmanufacturing (for example, purchasing) costs of direct materials.

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 Output in Equivalent Units;

Weighted-Average Method of Process Costing with Spoilage,

Gray Manufacturing Company for November 2009.

	(Step 1)	(Step 2) Equivalent Units
Flow of Production	Physical Units	Direct Materials	Conversion Costs
Work in process, beginning (given) Started during current period To account for Good units completed and transferred out     during current period: Normal spoilage*        100 ´ 100%; 100 ´ 100% Abnormal spoilage†        50 ´ 100%; 50 ´100% Work in process, ending‡ (given)        2,000 ´ 100%; 2,000 ´ 30% Accounted for Work done to date	1,000 10,150a 11,150 9,000 100 50 2,000                11,150	9,000 100 50 2,000                11,150	9,000 100 50 600                9,750

^a From below, 11,150 total units are accounted for. Therefore, units started during current period must be = 11,150 – 1,000 = 10,150.

*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%.

18-18   (20-25 min.)   Weighted-average method, assigning costs (continuation of 18-17).

Solution Exhibit 18-18 summarizes total costs to account for, calculates the costs per equivalent unit for direct materials and conversion costs, and assigns total 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

Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process;

Weighted-Average Method of Process Costing,

Gray Manufacturing Company, November 2009.

	Total Production Costs	Direct Materials	Conversion Costs
(Step  3)         Work in process, beginning (given)                         Costs added in current period (given) Total costs to account for (Step 4)        Costs incurred to date                         Divided by equivalent units of work done to date                         Cost per equivalent unit (Step 5)          Assignment of costs                         Good units completed and transferred out (9,000 units)	$  2,533   39,930 $42,463	$  1,423   12,180 $13,603 $13,603 ¸11,150 $    1.22	$  1,110   27,750 $28,860 $28,860 ¸  9,750 $    2.96
Costs before adding normal spoilage Normal spoilage (100 units) (A)                            Total cost of good units completed & transf. out (B)                  Abnormal spoilage (50 units) (C)                  Work in process, ending (2,000 units) (A)+(B)+(C)   Total costs accounted for	$37,620        418   38,038        209     4,216 $42,463	(9,000# ´ $1.22) + (9,000# ´ $2.96)     (100# ´ $1.22) +    (100# ´ $2.96)       (50# ´ $1.22) +      (50# ´ $2.96)  (2,000# ´ $1.22) +    (600# ´ $2.96)      $13,603     +         $28,860

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

 

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 Output in Equivalent Units;

First-in, First-out (FIFO) Method of Process Costing with Spoilage,

Gray Manufacturing Company for November 2009.

	(Step 1)	(Step 2) Equivalent Units
Flow of Production	Physical Units	Direct Materials	Conversion Costs
Work in process, beginning (given) Started during current period To account for Good units completed and transferred out during current period: From beginning work in process|| 1,000 ´ (100% -100%); 1,000 ´ (100% - 50%) Started  and completed         8,000 ´ 100%; 8,000 ´ 100% Normal spoilage* 100 ´ 100%; 100 ´ 100% Abnormal spoilage†        50 ´ 100%; 50 ´ 100% Work in process, ending‡        2,000 ´ 100%; 2,000 ´ 30% Accounted for Work done in current period only	1,000 10,150a 11,150 1,000 8,000# 100 50 2,000           ____  11,150	0 8,000 100 50 2,000                     10,150	500 8,000 100 50 600                     9,250

^a From below, 11,150 total units are accounted for. Therefore, units started during current period must be 11,150 – 1,000 = 10,150.

^||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%.

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

Solution Exhibit 18-20 summarizes total costs to account for, calculates the costs per equivalent unit for direct materials and conversion costs, and assigns total 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

Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process;

FIFO Method of Process Costing,

Gray Manufacturing Company, November 2009.

	Total Production Costs	Direct Materials	Conversion Costs
(Step  3)   Work in process, beginning (given)                   Costs added in current period (given)                   Total costs to account for (Step 4)   Costs added in current period                 Divided by equivalent units of work done in current period                   Cost per equivalent unit (Step 5)    Assignment of costs:                   Good units completed and transferred out (9,000 units)	$  2,533   39,930 $42,463	$  1,423   12,180 $13,603 $12,180 ¸10,150         $    1.20	$  1,110   27,750 $28,860 $27,750  ¸  9,250 $         3
Work in process, beginning (1,000 units) Costs added to beg. work in process in current period Total from beginning inventory before normal spoilage Started and completed before normal spoilage (8,000 units)                         Normal spoilage (100 units) (A)                          Total costs of good units completed and transferred out (B)            Abnormal spoilage (50 units) (C)            Work in process, ending (2,000 units) (A)+(B)+(C)  Total costs accounted for	$  2,533     1,500      4,033 33,600        420   38,053        210      4,200 $42,463	$1,423        +        $1,110       (0a ´ $1.20)   +     (500a ´ $3) (8,000a ´ $1.20)  +  (8,000a ´ $3)    (100a ´ $1.20)  +    (100a  ´ $3)      (50a ´ $1.20)  +       (50a ´ $3) (2,000a ´  $1.20) +     (600a ´ $3)         $13,603        +      $28,860

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

18-21   (35 min.)    Weighted-average method, spoilage.

1.         Solution Exhibit 18-21A calculates equivalent units of work done in the current period for direct materials and conversion costs.

SOLUTION EXHIBIT 18-21A

Summarize Output in Physical Units and Compute Output in Equivalent Units;

Weighted-Average Method of Process Costing with Spoilage,

Appleton Company for August 2009.

	(Step 1)	(Step 2)
		Equivalent Units
Flow of Production	Physical Units	Direct Materials	Conversion Costs
Work in process, beginning (given)	2,000
Started during current period (given)	10,000
To account for	12,000
Good units completed and tsfd. out during current period:	9,000	9,000	9,000
Normal spoilagea	900
(900 100%; 900 100%)		900	900
Abnormal spoilageb	300
(300 100%; 300 100%)		300	300
Work in process, endingc  (given)	1,800
(1,800  100%; 1,800  75%)	______	1,800	1,350
Accounted for	12,000	______	­­­­______
Work done to date		12,000	11,550
aNormal spoilage is 10% of good units transferred out: 10% × 9,000 = 900 units. Degree of completion of normal spoilage
in this department:   direct materials, 100%; conversion costs, 100%.
bTotal spoilage = Beg. units + Units started - Good units transferred out – Ending units = 2,000 + 10,000 - 9,000 - 1,800 = 1,200;
Abnormal spoilage = Total spoilage – Normal spoilage = 1,200 – 900 = 300 units. Degree of completion of abnormal spoilage
in this department: direct materials, 100%; conversion costs, 100%.
cDegree of completion in this department: direct materials, 100%; conversion costs, 75%.

2. Solution Exhibit 18-21B summarizes total costs to account for, calculates the costs per equivalent unit for direct materials and conversion costs, and assigns total costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process, using the weighted-average method.

SOLUTION EXHIBIT 18-21B

Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process;

Weighted-Average Method of Process Costing,

Appleton Company, August 2009.

		Total Production Costs	Direct Materials	Conversion Costs
(Step 3)	Work in process, beginning (given)	$  28,600	$17,700	$  10,900
	Costs added in current period (given)	174,300	81,300	93,000
	Total costs to account for	$202,900	$99,000	$103,900
(Step 4)	Costs incurred to date		$99,000	$103,900
	Divide by equivalent units of work done to date		12,000	÷11,550
	Cost per equivalent unit		$  8.250	$  8.9957
(Step 5)	Assignment of costs
	Good units completed and transferred out (9,000 units)
	Costs before adding normal spoilage	$155,211	(9,000d ´ $8.25) + (9,000 d ´ $8.9957)
	Normal spoilage (900 units)	15,521	(900d ´ $8.25) +    (900d ´ $8.9957)
(A)	Total costs of good units completed and transferred out	170,732
(B)	Abnormal spoilage (300 units)	5,174	(300d ´ $8.25) +    (300d ´ $8.9957)
(C)	Work in process, ending (1,800 units):	26,994	(1,800d ´ $8.25) + (1,350d ´ $8.9957)
(A) + (B) + (C)	Total costs accounted for	$202,900	$99,000        +            $103,900
dEquivalent units of direct materials and conversion costs calculated in step 2 of Solution Exhibit 18-21A.

18-22   (10 min.) Standard costing method, spoilage, journal entries.

 

Spoilage represents the amount of resources that go into the process, but do not result in finished product. A simple way to account for spoilage in process costing is to calculate the amount of direct material that was spoiled. The journal entry to record the spoilage incurred in Aaron’s production process is:

Manufacturing overhead control (normal spoilage)                                        250

            Work-in-process inventory (cost of spoiled sheet metal)                                250

18-23  (15 min.) Recognition of loss from spoilage.

1. The unit cost of making the 10,000 units is:

   $209,000 ÷ 10,000 units = $20.90 per unit

2. The total cost of the 500 spoiled units is:

   $20.90 × 500 units = $10,450

3. The increase in the per-unit cost of goods sold as a result of the normal spoilage is:

   $10,450 ÷ 9,500 good units = $1.10

   Unit cost of goods sold for units remaining after the spoilage = $20.90 + $1.10 = $22.00.

4. The $10,450 cost for the 500 spoiled units is taken out of manufacturing costs and expensed in  the period of the spoilage. The journal entry to record the abnormal spoilage incurred is:

            Loss from abnormal spoilage                          $10,450

                              Work-in-process control                                        $10,450

18-24   (25 min.)   Weighted-average method, spoilage.

1.         Solution Exhibit 18-24, Panel A, calculates the equivalent units of work done to date for each cost category in September 2008. 

2.         Solution Exhibit 18-24, Panel B, summarizes total costs to account for, calculates the costs per equivalent unit for each cost category, and assigns total costs to units completed (including normal spoilage), to abnormal spoilage, and to units in ending work in process using the weighted-average method.

SOLUTION EXHIBIT 18-24

Weighted-Average Method of Process Costing with Spoilage;

Chipcity, September 2008.

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

	(Step 1)	(Step 2) Equivalent Units
Flow of Production	Physical Units	Direct Materials	Conversion Costs
Work in process, beginning (given) Started during current period (given) To account for Good units completed and transferred out     during current period: Normal spoilage*        315 ´ 100%; 315 ´ 100% Abnormal spoilage†        285 ´ 100%; 285 ´ 100% Work in process, ending‡ (given)        450 ´ 100%; 450 ´ 40% Accounted for Work done to date	600   2,550 3,150 2,100 315 285 450                3,150	2,100 315 285 450                3,150	2,100 315 285 180                2,880

*Normal spoilage is 15% of good units transferred out:  15% ´ 2,100 = 315 units.  Degree of completion of normal spoilage in this department:  direct materials, 100%; conversion costs, 100%.

^†Total spoilage = 600 + 2,550 – 2,100 – 450 = 600 units; Abnormal spoilage = Total spoilage -Normal spoilage = 600 - 315 = 285 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, 40%.

 

 

 

SOLUTION EXHIBIT 18-24

PANEL B:  Steps 3, 4, and 5— Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process

	Total Production Costs	Direct Materials	Conversion Costs
(Step  3)         Work in process, beginning (given)                         Costs added in current period (given) Total costs to account for (Step 4)        Costs incurred to date                         Divided by equivalent units of work done to date                         Cost per equivalent unit                         (Step 5)          Assignment of costs                         Good units completed and transferred out (2,100 units)	$111,300   797,400 $908,700	$  96,000   567,000 $663,000 $663,000  ¸    3,150 $210.476	$  15,300   230,400 $245,700 $245,700 ¸    2,880 $85.3125
Costs before adding normal spoilage Normal spoilage (315 units) (A)                            Total cost of good units completed and transferred out (B)                  Abnormal spoilage (285 units) (C)                  Work-in-process, ending (450 units)	$621,156    93,173   714,329     84,300   110,071	(2,100#´$210.476) + (2,100#´$85.3125)   (315# ´ $210.476) +   (315# ´ $85.3125)  (285# ´ $210.476)  +   (285# ´ $85.3125) (450# ´ $210.476)  +   (180# ´ $85.3125)
(A)+(B)+(C)    Total costs accounted for	$908,700	$663,000	$245,700

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

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

1.         Solution Exhibit 18-25, Panel A, calculates the equivalent units of work done in the current period for each cost category in September 2008.

2.         Solution Exhibit 18-25, Panel B, summarizes the total Chip Department costs for September 2008, calculates the costs per equivalent unit for each cost category, and assigns total costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process under the FIFO method.

 

SOLUTION EXHIBIT 18-25

First-in, First-out (FIFO) Method of Process Costing with Spoilage;

Chipcity, September 2008.

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

	(Step 1)	(Step 2) Equivalent Units
Flow of Production	Physical Units	Direct Materials	Conversion Costs
Work in process, beginning (given) Started during current period (given) To account for Good units completed and transferred out during current period: From beginning work in process|| 600 ´ (100% -100%); 600 ´ (100% - 30%) Started  and completed       1,500 ´ 100%; 1,500 ´ 100% Normal spoilage*             315 ´ 100%; 315 ´ 100% Abnormal spoilage†             285 ´ 100%; 285 ´ 100% Work in process, ending‡             450 ´ 100%; 450 ´ 40% Accounted for Work done in current period only	600 2,550 3,150 600 1,500# 315 285 450                3,150	0 1,500 315 285 450                2,550	420 1,500 315 285 180                  2,700

^||Degree of completion in this department:  direct materials, 100%; conversion costs, 30%.

^#2,100 physical units completed and transferred out minus 600 physical units completed and transferred out from beginning work in process inventory.

*Normal spoilage is 15% of good units transferred out:  15% ´2,100 = 315 units.  Degree of completion of normal spoilage in this department:  direct materials, 100%; conversion costs, 100%.

^†Abnormal spoilage = Actual spoilage - Normal spoilage = 600 -315 = 285 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, 40%.

SOLUTION EXHIBIT 18-25

PANEL B:  Steps 3, 4 and 5— Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process

		Total Production Costs	Direct Materials	Conversion Costs
(Step  3)      Work in process, beginning (given)                     Costs added in current period (given)                     Total costs to account for (Step 4)       Costs added in current period                     Divided by equivalent units of work done in current period                     Cost per equivalent unit                         (Step 5)        Assignment of costs:                         Good units completed and transferred out (2,100 units)		$111,300   797,400 $908,700	$  96,000   567,000 $663,000  $567,000 ¸    2,550        $222.353	$  15,300   230,400 $245,700  $230,400   ¸    2,700        $  85.333
	Work in process, beginning (600 units) Costs added to beg. work in process in current period Total from beginning inventory before normal spoilage Started and completed before normal spoilage (1,500 units) Normal spoilage (315 units) (A)                              Total costs of good units completed and                                  transferred out (B)                  Abnormal spoilage (285 units) (C)                  Work in process, ending (450 units)	$111,300    35,840    147,140 461,529    96,921   705,590     87,691   115,419	$96,000          +         $15,300 (0§ ´ $222.353)  +    (420§ ´ $85.333) (1,500§ ´ $222.353)+(1,500§´$85.333) (315§  ´ $222.353)  +  (315§ ´$85.333) (285§  ´ $222.353)  +  (285§ ´$85.333) (450§ ´ $222.353)  +  (180§ ´ $85.333)
	(A)+(B)+(C)           Total costs accounted for	$908,700	$663,000	+       $245,700

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

18-26  (30 min.)  Standard-costing method, spoilage.

1.         Solution Exhibit 18-25, Panel A, shows the computation of the equivalent units of work done in September 2008 for direct materials (2,550 units) and conversion costs (2,700 units). (This computation is the same for FIFO and standard-costing.)

2.         The direct materials cost per equivalent unit of beginning work in process and of work done in September 2008 is the standard cost of $200 given in the problem.

            The conversion cost per equivalent unit of beginning work in process and of work done in September 2008 is the standard cost of $75 given in the problem.

            Solution Exhibit 18-26 summarizes the total costs to account for, and assigns these costs to units completed (including normal spoilage), to abnormal spoilage, and to units in ending work in process using the standard costing method.

SOLUTION EXHIBIT 18-26

Standard Costing Method of Process Costing with Spoilage;

Chipcity, September 2008.

Steps 3, 4, and 5—Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process

		Total Production Costs	Direct Materials	Conversion Costs
(Step  3)   Work in process, beginning*                   Costs added in current period at standard prices                 Costs to account for (Step 4)   Standard costs per equivalent unit (given)                   (Step 5)    Assignment of costs at standard costs:                   Good units completed and transferred out                     (2,100 units)		$133,500   712,500 $846,000 $       275	(600 ´ $200) (2,550 ´ $200) $630,000 $      200	(180 ´ $75)   (2,700 ´ $75)      $216,000                           $        75
	Work in process, beginning (600 units)*    Costs added to beg. work in process in current    period       Total from beginning inventory before normal        spoilage Started and completed before normal spoilage    (1,500 units) Normal spoilage (315 units) (A)                      Total costs of good units completed and                           transferred out (B)            Abnormal spoilage (285 units) (C)            Work in process, ending (450 units)               (A)+(B)+(C)  Total costs accounted for	$133,500     31,500 165,000 412,500     86,625   664,125     78,375   103,500 $846,000	(600 ´ $200)     +        (180 ´ $75)         (0§ ´ $200)     +       (420§ ´ $75)                                                                    (1,500§ ´ $200)    +    (1,500§ ´ $75)      (315§ ´ $200)    +      (315§  ´ $75)      (285§ ´ $200)    +      (285§  ´ $75)      (450§ ´ $200)    +       (180§ ´ $75)         $630,000      +        $216,000

^*Work in process, beginning has 600 equivalent units (600 physical units ´100%) of direct materials and 180  equivalent units (600 physical units ´ 30%) of conversion costs.

^§Equivalent units of direct materials and conversion costs calculated in Step 2 in Solution Exhibit 18-25, Panel A.

18-27   (20–30 min.)    Spoilage and job costing.

1.      Cash                                                                                                 200

         Loss from Abnormal Spoilage                                                      1,000

               Work-in-Process Control                                                                                1,200

         Loss = ($6.00 ´ 200) – $200 = $1,000

         Remaining cases cost = $6.00 per case. The cost of these cases is unaffected by the loss from abnormal spoilage.

2.      a.      Cash                                                                                        400

                           Work-in-Process Control                                                                       400

            The cost of the remaining good cases = [($6.00 ´ 2,500) – $400] = $14,600

         The unit cost of a good case now becomes $14,600 ¸ 2,300 = $6.3478

         b.      Cash                                                                                        400

                  Manufacturing Department Overhead Control                      800

                           Work-in-Process Control                                                                    1,200

         The unit cost of a good case remains at $6.00. 

c.      The unit costs in 2a and 2b are different because in 2a the normal spoilage cost is charged as a cost of the job which has exacting job specifications.  In 2b however, normal spoilage is due to the production process, not the particular attributes of this specific job. These costs are, therefore, charged as part of manufacturing overhead and the manufacturing overhead cost of $1 per case already includes a provision for normal spoilage.

3.      a.      Work-in-Process Control                                                        200

                           Materials Control, Wages Payable Control,

                                Manufacturing Overhead Allocated                                                 200

         The cost of the good cases = [($6.00 ´ 2,500) + $200] = $15,200

         The unit cost of a good case is $15,200 ¸ 2,500 = $6.08

         b.      Manufacturing Department Overhead Control                      200

                           Materials Control, Wages Payable Control, 

                                Manufacturing Overhead Allocated                                                 200

         The unit cost of a good case = $6.00 per case

c.      The unit costs in 3a and 3b are different because in 3a the normal rework cost is charged as a cost of the job which has exacting job specifications. In 3b however, normal rework is due to the production process, not the particular attributes of this specific job. These costs are, therefore, charged as part of manufacturing overhead and the manufacturing overhead cost of $1 per case already includes a provision for this normal rework.

18-28   (15 min.)   Reworked units, costs of rework.

1.         The two alternative approaches to account for the materials costs of reworked units are:

a.   To charge the costs of rework to the current period as a separate expense item as abnormal rework. This approach would highlight to White Goods the costs of the supplier problem.

b.   To charge the costs of the rework to manufacturing overhead as normal rework.

2.         The $50 tumbler cost is the cost of the actual tumblers included in the washing machines.  The $44 tumbler units from the first supplier were eventually never used in any washing machine, and that supplier is now bankrupt.  The units have now been disposed of at zero disposal value.

3.         The total costs of rework due to the defective tumbler units include the following:

a.   the labor and other conversion costs spent on substituting the new tumbler units;

b.   the costs of any extra negotiations to obtain the replacement tumbler units;

c.       any higher price the existing supplier may have charged to do a rush order for the replacement tumbler units; and

d.      ordering costs for the replacement tumbler units.

18-29   (25 min.)    Scrap, job costing.

1.         Journal entry to record scrap generated by a specific job and accounted for at the time scrap is sold is:

Cash or Accounts Receivable                                                             490

         Work-in-Process Control                                                                                490

To recognize asset from sale of scrap.

A memo posting is also made to the specific job record.

2.         Scrap common to various jobs and accounted for at the time of its sale can be accounted for in two ways:

a.         Regard scrap sales as a separate line item of revenues (the method generally used when the dollar amount of scrap is immaterial):

Cash or Accounts Receivable                                                          4,000

     Sale of Scrap                                                                                                 4,000

To recognize revenue from sale of scrap.

b.         Regard scrap sales as offsets against manufacturing overhead (the method generally used when the dollar amount of scrap is material):

Cash or Accounts Receivable                                                          4,000

           Manufacturing Department Overhead Control                                            4,000

To record cash raised from sale of scrap.

3.         Journal entry to record scrap common to various jobs at the time scrap is returned to storeroom:

            Materials Control                                                                             4,000

                  Manufacturing Department Overhead Control                                           4,000

            To record value of scrap returned to storeroom.

            When the scrap is reused as direct material on a subsequent job, the journal entry is:

            Work-in-Process Control                                                                 4,000

                  Materials Control                                                                                         4,000

            To record reuse of scrap on a job.

Explanations of journal entries are provided here but are not required.

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

Solution Exhibit 18-30 summarizes total costs to account for, calculates the equivalent units of work done to date for each cost category, and assigns total costs to units completed (including normal spoilage), to abnormal spoilage, and to units in ending work in process using the weighted-average method.

SOLUTION EXHIBIT 18-30

Weighted-Average Method of Process Costing with Spoilage;

Cleaning Department of the Boston Company for May.

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

	(Step 1)	(Step 2) Equivalent Units
Flow of Production	Physical Units	Direct Materials	Conversion Costs
Work in process, beginning (given) Started during current period (given) To account for Good units completed and transferred out     during current period: Normal spoilage*        1,850 ´ 100%; 1,850 ´ 100% Abnormal spoilage†        650 ´ 100%; 650 ´100% Work in process, ending‡ (given)        4,000 ´ 100%; 4,000 ´ 25% Accounted for Work done to date	2,500 22,500 25,000 18,500 1,850 650 4,000                25,000	18,500 1,850 650 4,000                25,000	18,500 1,850 650 1,000                22,000

*Normal spoilage is 10% of good units transferred out:  10% ´ 18,500 = 1,850units.  Degree of completion of normal spoilage in this department:  direct materials, 100%; conversion costs, 100%.

^†Total spoilage = 2,500 + 22,500 – 18,500 – 4,000 = 2,500 units; Abnormal spoilage = 2,500 – 1,850 = 650 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, 25%.

SOLUTION EXHIBIT 18-30

PANEL B:  Steps 3, 4, and 5— Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process

	Total    Production    Costs	Direct Materials	Conversion Costs
(Step  3)         Work in process, beginning (given)                         Costs added in current period (given) Total costs to account for (Step 4)        Costs incurred to date                         Divided by equivalent units of work done to date                         Cost per equivalent unit                         (Step 5)          Assignment of costs                         Good units completed and transferred out (18,500 units)	$  4,500   42,500 $47,000	$  2,500     22,500 $25,000 $25,000 ¸25,000         $         1	$  2,000    20,000 $22,000 $22,000 ¸22,000     $         1
Costs before adding normal spoilage                               Normal spoilage (1,850 units) (A)                            Total costs of good units completed and                                 transferred out (B)                  Abnormal spoilage (650 units) (C)                  Work in process, ending (4,000 units)      (A)+(B)+(C)  Total costs accounted for	$37,000     3,700   40,700        1,300     5,000 $47,000	(18,500# ´ $1) +    (1,850# ´ $1) +       (650# ´ $1) +    (4,000# ´ $1) +             $25,000     +	(18,500# ´ $1)    (1,850# ´ $1)       (650# ´ $1)    (1,000# ´ $1)      $22,000

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

18-31   (25 min.)    FIFO method, spoilage.

For the Cleaning Department, Solution Exhibit 18-31 summarizes the total costs for May, calculates the equivalent units of work done in the current period for direct materials and conversion costs, and assigns total costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process under the FIFO method.

 

SOLUTION EXHIBIT 18-31

First-in, First-out (FIFO) Method of Process Costing with Spoilage;

Cleaning Department of the BostonCompany for May.

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

		(Step 1)	(Step 2) Equivalent Units
	Flow of Production	Physical Units	Direct Materials	Conversion Costs
Work in process, beginning (given)		2,500
Started during current period (given)		22,500
To account for		25,000
Good units completed and transferred out during current period:
From beginning work in process||		2,500
2,500 ´ (100% -100%); 2,500 ´ (100% - 80%)			0		500
Started  and completed		16,000#
16,000 ´ 100%; 16,000 ´ 100%			16,000		16,000
Normal spoilage*		1,850
1,850 ´ 100%; 1,850% ´ 100%			1,850		1,850
Abnormal spoilage†		650
650 ´  100%; 650 ´ 100%			650		650
Work in process, ending‡		4,000
4,000 ´ 100%; 4,000 ´ 25%		_____	4,000		1,000
Accounted for		25,000	_____		_____
Work done in current period only			22,500		20,000

^|| Degree of completion in this department:  direct materials, 100%; conversion costs, 80%.

^#18,500 physical units completed and transferred out minus 2,500 physical units completed and transferred out from beginning work-in-process inventory.

*Normal spoilage is 10% of good units transferred out: 10% ´ 18,500 = 1,850units.  Degree of completion of normal spoilage in this department:  direct materials, 100%; conversion costs, 100%.

^†Total spoilage = 2,500 + 22,500 – 18,500 – 4,000 = 2,500 units

 Abnormal spoilage = 2,500 – 1,850 = 650 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, 25%.

SOLUTION EXHIBIT 18-31

PANEL B:  Steps 3, 4, and 5— Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process

		Total Production Costs	Direct Materials		Conversion Costs
(Step  3)         Work in process, beginning (given)                         Costs added in current period (given)                         Total costs to account for (Step 4)        Costs added in current period                       Divided by equivalent units of work done in current period                         Cost per equivalent unit                         (Step 5)          Assignment of costs:                         Good units completed and transferred out (18,500 units)		$  4,500   42,500 $47,000	$  2,500            22,500 $25,000 $22,500 ¸22,500 $         1	$  2,000        20,000      $22,000      $20,000      ¸20,000      $         1
	Work in process, beginning (2,500 units) Costs added to beg. work in process in current period Total from beginning inventory before normal spoilage Started and completed before normal spoilage (16,000 units) Normal spoilage (1,850 units) (A)                              Total costs of good units completed and transferred out (B)                  Abnormal spoilage (650 units) (C)                  Work in process, ending (4,000 units) (A)+(B)+(C)   Total costs accounted for	$  4,500        500     5,000 32,000     3,700   40,700        1,300     5,000 $47,000	$2,500        +       $2,000     (0§ ´ $1)      +   (500§ ´ $1) (16,000§ ´ $1) + (16,000§ ´ $1)      (1,850§ ´ $1)  +   (1,850§ ´ $1)    (650§ ´ $1)   +   (650§ ´ $1) (4,000§ ´ $1)  +  (1,000§ ´ $1)      $25,000      +      $22,000

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

18-32   (35 min.)   Weighted-average method, Packaging Department (continuation of 18-30).

For the PackagingDepartment, Solution Exhibit 18-32 summarizes total costs to account for, calculates the equivalent units of work done to date for each cost category, and assigns costs to units completed (including normal spoilage), to abnormal spoilage, and to units in ending work in process using the weighted-average method.

SOLUTION EXHIBIT 18-32

Weighted-Average Method of Process Costing with Spoilage;

Packaging Department of the Boston Company for May.

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

	(Step 1)	(Step 2) Equivalent Units
Flow of Production	Physical Units	Transferred- in Costs	Direct Materials	Conversion Costs
Work in process, beginning (given) Started during current period (given) To account for Good units completed and transferred out     during current period: Normal spoilage*        750 ´ 100%; 750 ´ 100%; 750 ´ 100% Abnormal spoilage†        250 ´ 100%; 250 ´100%, 250 ´ 100% Work in process, ending‡ (given)        10,000 ´100%; 10,000´0%; 10,000´25% Accounted for Work done to date	7,500 18,500 26,000 15,000 750 250 10,000             26,000	15,000 750 250     10,000                26,000	15,000 750 250 0     ______               16,000	15,000 750 250 2,500     _____ 18,500

*Normal spoilage is 5% of good units transferred out:  5% ´ 15,000 = 750 units.  Degree of completion of normal spoilage in this department: transferred-in costs, 100%; direct materials, 100%; conversion costs, 100%.

^†Total spoilage =7,500 + 18,500 – 15,000 – 10,000 = 1,000 units. Abnormal spoilage = 1,000 – 750 = 250 units.  Degree of completion of abnormal spoilage in this department:  transferred-in costs, 100%; direct materials, 100%; conversion costs, 100%.

^‡Degree of completion in this department:  transferred-in costs, 100%; direct materials, 0%; conversion costs, 25%.

SOLUTION EXHIBIT 18-32

PANEL B:  Steps 3, 4, and 5— Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process

	Total Production Costs	Transferred-in costs	Direct Materials	Conversion Costs
(Step  3)         Work in process, beginning (given)                         Costs added in current period (given) Total costs to account for (Step 4)        Costs incurred to date                         Divided by equivalent units of work done to date                         Cost per equivalent unit                         (Step 5)          Assignment of costs                         Good units completed and transferred out (15,000 units)	$22,250   54,675 $76,925	$16,125   40,700* $56,825 56,825  ¸26,000      $2.1856	$       0   1,600 $1,600 1,600 ¸ 16,000 $  0.10	$  6,125   12,375 $18,500 18,500 ¸18,500 $         1
Costs before adding normal spoilage Normal spoilage (750 units) (A)                            Total cost of good units completed and transferred out (B)                  Abnormal spoilage (250 units) (C)                  Work in process, ending (10,000 units)  (A)+(B)+(C)Total costs accounted for	$49,284        2,464   51,748        821     24,356 $76,925	15,000# ´ ($2.1856  +  $0.10  +  $1)    750#    ´ ($2.1856  +  $0.10  +  $1)              250#   ´ ($2.1856  +  $0.10  +  $1) (10,000# ´ $2.1856)+(0# ´ $0.10)+(2,500# ´ $1)      $56,825      +       $1,600       +      $18,500

*Total costs of good units completed and transferred out in Panel B (Step 5) of Solution Exhibit 18-30.

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

18-33   (25 min.)    FIFO method, Packaging Department (continuation of 18-31).

Solution Exhibit 18-33 summarizes the total Packaging Department costs for May, shows the equivalent units of work done in the Packaging Department in the current period for transferred-in costs, direct materials, and conversion costs, and assigns total costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work-in-process under the FIFO method.

SOLUTION EXHIBIT 18-33

First-in, First-out (FIFO) Method of Process Costing with Spoilage;

Packaging Department of the Boston Company for May.

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

	(Step 1)	(Step 2) Equivalent Units
Flow of Production	Physical Units	Transferred- in Costs	Direct Materials	Conversion Costs
Work in process, beginning (given) Started during current period (given) To account for Good units completed and transferred out during current period: From beginning work in process|| 7,500 ´ (100% - 100%); 7,500 ´       (100% - 0%); 7,500 ´ (100% - 80%) Started  and completed         7,500 ´ 100%; 7,500 ´ 100%; 7,500 ´ 100% Normal spoilage*         750 ´ 100%; 750% ´ 100%; 750 ´ 100% Abnormal spoilage†              250 ´  100%; 250 ´ 100%; 250 ´ 100% Work in process, ending‡              10,000 ´ 100%; 10,000 ´ 0%; 10,000 ´ 25% Accounted for Work done in current period only	7,500 18,500 26,000 7,500 7,500# 750 250 10,000                 26,000	0 7,500 750 250 10,000                   18,500	7,500 7,500 750 250 0                   16,000	1,500 7,500 750 250 2,500                     12,500

^||Degree of completion in this department:  transferred-in costs, 100%; direct materials, 0%; conversion costs, 80%.

^#15,000 physical units completed and transferred out minus 7,500 physical units completed and transferred out from beginning work-in-process inventory.

*Normal spoilage is 5% of good units transferred out:  5% ´15,000 = 750 units.  Degree of completion of normal spoilage in this department:  transferred-in costs, 100%; direct materials, 100%; conversion costs, 100%.

^†Total spoilage = 7,500 + 18,500 – 15,000 – 10,000 = 1,000 units.

 Abnormal spoilage = 1,000 – 750 = 250 units.  Degree of completion of abnormal spoilage in this department: transferred-in costs, 100%; direct materials, 100%; conversion  costs, 100%.

^‡Degree of completion in this department:  transferred-in costs, 100%; direct materials, 0%;

conversion costs, 25%.

SOLUTION EXHIBIT 18-33

PANEL B:  Steps 3, 4, and 5— Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process

		Total Production Costs	Transferred- in Costs	Direct Materials	Conversion Costs
(Step  3)         Work in process, beginning (given)                       Costs added in current period (given)                         Total costs to account for (Step 4)        Costs added in current period                       Divided by equivalent units of work done in                            current period                         Cost per equivalent unit                         (Step 5)          Assignment of costs:                         Good units completed and transferred out (15,000 units)		$22,250   54,675 $76,925	$16,125    40,700* $56,825 $40,700 ¸18,500 $    2.20	$      0      1,600 $1,600 $1,600   ÷16,000 $  0.10	$  6,125          12,375      $18,500                          $12,375      ¸12,500      $    0.99
	Work in process, beginning (7,500 units) Costs added to beg. work in process in    current period Total from beginning inventory before normal spoilage Started and completed before normal spoilage (7,500 units) Normal spoilage (750 units) (A)                              Total costs of good units completed and                                      transferred out (B)                  Abnormal spoilage (250 units) (C)                  Work in process, ending (10,000 units) (A)+(B)+(C)   Total costs accounted for	$22,250        2,235 24,485 24,675        2,467  51,627     823     24,475 $76,925	$16,125       +        $0          +      $6,125  (0´ $2.20) + (7,500§´ 0.10)+(1,500§´$0.99) 7,500§ ´ ($2.20 + $0.10 + $0.99)               750§  ´ ($2.20 + $0.10 + $0.99)                            250§ ´ ($2.20 + $0.10 + $0.99) (10,000§´$2.20)+(0§´$0.10)+(2,500§´$0.99)        $56,825    +        $1,600    +       $18,500

*Total costs of good units completed and transferred out in Step 5 Panel B of Solution Exhibit 18-31.

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

18-34   (20-25 min.)  Job-costing spoilage and scrap.

1.         a.   Materials Control                                                                       800

                  Manufacturing Overhead Control                                          1,075

                        Work-in-Process Control                                                                       1,875

                        (975 + 600 + 300 = 1,875)

            b.   Accounts Receivable or Cash                                                 1,995

                           Work-in-Process Control                                                                    1,995

2.         a.   The clause does not specify whether the 1% calculation is to be based on the input cost ($40,400 + $22,600 + $11,300) or the cost of the good output before the "1% normal spoilage" is added.

            b.   If the inputs are used to determine the 1%:

                           $40,400 + $22,600 + $11,300 = $74,300

            1% of $74,300 = $743.  Then, the entry to leave the $743 "normal spoilage" cost on the job, remove the salvageable material, and charge manufacturing overhead would be:

Materials Control                                                                            800

Manufacturing Overhead Control                                                   332

              Work-in-Process Control                                                                        1,132

($1,075 spoilage minus $743 = $332 spoilage

cost that is taken out of the job;

$800 salvage value plus $332 = $1,132; or

$1,875 minus $743 = $1,132)

               If the outputs are used to determine the 1%:

$40,400 – $975 = $39,425

  22,600 –   600 =   22,000

  11,300 –   300 =    11,000

$74,300                $72,425

Then, $72,425 ´ 1% = $724.25 or $724, rounded.  The journal entry would be:

Materials Control                                                                            800

Manufacturing Overhead Control                                                   351

         Work-in-Process Control                                                                             1,151

18-35   (15 min.)  Spoilage in job costing

1. Normal spoilage rate= Units of normal spoilage ÷ Total good units completed

                                     = 5 ÷ 35

                                     = 14.3%.

2.

a) Journal entry for spoilage related to a specific job:

    Materials Control (spoiled goods at current disposal value) 5 × $200               1,000

               Work-in-Process Control (Job #10)                                                                      1,000

Note: The costs incurred on the bad units (5 × $1,000) are already part of the balance in WIP.

          The cost of the 35 good units is (35 × 1,000) + (5 × $800) = $39,000

b) Journal entry for spoilage common to all jobs:

    Materials Control (spoiled goods at current disposal value) 5 × $200              1,000

    Manufacturing Overhead Control (normal spoilage)                                         4,000

               Work-in-Process Control (Job #10)                                                                      5,000

Note: In developing the predetermined O/H rate, the budgeted manufacturing overhead would include expected normal spoilage costs.

c) Journal entry for abnormal spoilage:

    Materials Control (spoiled goods at current disposal value) 5 × $200               1,000

    Loss from Abnormal Spoilage 5 × $800                                                           4,000

               Work-in-Process Control (job #10)                                                                       5,000

Note: If the spoilage is abnormal, the net loss is highlighted and always charged to an abnormal loss account.

18-36   (10 min.)  Rework in job costing, journal entry (continuation of 18-35)

a) Journal entry for rework related to a specific job:

   Work-in-Process Control (Job #10)                                                 1,800

               Various Accounts                                                                                   1,800

    (To charge rework costs to the job)

b) Journal entry for rework common to all jobs:

    Manufacturing Overhead Control (rework costs)                           1,800

                  Various Accounts                                                                                1,800

c) Journal entry for abnormal rework:

    Loss from Abnormal Rework                                                         1,800

                  Various Accounts                                                                                1,800

18-37   (10 min.)  Scrap at time of sale or at time of production, journal entries (continuation of 18-35)

a) Journal entry for recognizing immaterial scrap at time of sale:

    Cash or Accounts Receivable                                 300

                  Scrap Revenues                                                     300

    (To record other revenue sale of scrap)

b) Journal entry for recognizing material scrap related to a specific job at time of sale:

    Cash or Accounts Receivable                                 300

                  Work-in-Process Control (Job #10)                      300

c) Journal entry for recognizing material scrap common to all jobs at time of sale:

    Cash or Accounts Receivable                                 300

                  Manufacturing Overhead Control                                    300

d) Journal entry for recognizing material scrap as inventory at time of production and recording at net realizable value:

    Materials Control                                                    300

                  Work-in-Process Control (Job #10)                      300

    Cash or Accounts Receivable                                 300

                  Materials Control                                                  300

                  (When later sold)

18-38   (20-25 min.)   Physical units, inspection at various stages of completion (chapter appendix).

	Inspection	Inspection	Inspection
	at 15%	at 40%	at 100%
Work in process, beginning (20%)* Started during March To account for	14,000 120,000 134,000	14,000 120,000 134,000	14,000 120,000 134,000
Good units completed and transferred out Normal spoilage	113,000a 6,600b	113,000a 7,440c	113,000a 6,780d
Abnormal spoilage (10,000 – normal spoilage) Work in process, ending (70%)* Accounted for	3,400   11,000 134,000	2,560   11,000 134,000	3,220   11,000 134,000

*Degree of completion for conversion costs of the forging process at the dates of the work-in-process inventories

^a14,000 beginning inventory +120,000 –10,000 spoiled – 11,000 ending inventory = 113,000.

^b6% ´ (120,000 units started – 10,000 units spoiled) = 6% ´110,000 = 6,600; beginning work-in-process inventory is excluded because it was already 20% complete at March 1 and past the inspection point.

^c6% ´ (134,000 units – 10,000 ) =  6% ´124,000 = 7,440, because all units passed the 40% completion inspection point in March.

^d6% ´ 113,000 = 6,780, because 113,000 units are fully completed and inspected during March.

18-39   (25-35 min.)   Weighted-average method, inspection at 80% completion (chapter appendix).

The computation and allocation of spoilage is the most difficult part of this problem. The units in the ending inventory have passed inspection. Therefore, of the 100,000 units to account for (12,500 beginning + 87,500 started), 12,500 must have been spoiled in May [100,000 – (62,500 completed + 25,000 ending inventory)]. Normal spoilage is 8,750 [0.10 ´ (62,500 + 25,000)].  The 3,750 remainder is abnormal spoilage (12,500 – 8,750).

            Solution Exhibit 18-39, Panel A, calculates the equivalent units of work done for each cost category.  We comment on several points in this calculation:

·         Ending work in process includes an element of normal spoilage since all the ending WIP have passed the point of inspection––inspection occurs when production is 80% complete, while the units in ending WIP are 95% complete.

·         Spoilage includes no direct materials units because spoiled units are detected and removed from the finishing activity when inspection occurs at the time production is 80% complete. Direct materials are added only later when production is 90% complete. 

·         Direct materials units are included for ending work in process, which is 95% complete, but not for beginning work in process, which is 25% complete. The reason is that direct materials are added when production is 90% complete. The ending work in process, therefore, contains direct materials units; the beginning work in process does not.

         Solution Exhibit 18-39, Panel B, summarizes total costs to account for, computes the costs per equivalent unit for each cost category, and assigns costs to units completed (including  normal spoilage), to abnormal spoilage, and to units in ending work in process using the weighted-average method. The cost of ending work in process includes the assignment of normal spoilage costs since these units have passed the point of inspection. The costs assigned to each cost category are as follows:

Cost of good units completed and transferred out

    (including normal spoilage costs on good units)                                $2,346,687

Abnormal spoilage                                                                                        84,638

Cost of ending work in process (including normal

    spoilage costs on ending work in process)                                              917,675

Total costs assigned and accounted for                                                 $3,349,000

 

 

 

 

 

  

SOLUTION EXHIBIT 18-39

Weighted-Average Method of Process Costing with Spoilage;

Finishing Department of the Kim Company for August.

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

	(Step 1)	(Step 2) Equivalent Units
Flow of Production	Physical Units	Transferred- in Costs	Direct Materials	Conversion Costs
Work in process, beginning (given) Started during current period (given) To account for Good units completed and transferred out     during current period: Normal spoilage on good units*        6,250 ´ 100%; 6,250 ´ 0%; 6,250 ´ 80% Work in process, ending‡ (given)        25,000 ´ 100%; 25,000 ´ 100%; 25,000 ´ 95% Normal spoilage on ending WIP**         2,500 ´ 100%; 2,500 ´ 0%; 2,500 ´ 80% Abnormal spoilage†        3,750 ´ 100%; 3,750 ´ 0%; 3,750 ´ 80% Accounted for Work done to date	12,500   87,500 100,000 62,500 6,250 25,000 2,500 3,750                  100,000	62,500 6,250 25,000 2,500 3,750                    100,000	62,500 0 25,000 0 0                     87,500	62,500 5,000 23,750 2,000 3,000                     96,250

*Normal spoilage is 10% of good units that pass inspection:  10% ´ 62,500 = 6,250 units.  Degree of completion of normal spoilage in this department: transferred-in costs, 100%;  direct materials, 0%; conversion costs, 80%.

^‡Degree of completion in this department: transferred-in costs, 100%;  direct materials, 100%; conversion costs, 95%.

**Normal spoilage is 10% of the good units in ending WIP that have passed the inspection point, 10% ´25,000 = 2,500 units.  Degree of completion of normal spoilage in this department:  transferred-in costs, 100%; direct materials, 0%; conversion costs, 80%.

^†Abnormal spoilage = Actual spoilage - Normal spoilage = 12,500 -8,750 = 3,750 units.  Degree of completion of abnormal spoilage in this department: transferred-in costs, 100%;  direct materials, 0%; conversion costs, 80%.

SOLUTION EXHIBIT 18-39

PANEL B:  Steps 3, 4, and 5— Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process

	Total Production Costs	Transferred- in Costs	Direct Materials	Conversion Costs
(Step  3)         Work in process, beginning (given)                         Costs added in current period (given) Total costs to account for (Step 4)        Costs incurred to date                         Divided by equivalent units of work done to date                         Cost per equivalent unit                         (Step 5)          Assignment of costs                         Good units completed and transferred out (62,500 units)	$   156,125   3,192,875 $3,349,000	$103,625   809,375 $913,000 $913,000 ¸100,000                       $      9.13	$     -        819,000 $819,000 $819,000   ¸  87,500 $      9.36	$     52,500   1,564,500 $1,617,000 $1,617,000 ¸    96,250 $      16.80
Costs before adding normal spoilage Normal spoilage (6,250 units) (A)                            Total costs of good units completed and transferred out (B)                  Abnormal spoilage (3,750 units)                         Work in process, ending (25,000 units)                                     WIP ending, before normal spoilage                                     Normal spoilage on ending WIP (C)                                  Total costs of ending WIP (A)+(B)+(C)   Total costs accounted for	$2,205,625      141,063   2,346,688        84,638 861,250        56,425      917,675 $3,349,000	62,500# ´ ($9.13 + $9.36 + $16.80)    (6,250# ´ $9.13)  +          (0# ´ $9.36)  +   (5,000# ´ $16.80)    (3,750# ´ $9.13)  +          (0# ´ $9.36)  +   (3,000# ´ $16.80) (25,000# ´ $9.13)   + (25,000# ´ $9.36)  + (23,750# ´ $16.80)   (2,500# ´ $9.13)   +          (0# ´ $9.36)  +   (2,000# ´ $16.80)    $913,000    +      $819,000   +   $1,617,000

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

18-40   (30 min.)   Job costing, rework.

1.      Work-in-Process Control (CS1 chips) ($110 ´ 80)                                   8,800

Materials Control ($60 ´ 80)                                                                             4,800

Wages Payable ($12 ´ 80)                                                                                    960

Manufacturing Overhead Allocated ($38 ´ 80)                                                3,040

Total costs assigned to 80 spoiled units of CS1 chips before considering rework costs.

         Manufacturing Department Overhead Control (rework)                          1,800

Materials Control ($12 ´ 50)                                                                                   600

Wages Payable ($9 ´ 50)                                                                                         450

Manufacturing Overhead Allocated ($15 ´ 50)                                                      750

Normal rework on 50 units, but not attributable specifically to the CS1 chip batches or jobs.

         Loss from Abnormal Rework ($36 ´ 30)                                                 1,080

Materials Control ($12 ´ 30)                                                                                   360

Wages Payable ($9 ´ 30)                                                                                         270

Manufacturing Overhead Allocated ($15 ´ 30)                                                      450

Total costs of abnormal rework on 30 units

(Abnormal rework = Actual rework – Normal rework

= 80 – 50 = 30 units) of CS1 chips.

Work-in-Process Control (CS1 chips)                                                       1,200

Work-in-Process Control (CS2 chips)                                                          600

Manufacturing Department Overhead Allocated (rework)                               1,800

(Allocating manufacturing department rework costs to CS1 and CS2 in the proportion 1,000:500 since each calculator requires the same number of machine-hours.)

2.      Total rework costs for CS1 chips in August 2008 are as follows:

Normal rework costs allocated to CS1                                 $1,200

Abnormal rework costs for CS1                                             1,080

Total rework costs                                                                 $2,280

We emphasize two points:

a.         Only $1,200 of the normal rework costs are allocated to CS1 even though the normal rework costs of the 50 CS1 calculators reworked equal $1,800. The reason is that the normal rework costs are not specifically attributable to CS1. For example, the machines happened to malfunction when CS1 was being made, but the rework was not caused by the specific requirements of CS1.  If it were, then all $1,800 would be charged to CS1.

b.         Abnormal rework costs of $1,080 are linked to CS1 in the management control system even though for financial reporting purposes the abnormal rework costs are written off to the income statement.