Spoilage, Rework, and Scrap

Managers nonplus found that improved quality and intolerance for high spoiling eat lowered overall constitutes and increased sales. 18-2 despoilment social units of deed that do non meet the banners required by customers for good units and that atomic number 18 discarded or sold at reduced prices. Re lockunits of performance that do not meet the particularations required by customers but which atomic number 18 subsequently repaired and sold as good finished units. Scrapresidual material that results from manufacturing a product. It has low total sales determine comp ared to the total sales value of the product. 8-3Yes. approach pattern despoilment is despoliation underlying in a particular issue r offine that arises even under efficient operating conditions. Management decides the spoiling rate it considers conventionality dep resultant on the turnout process. 18-4 unnatural despoilation is spoilation that is not inherent in a particular production process and would not arise under efficient operating conditions. speak to of ab rule despoilation are unconnected cost, measures of inefficiency that should be written off demandly as losses for the fliering plosive speech sound. 18-5Management effort can affect the spoiling rate.Many companies are relentlessly reducing their order of form despoilation, spurred on by competitors who, likewise, are continuously reducing cost. 18-6 figure despoliation typically is expressed as a percentage of good units passing the reassessment point. Given actual fail units, we infer deviant spoilage as follows sub general spoilage = Actual spoilage public spoilage 18-7Accounting for spoiled goods deals with cost naming, rather than with cost incurrence, be mystify the existence of spoiled goods does not involve any additional cost beyond the centre already incurred. 18-8Yes. standard spoilage rates should be computed from the good go forthput or from the normal input, not the total input. c onvening spoilage is a given percentage of a certain popput suitcase. This base should never include unnatural spoilage, which is included in total input. Abnormal spoilage does not vary in commit proportion to units produced, and to include it would cause the normal spoilage count to fluctuate irregularly and not vary in take on proportion to the issueput base. 18-9Yes, the point of inspection is the key to the assignment of spoilage be. Normal spoilage cost do not attach solely to units transferred out(a).Thus, if units in closedown lap in process have passed inspection, they should have normal spoilage cost added to them. 18-10No. If abnormal spoilage is detected at a different point in the production cycle than normal spoilage, whence unit be would differ. If, however normal and abnormal spoilage are detected at the same point in the production cycle, their unit be would be the same. 18-11No. despoilment may be considered a normal characteristic of a given producti on cycle. The costs of normal spoilage caused by a random malfunction of a machine would be charged as a part of the manufacturing bang allocated to all jobs.Normal spoilage attributable to a specific job is charged to that job. 18-12 No. Unless there are special priming coats for charging normal retread 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. 18-13Yes. Abnormal re buy the farm is a loss just like abnormal spoilage. By charging it to manufacturing overhead, the abnormal process costs are spread over other jobs and also included in inscription to the extent a job is not complete. Abnormal work on is rework over and above what is expected during a cessation, and is recognized as a loss for that period. 8-14A company is justified in inventorying geek when its estimated net realizable value is significant and the time between storing it and selling or reusing it is quite long. 18-15 accompany managements measure chuck out to measure efficiency and to also control a tempting extraction 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, capability redesign products and processes to reduce scrap. Others may also examine if the scrap can be reused to save substantial input costs. 8-16(510 min. ) Normal and abnormal spoilage in units. 1. full spoiled units12,000 Normal spoilage in units, 5% ( 132,000 6,600 Abnormal spoilage in units 5, cd 2. Abnormal spoilage, 5,four hundred ( $10$ 54,000 Normal spoilage, 6,600 ( $10 66,000 dominance 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 effect all poten tial savings.Of course, zero spoilage usually means higher-quality products, more customer satisfaction, more employee satisfaction, and variant beneficial effects on nonmanufacturing (for example, purchasing) costs of involve materials. 18-17(20 min. )Weighted-average method, spoilage, resembling units. closure register 18-17 calculates equivalent units of work through with(p) to insure for curb materials and variation costs. ascendent evince 18-17 sum come forwardput in corporal Units and enter return in equivalent weight Units Weighted-Average Method of unconscious process being with Spoilage, Gray Manufacturing Company for November 2006. (Step 1) (Step 2) equivalent weight Units carnal Direct rebirth Flow of return Units Materials be knead in process, graduation exercise (given) 1,000 Started during authentic period 10,150a To theme for 11,150 beneficial units holy and transferred out during current period 9,000 9,000 9,000 Normal spoilage* nose candy carbon ( nose candy% degree Celsius ( century% degree centigrade deoxycytidine monophosphate Abnormal spoilage 50 50 ( one C% 50 ( light speed% 50 50 work in process, termination (given) 2,000 2,000 ( 100% 2,000 ( 30% 2,000 600 Accounted for 11,150 tame through with(p) to while 11,150 9,750 a From below, 11,150 total units are historyed for. Therefore, units started during current period must be = 11,150 1,000 = 10,150. * class of period of normal spoilage in this discussion section send materials, 100% regeneration costs, 100%. storey of mop up of abnormal spoilage in this surgical incision direct materials, 100% conversion costs, 100%. pointedness 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). antecedent represent 18-18 calculates the costs per equivalent unit for direct materials and conversion costs, summarizes total costs to identify for, and assigns these costs to units absolute and transferred out (including normal spoilage), to abnormal spoilage, and to units in final result work in process. outcome give 18-18 encrypt cost per Equivalent Unit, Summarize follow be to Account For, and appoint occur cost to Units Completed, to bungle Units, and to Units in goal deform in Process Weighted-Average Method of Process be, Gray Manufacturing Company, November 2006. fall Production Direct spiritual rebirth be Materials cost (Step 3) snuff it in process, beginning (given) $ 2,533 $ 1,423 $ 1,110 be added in current period (given) 39,930 12,180 27,750 cost incurred to date 13,603 28,860 Divided by equivalent units of work through with(p) to date (11,150 ( 9,750 Cost per equivalent unit $ 1. 22 $ 2. 6 (Step 4) summation costs to account for $42,463 (Step 5) Assignment of costs expert units finished and transferred out (9,000 units) cost in the lead adding normal spoilage $37,620 (9,000 ( $1. 22) + (9,000 ( $2. 96) Normal spoilage (100 units) 418 (100 ( $1. 22) + (100 ( $2. 96) (A) marrow cost of good units completed & transf. out 38,038 (B) Abnormal spoilage (50 units) 209 (50 ( $1. 22) + (50 ( $2. 96) (C) grow in process, stopping point (2,000 units) 4,216 (2,000 ( $1. 22) + (600 ( $2. 6) (A)+(B)+(C) good costs accounted for $42,463 Equivalent units of direct materials and conversion costs deliberate in Step 2 in resoluteness register 18-17. 18-19(15 min. )first in first out method, spoilage, equivalent units. settlement Exhibit 18-19 calculates equivalent units of work through in the current period for direct materials and conversion costs. SOLUTION EXHIBIT 18-19 Summarize Output in somatogenic Units and Compute Output in Equivalent Units First-in, First-out (FIFO) Method of Process Costing with Spoilage, Gray Manufacturing Company for November 2006. (Step 2) (Step 1) Equivalent Units Physi cal Direct variation Flow of Production Units Materials Costs make water in process, beginning (given) 1,000 Started during current period 10,150a To account for 11,150 in effect(p) units completed and transferred out during current period From beginning work in process 1,000 1,000 ( (100% (100%) 1,000 ( (100% ( 50%) 0 500 Started and completed 8,000 8,000 ( 100% 8,000 ( 100% 8,000 8,000 Normal spoilage* 100 100 ( 100% 100 ( 100% 100 100 Abnormal spoilage 50 50 ( 100% 50 ( 100% 50 50 dissemble in process, ending 2,000 2,000 ( 100% 2,000 ( 30% 2,000 600 Accounted for 11,150 build through in current period only 10,150 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. full stop of completion in this department direct materials, 100% conversion costs, 50%. 9,000 animal(prenominal) units completed and transferred out minus 1,000 physical units complete d 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). final result 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 Cost per Equivalent Unit Costs, Summarize derive Costs to Account For, and Assign totality Costs to Units Completed, to defective Units, and to Units in Ending Work in Process FIFO Method of Process Costing, Gray Manufactu ring Company, November 2006. wide-cut Production Direct Conversion Costs Materials Costs (Step 3) Work in process, beginning (given $1,423 + $1,110) $ 2,533 Costs added in current period (given) 39,930 $12,180 $27,750 Divided by equivalent units of work done in current period (10,150 ( 9,250 Cost per equivalent unit ______ $ 1. 0 $ 3 (Step 4) Total costs to account for $42,463 (Step 5) Assignment of costs grave units completed and transferred out (9,000 units) Work in process, beginning (1,000 units) $ 2,533 Costs added to beg. work in process in current period 1,500 (0a ( $1. 0) + (500a ( $3) Total from beginning inventory sooner normal spoilage Started and completed before normal spoilage (8,000 units) 4,033 Normal spoilage (100 units) 33,600 (8,000a ( $1. 20) + (8,000a ( $3) (A) Total costs of good units completed and transferred out 420 (100a ( $1. 20) + (100a ( $3) (B) Abnormal spoilage (50 units) 38,053 (C) Work in process, ending (2,00 0 units) 210 (50a ( $1. 0) + (50a ( $3) (A)+(B)+(C) Total costs accounted for 4,200 (2,000a ( $1. 20) + (60a ( $3) $42,463 a Equivalent units of direct materials and conversion costs mensurable in Step 2 in Solution Exhibit 18-19. 18-21(30 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 stately 2006. (Step 1) (Step 2) Equivalent Units Flow of Production Physical UnitsDirect Conversion Materials 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 pic100% 900 pic100%) 900 900 Abnormal spoila geb three hundred (ccc pic100% 300 pic100%) 300 300 Work in process, endingc (given) 1,800 (1,800 pic 100% 1,800 pic 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 tsfd. 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 & 3. Solution Exhibit 18-21B 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, using the weighted-average method. SOLUTION EXHIBIT 18-21B Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, 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 2006. Total Direct Conversion Production Materials Costs 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 Costs incurred to date $99,000 $103,900 Divide by equivalent units of work done to date pic12,000 pic11,550 Cost per equivalent unit _______ $ 8. 250 $ 8. 957 (Step 4) Total costs to account for $202,900 (Step 5) Assignment of costs Good units completed and transferred out (9,000 units) Costs before adding normal spoilage $155,211 ( 9,000d pic$8. 25) + (9,000 d pic$8. 957) Normal spoilage (900 units) 15,521 (900d pic$8. 25) + (900d pic$8. 9957) (A) Total costs of good units completed and transferred out 170,732 (B) Abnormal spoilage (300 units) 5,174 (300d pic $8. 25) + (300d pic $8. 9957) (C) Work in process, ending (1,800 units) 26,994 (1,800d pic$8. 25) + (1,350d pic$8. 957) (A) + (B) + (C) Total costs accounted for $202,900 dEquivalent units of direct materials and conversion costs metrical in step 2 of Solution Exhibit 18-21A. 18-22 (30 min. )FIFO method, spoilage. 1. Solution Exhibit 18-22A calculates equivalent units of work done in the current period for direct materials and conversion costs. SOLUTION EXHIBIT 18-22A Summarize Output in Physical Units and Compute Output in Equivalent Units FIFO Method of Process Costing with Spoilage, Appleton Company for August 2006. (Step 1) (Step 2) Equivalent Units Flow of Production Physical Units Direct Conversion Costs Mater ials Work in process, beginning (given) 2,000 Started during current period (given) 10,000 To account for 12,000 Good units completed and transferred out during current period From beginning work in process a 2,000 2,000 ? (100% 100%) 2,000 ? 100% 50%) 0 1,000 Started and completed 7,000b (7,000 ? 100% 7,000 ? 100%) 7,000 7,000 Normal spoilagec 900 (900 ? 100% 900 ? 100%) 900 900 Abnormal spoilaged 300 (300 ? 100% 300 ? 00%) 300 300 Work in process, endinge (given) 1,800 (1,800 ? 100% 1,800 ? 75%) 1,800 1,350 Accounted for 12,000 _____ Work done in current period only 10,000 10,550 a Degree of completion in this department direct materials, 100% conversion costs, 50%. b 9,000 physical units completed and transferred out minus 2,000 physical units completed and transferred out from beginning work-in-process inventory. c Normal spoilage is 10% of good units transferred out 10% ? 9,000 = 900 units. Deg ree of completion of normal spoilage in this department direct materials, 100% conversion costs, 100%. d Total spoilage = Beg. units + Units started Good units tsfd. Out ending units = 2,000 + 10,000 9,000 1,800 = 1,200 Abnormal spoilage = Actual spoilage Normal spoilage = 1,200 900 = 300 units. Degree of completion of abnormal spoilage in in this department direct materials, 100% conversion costs, 100%. e Degree of completion in this department direct materials, 100% conversion costs, 75%. 2 & 3. Solution Exhibit 18-22B 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, using the FIFO method. SOLUTION EXHIBIT 18-22B Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed, to Spoiled Unit s, and to Units in Ending Work in Process FIFO Method of Process Costing, Appleton Company, August 2006. Total Direct Conversion Production Materials Costs Costs (Step 3) Work in process, beginning (given) ($17,700 + $10,900) $ 28,600 Costs added in current period (given) 174,300 $ 81,300 $93,000 Divide by equivalent units of work done in current period pic10,000 pic10,550 Cost per equivalent unit $ 8. 130 $ 8. 152 (Step 4) Total costs to account for $202,900 (Step 5) Assignment of costs Good units completed and transferred out (9,000 units) Work in process, beginning (2,000 units) $ 28,600 Costs added to beg. work in process in current period 8,815 (0f ? $8. 13) + (1,000f ? $8. 152) Total from beginning inventory before normal spoilage 37,415 Started and completed before normal spoilage (7,000 units) 118,616 (7,000f ? $8. 13) + (7,000f ? $8. 8152) Normal spoilage (900 units) 15,521 (900f ? $8. 13) + (900f ? $8. 8152) ( A) Total costs of good units completed and transferred out 171,282 (B) Abnormal spoilage (300 units) 5,084 (300f ? $8. 13) + (300f ? $8. 8152) (C) Work in process, ending (1,800 units) 26,534 (1,800f ? $8. 13) + (1,350f ? $8. 152) (A) + (B) + (C) Total costs accounted for $202,900 fEquivalent units of direct materials and conversion costs calculated in step 2 in Solution Exhibit 18-22A. 18-23 (30 min. ) Standard-costing method, spoilage. 1. Solution Exhibit 18-23A calculates equivalent units of work done in the current period for direct materials and conversion costs. (It is the same as Solution Exhibit 18-22A. ) SOLUTION EXHIBIT 18-23A Summarize Output in Physical Units and Compute Output in Equivalent Units Standard Costing Method of Process Costing with Spoilage, Appleton Company for August 2006. (Step 1) (Step 2) Equivalent Units Flow of Production Physical Units Direct Conversion Costs Materials Work in process, beginning (given) 2,000 St arted during current period (given) 10,000 To account for 12,000 Good units completed and transferred out during current period From beginning work in process a 2,000 2,000 ? (100% 100%) 2,000 ? 100% 50%) 0 1,000 Started and completed 7,000b (7,000 ? 100% 7,000 ? 100%) 7,000 7,000 Normal spoilagec 900 (900 ? 100% 900 ? 100%) 900 900 Abnormal spoilaged 300 (300 ? 100% 300 ? 00%) 300 300 Work in process, endinge (given) 1,800 (1,800 ? 100% 1,800 ? 75%) 1,800 1,350 Accounted for 12,000 Work done in current period only 10,000 10,550 a Degree of completion in this department direct materials, 100% conversion costs, 50%. b 9,000 physical units completed and transferred out minus 2,000 physical units completed and transferred out from beginning work-in-process inventory. c Normal spoilage is 10% of good units transferred out 10% ? 9,000 = 900 units. Degree of completion of normal spoilage in this department di rect materials, 100% conversion costs, 100%. d Total spoilage = Beg. units + Units started Good units tsfd. Out ending units = 2,000 + 10,000 9,000 1,800 = 1,200 Abnormal spoilage = Actual spoilage Normal spoilage = 1,200 900 = 300 units. Degree of completion of abnormal spoilage in in this department direct materials, 100% conversion costs, 100%. e Degree of completion in this department direct materials, 100% conversion costs, 75%. 2 & 3. Solution Exhibit 18-23B 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, using standard costing. SOLUTION EXHIBIT 18-23B Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process Standard Costing Method of Process Costing, Appleton Company, August 2006. Total Direct Conversion Production Materials Costs Costs (Step 3) Standard cost per equivalent unit (given) $ 17. 50 $8. 00 $9. 50 Work in process, beginning (given) $ 25,500 (2,000 ? $8. 00) + (1,000 ? $9. 50) Costs added in current period at standard prices 180,225 (10,000 ? $8. 00) + (10,550 ? $9. 0) (Step 4) Total costs to account for $205,725 (Step 5) Assignment of costs at standard costs Good units completed and transferred out (9,000 units) Work in process, beginning (2,000 units) $ 25,500 Costs added to beg. work in process in current period 9,500 (0f ? $8. 00) + (1,000f ? $9. 50) Total from beginning inventory before normal spoilage 35,000 Started and completed before normal spoilage (7,000 units) 122,500 (7,000f ? $8. 00) + (7,000f ? $9. 50) Normal spoilage (900 units) 15,750 (900f ? $8. 00) + (900f ? $9. 0) (A) Total costs of good units completed and transf erred out 173,250 (B) Abnormal spoilage (300 units) 5,250(300f ? $8. 00) + (300f ? $9. 50) (C) Work in process, ending (1,800 units) 27,225 (1,800f ? $8. 00) + (1,350f ? $9. 50) (A) + (B) + (C) Total costs accounted for $205,725 f Equivalent units of direct materials and conversion costs calculated in step 2 in Solution Exhibit 18-23A. 18-24(25 min. ) Weighted-average method, spoilage. 1. Solution Exhibit 18-24, jury A, calculates the equivalent units of work done to date for separately cost category in kinfolk 2006. 2. & 3.Solution Exhibit 18-24, venire B, calculates the costs per equivalent unit for each cost category, summarizes 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 weighted-average method. SOLUTION EXHIBIT 18-24 Weighted-Average Method of Process Costing with Spoilage Superchip, September 2006. PANEL A steps 1 and 2Summarize Output in Physical Units and Compute Output in Equivalent Units (Step 1) (Step 2) Equivalent Units Physical Direct Conversion Flow of Production Units Materials Costs Work in process, beginning (given) four hundred Started during current period (given) 1,700 To account for 2,100 Good units completed and transferred out during current period 1,400 1,400 1,400 Normal spoilage* 210 210 ( 100% 210 ( 100% 210 210 Abnormal spoilage xcl 190 ( 100% 190 ( 100% 190 190 Work in process, ending (given) 300 300 ( 100% 300 ( 40% 300 120 Accounted for 2,100 Work done to date 2,100 1,920 *Normal spoilage is 15% of good units transferred out 15% ? 1,400 = 210 units.Degree of completion of normal spoilage in this department direct materials, 100% conversion costs, 100%. Total spoilage = 400 + 1,700 1,400 300 = 400 units Abnormal spoilage = Total spoilage ( Normal spoilage = 400 ( 210 = 190 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 5Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process Total Production Direct Conversion Costs Materials Costs (Step 3) Work in process, beginning (given) $ 74,200 $ 64,000 $ 10,200 Costs added in current period (given) 531,600 378,000 153,600 Costs incurred to date $442,000 $163,800 Divided by equivalent units of work done to date ( 2,100 ( 1,920 Cost per equivalent unit costs of work done to date $210. 476 $85. 125 (Step 4) Total costs to account for $605,800 (Step 5) Assignment of costs Good units completed and transferred out (1,400 units) Costs before adding normal spoilage $414,104 (1,400( $210. 476) + (1,400( $85. 3125) Normal spoilage (210 units) 62,116 (210 ( $210. 476) + (210 ( $85. 125) (A) Total cost of good units completed and transferred out (B) Abnormal spoilage (190 units) 476,220 (C) Work in process, ending (300 units) 56,199 (190 ( $210. 476) + (190 ( $85. 3125) (A)+(B)+(C) Total costs accounted for 73,381 (300 ( $210. 476) + (120 ( $85. 3125) $605,800 Equivalent units of direct materials and conversion costs calculated in Step 2 in Panel A. 8-25 (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 2006. 2. & 3. Solution Exhibit 18-25, Panel B, calculates the costs per equivalent unit for each cost category, summarizes the total silicon chip discussion section costs for September 2006, and assigns these 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 Superchip, September 2006.PANEL A Steps 1 and 2Summarize Output in Physical Units and Compute Output in Equivalent Units (Step 2) (Step 1) Equivalent Units Physical Direct Conversion Flow of Production Units Materials Costs Work in rocess, beginning (given) 400 Started during current period (given) 1,700 To account for 2,100 Good units completed and transferred out during current period From beginning work in process 400 400 ( (100% (100%) 400 ( (100% ( 30%) 0 280 Started and completed 1,000 1,000 ( 100% 1,000 ( 100% 1,000 1,000 Normal spoilage* 210 210 ( 100% 210 ( 100% 210 210 Abnormal spoilage 190 190 ( 100% 190 ( 100% 190 190 Work in process, ending 300 300 ( 100% 300 ( 40% 300 120 Accounted for 2,100 Work done in current period only 1,700 1,800 Degree of completion in this department direct materials, 100% conversion costs, 30%. 1,400 physical units completed and transferre d out minus 400 physical units completed and transferred out from beginning work in process inventory. Normal spoilage is 15% of good units transferred out 15% ( 1,400 = 210 units. Degree of completion of normal spoilage in this department direct materials, 100% conversion costs, 100%. Abnormal spoilage = Actual spoilage ( Normal spoilage = 400 ( 210 = 190 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 5Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process Total Production Direct Conversion Costs Materials Costs (Step 3) Work in process, beginning, $64,000 + $70,200 (given) $ 74,200 Costs added in current period (given) 531,600 378,000 153,600 Divided by equiv alent units of work done in current period ( 1,700 ( 1,800 Cost per equivalent unit $222. 353 $ 85. 33 (Step 4) Total costs to account for $605,800 (Step 5) Assignment of costs Good units completed and transferred out (1,400 units) Work in process, beginning (400 units) $ 74,200 Costs added beg. work in process in current period 23,893 (0 ( $222. 353) + (280 ( $85. 33) Total from beginning inventory before normal spoilage Started and completed before normal spoilage 98,093 (1,000 units) Normal spoilage (210 units) 307,686 (1,000($222. 353) + (1,000($85. 333) (A) Total costs of good units completed and 64,614 (210($222. 353) + (210($85. 333) transferred out (B) Abnormal spoilage (190 units) 470,393 (C) Work in process, ending (300 units) 58,461 (190($222. 353) + (190($85. 33) (A)+(B)+(C) Total costs accounted for 76,946 (300($222. 353) + (120( $85. 333) $605,800 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 numeration of the equivalent units of work done in September 2006 for direct materials (1,700 units) and conversion costs (1,800 units). (This deliberation 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 2006 is the standard cost of $210 given in the problem. The conversion cost per equivalent unit of beginning work in process and of work done in September 2006 is the standard cost of $80 given in the problem. 3. 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 Superchip, September 2006.Steps 3, 4, and 5Compute C ost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process Total Production Direct Conversion Costs Materials Costs (Step 3) Standard costs per equivalent unit (given) $ 290 $ 210 $ 80 Work in process, beginning* 93,600 (400 ( $210) + (120 ( $80) Costs added in current period at standard prices 501,000 (1,700 ( $210) + (1,800 ( $80) (Step 4) Costs to account for $594,600 (Step 5) Assignment of costs at standard costs Good units completed and transferred out (1,400 units) Work in process, beginning (400 units) $ 93,600 Costs added beg. ork in process in current period 22,400 (0 ( $210) + (280 ( $80) Total from beginning inventory before normal spoilage 116,000 Started and completed before normal spoilage (1,000 units) 290,000 (1,000 ( $210) + (1,000 ( $80) Normal spoilage (210 units) 60,900 (210 ( $210) + (210 ( $80) (A) Total costs of good units completed and transferred out 466,900 (B) Abnormal spoilage (190 units) 55,100 (190 ( $210) + (190 ( $80) (C) Work in process, ending (300 units) 72,600 (300 ( $210) + (120 ( $80) (A)+(B)+(C) Total costs accounted for $594,600 *Work in process, beginning has 400 equivalent units (400 physical units (100%) of direct materials and 120 equivalent units (400 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(2030 min. )Spoilage and job costing. 1. Cash 200 Loss from Abnormal Spoilage1,000 Work-in-Process defy1,200 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 Manufac turing discussion section smash Control800 Work-in-Process Control1,200 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 preparedness for normal spoilage. 3. a. Work-in-Process Control 200 Materials Control, honorarium 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 discussion section Overhead Control 200 Materials Control, Wages Payable Control, Manufacturing Overhead Allocated200 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 both 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 new supplier were at last never us ed in any washing machine and that supplier is now bankrupt. The units must now be disposed of at zero establishment 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 modify 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. rdering costs for the replacement tumbler units. 18-29(25 min. )Scrap, job costing. 1. Journal first appearance to record scrap generated by a specific job and accounted for at the time scrap is sold is Cash or Accounts Receivable490 Work-in-Process Control490 To recognize asset from sale of scrap. A memorandum posting is also made to the specific job record. 2. Scrap common to variant jobs and accounted for at the time of its sale can be accounted for in two ways a. Regard scrap sales as a separate l ine item of revenues (the method generally used when the dollar amount of scrap is immaterial) Cash or Accounts Receivable4,000 Sale of Scrap4,000 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 Receivable4,000 Manufacturing Department Overhead Control4,000 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 Control4,000 Manufacturing Department Overhead Control4,000 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 Control4,000 Materials Control4,000 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 calculates the eq uivalent units of work done to date for each cost category, presents computations of the costs per equivalent unit for each cost category, summarizes 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 weighted-average method. SOLUTION EXHIBIT 18-30 Weighted-Average Method of Process Costing with Spoilage Cleaning Department of the Alston Company for May. PANEL A Steps 1 and 2Summarize Output in Physical Units and Compute Output in Equivalent Units (Step 1) (Step 2) Equivalent Units Physical Units Direct Conversion Flow of Production Materials Costs Work in process, beginning (given) 1,000 Started during current period given) 9,000 To account for 10,000 Good units completed and transferred out during current period 7,400 7,400 7,400 Normal spoilage* 740 ( 100% 740 ( 100% 740 740 740 Abnormal spoilage 260 ( 100% 260 (100% 260 260 260 W ork in process, ending (given) 1,600 ( 100% 1,600 ( 25% 1,600 1,600 400 Accounted for Work done to date 10,000 10,000 8,800 *Normal spoilage is 10% of good units transferred out 10% ? ,400 = 740 units. Degree of completion of normal spoilage in this department direct materials, 100% conversion costs, 100%. Total spoilage = 1,000 + 9,000 7,400 1,600 = 1,000 units Abnormal spoilage = 1,000 740 = 260 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 5Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process Total Production Direct Conversion Costs Materials Costs (Step 3) Work in process, beginning (given) $ 1,800 $ 1,000 $ 800 Costs added in current period (given) 17,000 9,000 8,000 Costs incurred to date 10,000 8,800 Divided by equivalent units of work done to date (10,000 ( 8,800 Cost per equivalent unit ______ $ 1 $ 1 (Step 4) Total costs to account for $18,800 (Step 5) Assignment of costs Good units completed and transferred out (7,400 units) Costs before adding normal spoilage $14,800 (7,400 ( $1) + (7,400 ( $1) Normal spoilage (740 units) 1,480 (740 ( $1) + (740 ( $1) (A) Total costs of good units completed and transferred out 16,280 (B) Abnormal spoilage (260 units) 520 (260 ( $1) + (260 ( $1) (C) Work in process, ending (1,600 units) 2,000 (1,600 ( $1) + (400 ( $1) (A)+(B)+(C) Total costs accounted for $18,800 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 calculates the equivalent units of work done in the current period for direct materials and conver sion costs, presents the costs per equivalent unit for direct materials and conversion costs, summarizes the total costs for May, and assigns these 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 Alston Company for May. PANEL A Steps 1 and 2Summarize Output in Physical Units and Compute Output in Equivalent Units (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) 9,000 To account for 10,000 Good units completed and transferred out during current period From beginning work in process 1,000 1,000 ( (100% (100%) 1,000 ( (100% ( 80%) 0 200 Started and completed 6,400 6,400 ( 100% 6,400 ( 100% 6,400 6,4 00 Normal spoilage* 740 740 ( 100% 740% ( 100% 740 740 Abnormal spoilage 260 260 ( 100% 260 ( 100% 260 260 Work in process, ending 1,600 1,600 ( 100% 1,600 ( 25% ______ 1,600 400 Accounted for 10,000 _____ _____ Work done in current period only 9,000 8,000 Degree of completion in this department direct materials, 100% conversion costs, 80%. 7,400 physical units completed and transferred out minus 1,000 physical units completed and transferred out from beginning work-in-process inventory. Normal spoilage is 10% of good units transferred out 10% ( 7,400 = 740 units. Degree of completion of normal spoilage in this department direct materials, 100% conversion costs, 100%. Total spoilage = 1,000 + 9,000 7,400 1,600 = 1,000 units Abnormal spoilage = 1,000 740 = 260 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%. S OLUTION EXHIBIT 18-31 PANEL B Steps 3, 4, and 5Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process Total Production Direct Conversion Costs Materials Costs (Step 3) Work in process, beginning (given) $ 1,800 $1,000 $ 800 Costs added in current period (given) 17,000 9,000 8,000 Divided by equivalent units of work done in current period (9,000 (8,000 Cost per equivalent unit 1 1 (Step 4) Total costs to account for $18,800 (Step 5) Assignment of costs Good units completed and transferred out (7,400 units) Work in process, beginning (1,000 units) $ 1,800 Costs added to beg. work in process in current period 200 (0 ( $1) + (200 ( $1) Total from beginning inventory before normal spoilage 2,000 Started and ompleted before normal spoilage (6,400 units) 12,800 (6,400 ( $1) + (6,400 ( $1) Normal spoilage (740 units) 1,480 (740 ( $1) + (740 ( $1) (A) Total costs of good units completed and transferred out 16,280 (B) Abnormal spoilage (260 units) 520 (260 ( $1) + (260 ( $1) (C) Work in process, ending (1,600 units) 2,000 (1,600 ( $1) + (400 ( $1) (A)+(B)+(C) Total costs accounted for $18,800 Equivalent units of direct materials and conversion costs calculated in Step 2 in Panel A. 18-32 (35 min. Weighted-average method, mill Department (continuation of 18-30). For the Milling Department, Solution Exhibit 18-32 calculates the equivalent units of work done to date for each cost category, presents computations of the costs per equivalent unit for each cost category, summarizes 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 weighted-average method. SOLUTION EXHIBIT 18-32 Weighted-Average Method of Process Costing with Spoilage Milling Department of the Alston Company for May. PANEL A Steps 1 and 2Sum marize Output in Physical Units and Compute Output in Equivalent Units (Step 1) (Step 2) Equivalent Units Physical Units Transferred- Direct Conversion Flow of Production in Costs Materials Costs Work in process, beginning (given) 3,000 Started during current period (given) 7,400 To account for 10,400 Good units completed and transferred out during current period 6,000 6,000 6,000 6,000 Normal spoilage* 300 300 ( 100% 300 ( 100% 300 ( 100% 300 300 300 Abnormal spoilage 100 100 ( 100% 100 (100%, 100 ( 100% 100 100 100 Work in process, ending (given) 4,000 4,000 ( 100% 4,000 ( 0% 4,000 ( 25% 4,000 0 1,000 Accounted for 10,400 Work done to date 10,400 6,400 7,400 *Normal spoilage is 5% of good units transferred out 5% ? 6,000 = 300 units. Degree of completion of normal spoilage in this department transferred-in costs, 100% direct materials, 100% conversion costs, 100%. Total spoilage = 3,000 + 7,400 6,000 4,000 = 400 units. Abnormal s poilage = 400 300 = 100 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 18-32PANEL B Steps 3, 4, and 5Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process Total Production Transferred-in Direct Conversion Costs costs Materials Costs (Step 3) Work in process, beginning (given) $ 8,900 $ 6,450 $ 0 $2,450 Costs added in current period (given) 21,870 16,280* 640 4,950 Costs incurred to date 22,730 640 7,400 Divided by equivalent units of work done to date (10,400 ( 6,400 (7,400 Cost per equivalent unit $2. 1856 $ 0. 0 $ 1 (Step 4) Total costs to account for $30,770 (Step 5) Assignment of costs Good units completed and t ransferred out (6,000 units) Costs before adding normal spoilage $19,713 6,000 ( ($2. 1856 + $0. 10 + $1) Normal spoilage (300 units) 986 300 ( ($2. 1856 + $0. 0 + $1) (A) Total cost of good units completed and transferred out (B) Abnormal spoilage (100 units) 20,699 (C) Work in process, ending (4,000 units) 329 100 ( ($2. 1856 + $0. 10 + $1) (A)+(B)+(C) Total costs accounted for 9,742 (4,000 ( $2. 1856)+(0 ( $0. 10)+(1,000 ( $1) $30,770 *Total costs of good units completed and transferred out in Step 5 Panel B 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, Milling Department (continuation of 18-31).Solution Exhibit 18-33 shows the equivalent units of work done in the Milling Department in the current period for transferred-in costs, direct materials, and conversion costs, presents the costs per equivalent unit for transferred-in costs, direct materials, and conv ersion costs, summarizes the total Milling Department costs for May, and assigns these 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 Milling Department of the Alston Company for May.PANEL A Steps 1 and 2Summarize Output in Physical Units and Compute Output in Equivalent Units (Step 2) (Step 1) Equivalent Units Physical Transferred- Direct Conversion Flow of Production Units in Costs Materials Costs Work in process, beginning (given) 3,000 Started during current period (given) 7,400 To account for 10,400 Good units completed and transferred out during current period From beginning work in process 3,000 3,000 ( (100% ( 100%) 3,000 ( (100% ( 0%) 3,000 ( (100% ( 80%) 0 3,000 600 Started and completed 3,000 3,000 ( 100% 3,000 ( 100% 3,000 ( 100% 3,000 3,000 3,000 Normal spoilage* 300 300 ( 100% 300% ( 100% 300 ( 100% 300 300 300 Abnormal spoilage 100 100 ( 100% 100 ( 100% 100 ( 100% 100 100 100 Work in process, ending 4,000 4,000 ( 100% 4,000 ( 0% 4,000 ( 25% 4,000 0 1,000 Accounted for 10,400 Work done in current period only 7,400 6,400 5,000 Degree of completion in this department transferred-in costs, 100% direct materials, 0% conversion costs, 80%. 6,000 physical units completed and transferred out minus 3,000 physical units completed and transferred out from beginning work-in-process inventory. *Normal spoilage is 5% of good units transferred out 5% ( 6,000 = 300 units. Degree of completion of normal spoilage in this department transferred-in costs, 100% direct materials, 100% conversion costs, 100%. Total spoilage = 3,000 + 7,400 6,000 4,000 = 400 units. Abnormal spoilage = 400 300 = 100 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 18-33PANEL B Steps 3, 4, and 5Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in Process Total Production Transferred- Direct Conversion Costs in Costs Materials Costs (Step 3) Work in process, begin. given) ($6,450 + $0 + $2,450) $ 8,900 Costs added in current period (given) 21,870 16,280* 640 4,950 Divided by equivalent units of work done in current period ( 7,400 ( 6,400 ( 5,000 Cost per equivalent unit $ 2. 20 $ 0. 10 $ 0. 9 (Step 4) Total costs to account for $30,770 (Step 5) Assignment of costs Good units completed and transferred out (6,000 units) Work in process, beginning (3,000 units) $ 8,900 Costs added to beg. work in process in current period 894 ( 0 ( $2. 20)+(3,000( 0. 10)+( 600 ( $0. 9) Total from beginning inventory before normal spoilage Started and completed before normal spoilage (3,000 units) 9,794 Normal spoilage (300 units) (A) Total costs of good units completed and 9,870 3,000 ( ($2. 20 + $0. 10 + $0. 99) transferred out 987 300 ( ($2. 20 + $0. 10 + $0. 9) (B) Abnormal spoilage (100 units) (C) Work in process, ending (4,000 units) 20,651 (A)+(B)+(C) Total costs accounted for 329 100 ( ($2. 20 + $0. 10 + $0. 99) 9,790 (4,000( $2. 20)+( 0($0. 10)+(1,000($0. 99) $30,770 *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 600 Manufacturing Department Overhead Control800 Work-in-Process Control1,400 (650 + 500 + 250 = 1,400) b. Accounts Receivable1,250 Work-in-Process Control1,250 2. a. The clause does not specify whether the 1% calculation is to be based on the input cost ($26,951 + $15,076 + $7,538) or the cost of the good output before the 1% normal spoilage is added. b. If the inputs are used to determine the 1% $26,951 + $15,076 + $7,538 = $49,565 1% of $49,565 = $495. 65 or $496, rounded. Then, the entry to leave the $496 normal spoilage cost on the job, remove the salvageable material, and charge manufacturing overhead would be Materials Control 600Manufacturing Department Overhead Control304 Work-in-Process Control 904 ($800 spoilage minus $496 = $304 spoilage cost that is taken out of the job $600 salvage value plus $304 = $904 or $1,400 minus $496 = $904) If the outputs are used to determine the 1% $26,951 $650 = $26,301 15,076 500 =14,576 7,538 250 = 7,288 $49,565$48,165 Then, $48,165 ( 1% = $481. 65 or $482, rounded. The journal entry would be Materials Control 600 Manufacturing Department Overhead Control318 Work-in-Process Control918 18-35(30 min. ) Job costing, rework. 1. Work-in-Process Control (SM-5 labours) ($550 ( 80)44,000 Materials Control ($300 ( 80)24,000 Wages Payable ($60 ( 80)4,800Manufacturing Overhead Allocated ($190 ( 80)15,200 Total costs assigned to 80 spoiled units of SM-5 Motors before considering rework costs. Manufacturing Department Overhead Control (rework)9,000 Materials Control ($60 ( 50)3,000 Wages Payable ($45 ( 50)2,250 Manufacturing Overhead Allocated ($75 ( 50)3,750 Normal rework on 50 units, but not attributable specifically to the SM-5 motor batches or jobs. Loss from Abnormal Rework ($180 ( 30)5,400 Materials Control ($60 ( 30)1,800 Wages Payable ($45 ( 30)1,350 Manufacturing Overhead Allocated ($75 ( 30)2,250 Total costs of abnormal rework on 30 units (Abnormal rework = Actual rework Normal rework = 80 50 = 30 units) of SM-5 Motors. Work-in-Process Control (SM-5 motors)6,000 Work-in-Process Control (RW-8 motors)3,000Manufacturing Department Overhead Allocated (rework)9,000 (Allocating man ufacturing department rework costs to SM-5 and RW-8 in the proportion 1,000500 since each motor requires the same number of machine-hours. ) 2. Total rework costs for SM-5 motors in February 2004 are as follows Normal rework costs allocated to SM-5$ 6,000 Abnormal rework costs for SM-5 5,400 Total rework costs$11,400 We emphasize two points a. Only $6,000 of the normal rework costs are allocated to SM-5 even though the normal rework costs of the 50 SM-5 motors reworked equal $9,000. The reason is that the normal rework costs are not specifically attributable to SM-5.For example, the machines happened to malfunction when SM-5 was being made, but the rework was not caused by the specific requirements of SM-5. If it were, then all $9,000 would be charged to SM-5. b. Abnormal rework costs of $5,400 are linked to SM-5 in the management control system even though for financial reporting purposes the abnormal rework costs are written off to the income statement. 18-36(30 min. )Job costing, scrap. 1. Materials Control10,000 Manufacturing Overhead Control10,000 (To record scrap common to all jobs at the time it is returned to the storeroom) 2. Cash or Accounts Receivable10,000 Materials Control10,000 (To record sale of scrap from the storeroom) 3. A summary of the manufacturing costs for HM3 and JB4 before considering the value of scrap are as follows HM3 JB4 Total Costs Direct materials $200,000 $150,000 $350,000 Direct manufacturing labor 60,000 40,000 100,000 Manufacturing overhead (200% of direct manufacturing labor) 120,000 80,000 200,000 Total manufacturing costs $380,000 $270,000 $650,000 Manufacturing cost per unit $19 $27 ($380,000pic20,000 $270,000pic10,000) The value of scrap of $10,000 generated during March allow reduce manufacturing overhead costs by $10,000 from $200,000 to $190,000. Manufacturing overhead will then be allocated at 190% of direct manufacturing labor costs ($190,000 ? $100,000 = 190%) The revised manufacturing cost per uni t would then be HM3 JB4 Total Costs Direct materials $200,000 $150,000 $350,000 Direct manufacturing labor 60,000 40,000 100,000 Manufacturing overhead (190% of direct manufacturing labor) 114,000 76,000 190,000 Total manufacturing costs $374,000 $266,000 $640,000 Manufacturing cost per unit $18. 70 $26. 60 ($374,000pic20,000 $266,000pic10,000) 18-37(15(20 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%)* 14,000 14,000 14,000 Started during March 120,000 120,000 120,000 To account for 134,000 134,000 134,000 Good units completed and transferred out 113,000a 113,000a 113,000a Normal spoilage 6,600b 7,440c 6,780d Abnormal spoilage (10,000 normal spoilage) 3,400 2,560 3,220 Work in process, ending (70%)* 11,000 11,000 11,000 Accounted for 134,000 134,000 134,000 *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% ( (113,000 14,000 + 11,000) = 6% ( 110,000 = 6,600 c6% ( (113,000 + 11,000 ) = 6% ( 124,000 = 7,440 d6% ( 113,000 = 6,780 18-38(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 80,000 units to account for (10,000 beginning + 70,000 started), 10,000 must have been spoiled in June 80,000 (50,000 completed + 20,000 ending inventory). Normal spoilage is 7,000 0. 10 ( (50,000 + 20,000). The 3,000 remainder is abnormal spoilage (10,000 7,000). Solution Exhibit 18-38, 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 inspectioninspection 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.