Cost15EChapter18Solutions.docx

Cost15EChapter18Solutions.docx

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Cost15EChapter18Solutions

CHAPTER18

SPOILAGE,REWORK,ANDSCRAP

18-1Managershavefoundthatimprovedqualityandintoleranceforhighspoilagehaveloweredoverallcostsandincreasedsales.

18-2Spoilage—unitsofproductionthatdonotmeetthestandardsrequiredbycustomersforgoodunitsandthatarediscardedorsoldatreducedprices.

Rework—unitsofproductionthatdonotmeetthespecificationsrequiredbycustomersbutthataresubsequentlyrepairedandsoldasgoodfinishedunits.

Scrap—residualmaterialthatresultsfrommanufacturingaproduct.Ithaslowtotalsalesvaluecomparedtothetotalsalesvalueoftheproduct.

18-3Yes.Normalspoilageisspoilageinherentinaparticularproductionprocessthatarisesevenunderefficientoperatingconditions.Managementdecidesthespoilagerateitconsidersnormaldependingontheproductionprocess.

18-4Abnormalspoilageisspoilagethatisnotinherentinaparticularproductionprocessandwouldnotariseunderefficientoperatingconditions.Costsofabnormalspoilageare“lostcosts,”measuresofinefficiencythatshouldbewrittenoffdirectlyaslossesfortheaccountingperiod.

18-5Managementeffortcanaffectthespoilagerate.Manycompaniesarerelentlesslyreducingtheirratesofnormalspoilage,spurredonbycompetitorswho,likewise,arecontinuouslyreducingcosts.

18-6Normalspoilagetypicallyisexpressedasapercentageofgoodunitspassingtheinspectionpoint.Givenactualspoiledunits,weinferabnormalspoilageasfollows:

Abnormalspoilage=Actualspoilage–Normalspoilage.

18-7Accountingforspoiledgoodsdealswithcostassignment,ratherthanwithcostincurrence,becausetheexistenceofspoiledgoodsdoesnotinvolveanyadditionalcostbeyondtheamountalreadyincurred.

18-8Yes.Normalspoilageratesshouldbecomputedfromthegoodoutputorfromthenormalinput,notthetotalinput.Normalspoilageisagivenpercentageofacertainoutputbase.Thisbaseshouldneverincludeabnormalspoilage,whichisincludedintotalinput.Abnormalspoilagedoesnotvaryindirectproportiontounitsproducedandtoincludeitwouldcausethenormalspoilagecounttofluctuateirregularlyandnotvaryindirectproportiontotheoutputbase.

18-9Yes,thepointofinspectionisthekeytotheassignmentofspoilagecosts.Normalspoilagecostsdonotattachsolelytounitstransferredout.Thus,ifunitsinendingworkinprocesshavepassedinspection,theyshouldhavenormalspoilagecostsaddedtothem.

18-10No.Ifabnormalspoilageisdetectedatadifferentpointintheproductioncyclethannormalspoilage,thenunitcostswoulddiffer.If,however,normalandabnormalspoilagearedetectedatthesamepointintheproductioncycle,theirunitcostswouldbethesame.

18-11No.Spoilagemaybeconsideredanormalcharacteristicofagivenproductioncycle.Thecostsofnormalspoilagecausedbyarandommalfunctionofamachinewouldbechargedasapartofthemanufacturingoverheadallocatedtoalljobs.Normalspoilageattributabletoaspecificjobischargedtothatjob.

18-12No.Unlesstherearespecialreasonsforchargingnormalreworktojobsthatcontainedthebadunits,thecostsofextramaterials,labor,andsoonareusuallychargedtomanufacturingoverheadandallocatedtoalljobs.

18-13Yes.Abnormalreworkisalossjustlikeabnormalspoilage.Bychargingittomanufacturingoverhead,theabnormalreworkcostsarespreadoverotherjobsandalsoincludedininventorytotheextentajobisnotcomplete.Abnormalreworkisreworkoverandabovewhatisexpectedduringaperiodandisrecognizedasalossforthatperiod.

18-14Acompanyisjustifiedininventoryingscrapwhenitsestimatednetrealizablevalueissignificantandthetimebetweenstoringitandsellingorreusingitisquitelong.

18-15Companiesmeasurescraptomeasureefficiencyandtoalsocontrolatemptingsourceoftheft.Managersofcompaniesthatreporthighlevelsofscrapfocusattentiononwaystoreducescrapandtousethescrapthecompanygeneratesmoreprofitably.Somecompanies,forexample,mightredesignproductsandprocessestoreducescrap.Othersmayalsoexamineifthescrapcanbereusedtosavesubstantialinputcosts.

18-16（5–10min.）Normalandabnormalspoilageinunits.

1.Totalspoiledunits12,600

Normalspoilageinunits,4%170,0006,800

Abnormalspoilageinunits5,800

2.Abnormalspoilage,5,800$11$63,800

Normalspoilage,6,800$1174,800

Potentialsavings,12,600$11$138,600

Regardlessofthetargetednormalspoilage,abnormalspoilageisnonrecurringandavoidable.Thetargetednormalspoilagerateissubjecttochange.Manycompanieshavereducedtheirspoilagetoalmostzero,whichwouldrealizeallpotentialsavings.Ofcourse,zerospoilageusuallymeanshigher-qualityproducts,morecustomersatisfaction,moreemployeesatisfaction,andvariousbeneficialeffectsonnonmanufacturing（forexample,purchasing）costsofdirectmaterials.

18-17（20min.）Weighted-averagemethod,spoilage,equivalentunits.

SolutionExhibit18-17calculatesequivalentunitsofworkdonetodatefordirectmaterialsandconversioncosts.

SOLUTIONEXHIBIT18-17

SummarizetheFlowofPhysicalUnitsandComputeOutputinEquivalentUnits;

Weighted-AverageMethodofProcessCostingwithSpoilage,

GrayManufacturingCompanyforNovember2014.

（Step1）

（Step2）

EquivalentUnits

FlowofProduction

Physical

Units

Direct

Materials

Conversion

Costs

Workinprocess,beginning（given）

Startedduringcurrentperiod

Toaccountfor

Goodunitscompletedandtransferredout

duringcurrentperiod:

Normalspoilage*

100100%;100100%

Abnormalspoilage†

50100%;50100%

Workinprocess,ending‡（given）

2,000100%;2,00030%

Accountedfor

Equivalentunitsofworkdonetodate

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

aFrombelow,11,150totalunitsareaccountedfor.Therefore,unitsstartedduringcurrentperiodmustbe=11,150–1,000=10,150.

*Degreeofcompletionofnormalspoilageinthisdepartment:

directmaterials,100%;conversioncosts,100%.

†Degreeofcompletionofabnormalspoilageinthisdepartment:

directmaterials,100%;conversioncosts,100%.

‡Degreeofcompletioninthisdepartment:

directmaterials,100%;conversioncosts,30%.

18-18（2025min.）Weighted-averagemethod,assigningcosts（continuationof18-17）.

SolutionExhibit18-18summarizestotalcoststoaccountfor,calculatesthecostsperequivalentunitfordirectmaterialsandconversioncosts,andassignstotalcoststounitscompletedandtransferredout（includingnormalspoilage）,toabnormalspoilage,andtoendingworkinprocess.

SOLUTIONEXHIBIT18-18

SummarizetheTotalCoststoAccountfor,ComputetheCostperEquivalentUnit,andAssignCoststotheUnitsCompleted,SpoiledUnits,andUnitsinEndingWork-in-ProcessInventory;

Weighted-AverageMethodofProcessCosting,

GrayManufacturingCompany,November2014.

Total

Production

Costs

Direct

Materials

Conversion

Costs

（Step3）Workinprocess,beginning（given）

Costsaddedincurrentperiod（given）

Totalcoststoaccountfor

（Step4）Costsincurredtodate

Dividedbyequivalentunitsofworkdonetodate

Costperequivalentunit

（Step5）Assignmentofcosts

Goodunitscompletedandtransferredout（9,000units）

$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

Costsbeforeaddingnormalspoilage

Normalspoilage（100units）

（A）Totalcostofgoodunitscompleted&transf.out

（B）Abnormalspoilage（50units）

（C）Workinprocess,ending（2,000units）

（A）+（B）+（C）Totalcostsaccountedfor

$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

#EquivalentunitsofdirectmaterialsandconversioncostscalculatedinStep2inSolutionExhibit18-17.

18-19（15min.）FIFOmethod,spoilage,equivalentunits.

SolutionExhibit18-19calculatesequivalentunitsofworkdoneinthecurrentperiodfordirectmaterialsandconversioncosts.

SOLUTIONEXHIBIT18-19

SummarizetheFlowofPhysicalUnitsandComputeOutputinEquivalentUnits;

First-in,First-out（FIFO）MethodofProcessCostingwithSpoilage,

GrayManufacturingCompanyforNovember2014.

（Step1）

（Step2）

EquivalentUnits

FlowofProduction

Physical

Units

Direct

Materials

Conversion

Costs

Workinprocess,beginning（given）

Startedduringcurrentperiod

Toaccountfor

Goodunitscompletedandtransferredoutduringcurrentperiod:

Frombeginningworkinprocess||

1,000（100%100%）;1,000（100%50%）

Startedandcompleted

8,000100%;8,000100%

Normalspoilage*

100100%;100100%

Abnormalspoilage†

50100%;50100%

Workinprocess,ending‡

2,000100%;2,00030%

Accountedfor

Equivalentunitsofworkdoneincurrentperiod

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

aFrombelow,11,150totalunitsareaccountedfor.Therefore,unitsstartedduringcurrentperiodmustbe11,150–1,000=10,150.

||Degreeofcompletioninthisdepartment:

directmaterials,100%;conversioncosts,50%.

#9,000physicalunitscompletedandtransferredoutminus1,000physicalunitscompletedandtransferredoutfrombeginningwork-in-processinventory.

*Degreeofcompletionofnormalspoilageinthisdepartment:

directmaterials,100%;conversioncosts,100%.

†Degreeofcompletionofabnormal