Cost15EChapter18Solutions.docx

1、Cost15EChapter18SolutionsCHAPTER 18 SPOILAGE, REWORK, AND SCRAP18-1 Managers have found that improved quality and intolerance for high spoilage have lowered overall costs and increased sales.18-2 Spoilageunits of production that do not meet the standards required by customers for good units and that

2、 are discarded or sold at reduced prices. Reworkunits of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units. Scrapresidual material that results from manufacturing a product. It has low total sales value compared to

3、 the total sales value of the product.18-3 Yes. Normal spoilage is spoilage inherent in a particular production process that arises even under efficient operating conditions. Management decides the spoilage rate it considers normal depending on the production process.18-4 Abnormal spoilage is spoila

4、ge that is not inherent in a particular production process and would not arise under efficient operating conditions. Costs of abnormal spoilage are “lost costs,” measures of inefficiency that should be written off directly as losses for the accounting period.18-5 Management effort can affect the spo

5、ilage rate. Many companies are relentlessly reducing their rates of normal spoilage, spurred on by competitors who, likewise, are continuously reducing costs.18-6 Normal spoilage typically is expressed as a percentage of good units passing the inspection point. Given actual spoiled units, we infer a

6、bnormal spoilage as follows: Abnormal spoilage = Actual spoilage Normal spoilage.18-7 Accounting for spoiled goods deals with cost assignment, rather than with cost incurrence, because the existence of spoiled goods does not involve any additional cost beyond the amount already incurred.18-8 Yes. No

7、rmal spoilage rates should be computed from the good output or from the normal input, not the total input. Normal spoilage is a given percentage of a certain output base. This base should never include abnormal spoilage, which is included in total input. Abnormal spoilage does not vary in direct pro

8、portion to units produced and to include it would cause the normal spoilage count to fluctuate irregularly and not vary in direct proportion to the output base.18-9 Yes, the point of inspection is the key to the assignment of spoilage costs. Normal spoilage costs do not attach solely to units transf

9、erred out. Thus, if units in ending work in process have passed inspection, they should have normal spoilage costs added to them.18-10 No. If abnormal spoilage is detected at a different point in the production cycle than normal spoilage, then unit costs would differ. If, however, normal and abnorma

10、l spoilage are detected at the same point in the production cycle, their unit costs would be the same.18-11 No. Spoilage may be considered a normal characteristic of a given production cycle. The costs of normal spoilage caused by a random malfunction of a machine would be charged as a part of the m

11、anufacturing overhead allocated to all jobs. Normal spoilage attributable to a specific job is charged to that job.18-12 No. Unless there are special reasons for charging normal rework to jobs that contained the bad units, the costs of extra materials, labor, and so on are usually charged to manufac

12、turing overhead and allocated to all jobs.18-13 Yes. Abnormal rework is a loss just like abnormal spoilage. By charging it to manufacturing overhead, the abnormal rework costs are spread over other jobs and also included in inventory to the extent a job is not complete. Abnormal rework is rework ove

13、r and above what is expected during a period and is recognized as a loss for that period.18-14 A company is justified in inventorying scrap when its estimated net realizable value is significant and the time between storing it and selling or reusing it is quite long.18-15 Companies measure scrap to

14、measure efficiency and to also control a tempting source of theft. Managers of companies that report high levels of scrap focus attention on ways to reduce scrap and to use the scrap the company generates more profitably. Some companies, for example, might redesign products and processes to reduce s

15、crap. Others may also examine if the scrap can be reused to save substantial input costs.18-16 (510 min.) Normal and abnormal spoilage in units.1. Total spoiled units 12,600 Normal spoilage in units, 4% 170,000 6,800 Abnormal spoilage in units 5,8002. Abnormal spoilage, 5,800 $11 $ 63,800 Normal spo

16、ilage, 6,800 $11 74,800 Potential savings, 12,600 $11 $138,600 Regardless of the targeted normal spoilage, abnormal spoilage is nonrecurring and avoidable. The targeted normal spoilage rate is subject to change. Many companies have reduced their spoilage to almost zero, which would realize all poten

17、tial 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 u

18、nits.Solution Exhibit 18-17 calculates equivalent units of work done to date for direct materials and conversion costs.SOLUTION EXHIBIT 18-17Summarize the Flow of Physical Units and Compute Output in Equivalent Units; Weighted-Average Method of Process Costing with Spoilage,Gray Manufacturing Compan

19、y for November 2014.(Step 1)(Step 2)Equivalent UnitsFlow of ProductionPhysicalUnitsDirectMaterialsConversionCostsWork in process, beginning (given)Started during current periodTo account forGood units completed and transferred out during current period:Normal spoilage* 100 100%; 100 100%Abnormal spo

20、ilage 50 100%; 50 100%Work in process, ending (given) 2,000 100%; 2,000 30%Accounted forEquivalent units of work done to date1,00010,150a11,1509,000100502,000 11,1509,000100502,000 11,1509,00010050600 9,750a From below, 11,150 total units are accounted for. Therefore, units started during current pe

21、riod 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: direc

22、t materials, 100%; conversion costs, 30%.18-18 (2025 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 uni

23、ts completed and transferred out (including normal spoilage), to abnormal spoilage, and to ending work in process.SOLUTION EXHIBIT 18-18Summarize the Total Costs to Account for, Compute the Cost per Equivalent Unit, and Assign Costs to the Units Completed, Spoiled Units, and Units in Ending Work-in-

24、Process Inventory;Weighted-Average Method of Process Costing,Gray Manufacturing Company, November 2014.TotalProductionCostsDirectMaterialsConversionCosts(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

25、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$13,60311,150$ 1.22$ 1,110 27,750$28,860$28,860 9,750$ 2.96Costs before adding normal spoilageNormal spoilage

26、 (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) (2,0

27、00# $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 dir

28、ect materials and conversion costs. SOLUTION EXHIBIT 18-19Summarize the Flow of Physical Units and Compute Output in Equivalent Units; First-in, First-out (FIFO) Method of Process Costing with Spoilage,Gray Manufacturing Company for November 2014.(Step 1) (Step 2)Equivalent UnitsFlow of ProductionPh

29、ysicalUnitsDirectMaterialsConversionCostsWork in process, beginning (given)Started during current period To account forGood 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 s

30、poilage*100 100%; 100 100%Abnormal spoilage 50 100%; 50 100%Work in process, ending 2,000 100%; 2,000 30%Accounted forEquivalent units of work done in current period1,00010,150a11,1501,0008,000#100502,000 _ 11,15008,000100502,000 10,1505008,00010050600 9,250a From below, 11,150 total units are accou

31、nted 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