Cost of rework is charged to all production if caused by the customer imposed standards.

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• Spoilage, Rework, and Scrap

Problem 1

Why is there an unmistakable trend in manufacturing to improve quality?

Ameer Said

Numerade Educator

Problem 2

Distinguish among spoilage, rework, and scrap.

Ameer Said

Numerade Educator

Problem 3

"Normal spoilage is planned spoilage." Discuss.

Oluwadamilola Ameobi

Numerade Educator

Problem 4

"Costs of abnormal spoilage are losses." Explain.

Ameer Said

Numerade Educator

Problem 5

"What has been regarded as normal spoilage in the past is not necessarily acceptable as normal spoilage in the present or future." Explain.

Ameer Said

Numerade Educator

Problem 6

"Units of abnormal spoilage are inferred rather than identified." Explain.

Ameer Said

Numerade Educator

Problem 7

"In accounting for spoiled units, we are dealing with cost assignment rather than cost incurrence." Explain.

Ameer Said

Numerade Educator

Problem 8

"Total input includes abnormal as well as normal spoilage and is, therefore, inappropriate as a basis for computing normal spoilage." Do you agree? Explain.

Ameer Said

Numerade Educator

Problem 9

"The inspection point is the key to the allocation of spoilage costs." Do you agree? Explain.

Ameer Said

Numerade Educator

Problem 10

"The unit cost of normal spoilage is the same as the unit cost of abnormal spoilage." Do you agree? Explain.

Ameer Said

Numerade Educator

Problem 11

"In job costing, the costs of normal spoilage that occur while a specific job is being done are charged to the specific job." Do you agree? Explain.

Ameer Said

Numerade Educator

Problem 12

"The costs of rework are always charged to the specific jobs in which the defects were originally discovered." Do you agree? Explain.

Ameer Said

Numerade Educator

Problem 13

"Abnormal rework costs should be charged to a loss account, not to manufacturing overhead." Do you agree? Explain.

Ameer Said

Numerade Educator

Problem 14

When is a company justified in inventorying scrap?

Ameer Said

Numerade Educator

Problem 15

How do managers use information about scrap?

Ameer Said

Numerade Educator

Problem 16

All of the following are accurate regarding the treatment of normal or abnormal spoilage by a firm with the exception of:
a. Abnormal spoilage is excluded in the standard cost of a manufactured product.
b. Normal spoilage is capitalized as part of inventory cost.
c. Abnormal spoilage has no financial statement impact.
d. Normal and abnormal spoilage units affect the equivalent units of production.

Problem 17

Which of the following is a TRUE statement regarding the treatment of scrap by a firm?
a. Scrap is always allocated to a specific job.
b. Scrap is separated between normal and abnormal scrap.
c. Revenue received from the sale of scrap on a job lowers the total costs for that job.
d. There are costs assigned to scrap.

Problem 18

Healthy Dinners Co. produces frozen dinners for the health conscious consumer. During the quarter ended September 30 , the company had the following cost data:
Based on the above, what is the total amount of period expenses reflected in the company's income statement for the quarter ended September 30?
a. 200,000 dollars
b. 240,000 dollars
c. 290,000 dollars
d. 300,000 dollars

Problem 19

Fresh Products, Inc. incurred the following costs during December related to the production of its 162,500 frozen ice cream cone specialty items:
What is the per unit inventory cost allocated to the company's frozen ice cream cone specialty items for December?
a. 3.18 dollars
b. 3.20 dollars
c. 3.22 dollars
d. 3.26 dollars

Problem 20

The following data, in physical units, describe a grinding process for January:
Inspection occurs at the $100 \%$ completion stage. Normal spoilage is $5 \%$ of the good units passing inspection.
1. Compute the normal and abnormal spoilage in units.
2. Assume that the equivalent-unit cost of a spoiled unit is 8 dollars. Compute the amount of potential savings if all spoilage were eliminated, assuming that all other costs would be unaffected. Comment on your answer.

Oluwadamilola Ameobi

Numerade Educator

Problem 21

($\mathrm{CMA},$ adapted) Consider the following data for November 2017 from MacLean Manufacturing Company, which makes silk pennants and uses a process-costing system. All direct materials are added at the beginning of the process, and conversion costs are added evenly during the process. Spoilage is detected upon inspection at the completion of the process. Spoiled units are disposed of at zero net disposal value. MacLean Manufacturing Company uses the weighted-average method of process costing.
Compute equivalent units for direct materials and conversion costs. Show physical units in the first column of your schedule.

Problem 22

For the data in Exercise 18-21, summarize the total costs to account for; calculate the cost per equivalent unit for direct materials and conversion costs; and assign costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work-in-process inventory.

Problem 23

Refer to the information in Exercise 18 -21. Suppose MacLean Manufacturing Company uses the FIFO method of process costing instead of the weighted-average method.
Compute equivalent units for direct materials and conversion costs. Show physical units in the first column of your schedule.

Problem 24

For the data in Exercise $18-21$, use the FIFO method to summarize the total costs to account for; calculate the cost per equivalent unit for direct materials and conversion costs; and assign costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process.

Problem 25

LaCroix Company produces handbags from leather of moderate quality. It distributes the product through outlet stores and department store chains. At LaCroix's facility in northeast Ohio, direct materials (primarily leather hides) are added at the beginning of the process, while conversion costs are added evenly during the process. Given the importance of minimizing product returns, spoiled units are detected upon inspection at the end of the process and are discarded at a net disposal value of zero.
LaCroix uses the weighted-average method of process costing. Summary data for April 2017 are as follows:
1. For each cost category, calculate equivalent units. Show physical units in the first column of your schedule.
2. Summarize the total costs to account for; calculate the cost per equivalent unit for each cost category; and assign costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process.

Problem 26

1. Do Exercise $18-25$ using the FIFO method.
2. What are the managerial issues involved in selecting or reviewing the percentage of spoilage considered normal? How would your answer to requirement 1 differ if all spoilage were viewed as normal?

Problem 27

Plastique produces parts for use in various industries. Plastique uses a job-costing system. The nature of its process is such that management expects normal spoilage at a rate of $2 \%$ of good parts. Data for last month is as follows:
The spoiled parts were identified after $100 \%$ of the direct material cost was incurred. The disposal value is 2 dollars/part.
1. Record the journal entries if the spoilage was (a) job specific or (b) common to all jobs.
2. Comment on the differences arising from the different treatment for these two scenarios.

Problem 28

Spheres Toys manufactures globes at its San Fernando facility.
The company provides you with the following information regarding operations for April 2017:
Assume the spoiled units have no disposal value.
1. What is the unit cost of making the 20,000 globes?
2. What is the total cost of the 750 spoiled units?
3. If the spoilage is considered normal, what is the increase in the unit cost of good globes manufactured as a result of the spoilage?
4. If the spoilage is considered abnormal, prepare the journal entries for the spoilage incurred.

Problem 29

LogicCo is a fast-growing manufacturer of computer chips.
Direct materials are added at the start of the production process. Conversion costs are added evenly during the process. Some units of this product are spoiled as a result of defects not detectable before inspection of finished goods. Spoiled units are disposed of at zero net disposal value. LogicCo uses the weightedaverage method of process costing. Summary data for September 2017 are as follows:
1. For each cost category, compute equivalent units. Show physical units in the first column of your schedule.
2. Summarize the total costs to account for; calculate the cost per equivalent unit for each cost category; and assign costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process.

Problem 30

Refer to the information in Exercise $18-29$.
1. Do Exercise $18-29$ using the FIFO method of process costing.
2. Should LogicCo's managers choose the weighted-average method or the FIFO method? Explain briefly.

Problem 31

Refer to the information in Exercise 18 -29. Suppose LogicCo determines standard costs of 215 dollars per equivalent unit for direct materials and 92 dollars per equivalent unit for conversion costs for both beginning work in process and work done in the current period.
1. Do Exercise $18-29$ using the standard-costing method.
2. What issues should the manager focus on when reviewing the equivalent units calculation?

Problem 32

(L. Bamber) Barrett Kitchens produces a variety of items in accordance with special job orders from hospitals, plant cafeterias, and university dormitories. An order for 2,100 cases of mixed vegetables costs 9 dollars per case: direct materials, 4 dollars; direct manufacturing labor, 3 dollars; and manufacturing overhead allocated, 2 dollars. The manufacturing overhead rate includes a provision for normal spoilage. Consider each requirement independently.
1. Assume that a laborer dropped 420 cases. Suppose part of the 420 cases could be sold to a nearby prison for 420 dollars cash. Prepare a journal entry to record this event. Calculate and explain briefly the unit cost of the remaining 1,680 cases.
2. Refer to the original data. Tasters at the company reject 420 of the 2,100 cases. The 420 cases are disposed of for 840 dollars. Assume that this rejection rate is considered normal. Prepare a journal entry to record this event, and do the following:
a. Calculate the unit cost if the rejection is attributable to exacting specifications of this particular job.
b. Calculate the unit cost if the rejection is characteristic of the production process and is not attributable to this specific Job.
c. Are unit costs the same in requirements 2 a and 2 b ? Explain your reasoning briefly.
3. Refer to the original data. Tasters rejected 420 cases that had insufficient salt. The product can be placed in a vat, salt can be added, and the product can be reprocessed into jars. This operation, which is considered normal, will cost 420 dollars. Prepare a journal entry to record this event and do the following:
a. Calculate the unit cost of all the cases if this additional cost was incurred because of the exacting specifications of this particular job.
b. Calculate the unit cost of all the cases if this additional cost occurs regularly because of difficulty in seasoning.
c. Are unit costs the same in requirements 3a and 3b? Explain your reasoning briefly.

Problem 33

Heyer Appliances assembles dishwashers at its plant in Tuscaloosa, Alabama. In February 2017,60 circulation motors that cost 110 dollars each from a new supplier who subsequently went bankrupt) were defective and had to be disposed of at zero net disposal value. Heyer Appliances was able to rework all 60 dishwashers by substituting new circulation motors purchased from one of its existing suppliers. Each replacement motor cost 125 dollars.
1. What alternative approaches are there to account for the materials cost of reworked units?
2. Should Heyer Appliances use the 110 dollars circulation motor or the 125 dollars motor to calculate the cost of materials reworked? Explain.
3. What other costs might Heyer Appliances include in its analysis of the total costs of rework due to the circulation motors purchased from the (now) bankrupt supplier?

Problem 34

The Russell Company has an extensive job-costing facility that uses a variety of metals. Consider each requirement independently.
1. Job 372 uses a particular metal alloy that is not used for any other job. Assume that scrap is material in amount and sold for 480 dollars quickly after it is produced. Prepare the journal entry.
2. The scrap from Job 372 consists of a metal used by many other jobs. No record is maintained of the scrap generated by individual jobs. Assume that scrap is accounted for at the time of its sale. Scrap totaling 4,500 dollars is sold. Prepare two alternative journal entries that could be used to account for the sale of scrap.
3. Suppose the scrap generated in requirement 2 is returned to the storeroom for future use, and a journal entry is made to record the scrap. A month later, the scrap is reused as direct material on a subsequent job. Prepare the journal entries to record these transactions.

Problem 35

World Class Steaks is a meat-processing firm based in Texas. It operates under the weighted-average method of process costing and has two departments: preparation (prep) and shipping. For the prep department, conversion costs are added evenly during the process, and direct materials are added at the beginning of the process. Spoiled units are detected upon inspection at the end of the prep process and are disposed of at zero net disposal value. All completed work is transferred to the shipping department. Summary data for May follow:
For the prep department, summarize the total costs to account for and assign those costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process. (Problem $18-37$ explores additional facets of this problem.)

Problem 36

Refer to the information in Problem $18-35$.
Do Problem $18-35$ using the FIFO method of process costing. (Problem $18-38$ explores additional facets of this problem.)

Problem 37

In the shipping department of World Class Steaks, conversion costs are added evenly during the process, and direct materials are added at the end of the process. Spoiled units are detected upon inspection at the end of the process and are disposed of at zero net disposal value. All completed work is transferred to the next department. The transferred-in costs for May equal the total cost of good units completed and transferred out in May from the prep department, which were calculated in Problem $18-35$ using the weighted-average method of process costing. Summary data for May follow.
For the shipping department, use the weighted-average method to summarize the total costs to account for and assign those costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process.

Problem 38

Refer to the information in Problem $18-37$ except that the transferred-in costs of beginning work in process on May 1 are 66,180 dollars (instead of 67,397 dollars). Transferred-in costs for May equal the total cost of good units completed and transferred out in May from the prep department, as calculated in Problem $18-36$ using the FIFO method of process costing.
For the shipping department, use the FIFO method to summarize the total costs to account for and assign those costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process.

Problem 39

SunEnergy produces solar panels. A key step in the conversion of raw silicon to a completed solar panel occurs in the assembly department, where lightweight photovoltaic cells are assembled into modules and connected on a frame. In this department, materials are added at the beginning of the process and conversion takes place uniformly.
At the start of November 2017 , SunEnergy's assembly department had 2,400 panels in beginning work in process, which were $100 \%$ complete for materials and $40 \%$ complete for conversion costs. An additional 12,000 units were started in the department in November, and 3,600 units remain in work in process at the end of the month. These unfinished units are $100 \%$ complete for materials and $70 \%$ complete for conversion costs.
The assembly department had 1,800 spoiled units in November. Because of the difficulty of keeping moisture out of the modules and sealing the photovoltaic cells between layers of glass, normal spoilage is approximately $12 \%$ of good units. The department's costs for the month of November are as follows:
1. Using the format on page 728 , compute the normal and abnormal spoilage in units for November, assuming the inspection point is at (a) the $30 \%$ stage of completion, (b) the $60 \%$ stage of completion, and (c) the $100 \%$ stage of completion.
2. Refer to your answer in requirement 1. Why are there different amounts of normal and abnormal spoilage at different inspection points?
3. Now assume that the assembly department inspects at the $60 \%$ stage of completion. Using the weighted-average method, calculate the cost of units transferred out, the cost of abnormal spoilage, and the cost of ending inventory for the assembly department in November.

Problem 40

Jellyfish Machine Shop is a manufacturer of motorized carts for vacation resorts.
Patrick Cullin, the plant manager of Jellyfish, obtains the following information for Job #10 in August
2017. A total of 46 units were started, and 6 spoiled units were detected and rejected at final inspection, yielding 40 good units. The spoiled units were considered to be normal spoilage. Costs assigned prior to the inspection point are 1,100 dollars per unit. The current disposal price of the spoiled units is 235 dollars per unit. When the spoilage is detected, the spoiled goods are inventoried at 235 dollars per unit.
1. What is the normal spoilage rate?
2. Prepare the journal entries to record the normal spoilage, assuming the following:
a. The spoilage is related to a specific job.
b. The spoilage is common to all jobs.
c. The spoilage is considered to be abnormal spoilage.

Problem 41

Assume that the 6 spoiled units of Jellyfish Machine Shop's Job #10 can be reworked for a total cost of 1,800 dollars. A total cost of 6,600 dollars associated with these units has already been assigned to Job #10 before the rework.
Prepare the journal entries for the rework, assuming the following:
a. The rework is related to a specific job.
b. The rework is common to all jobs.
c. The rework is considered to be abnormal.

Problem 42

Assume that Job #10 of Jellyfish Machine Shop generates normal scrap with a total sales value of 700 dollars (it is assumed that the scrap returned to the storeroom is sold quickly.
Prepare the journal entries for the recognition of scrap, assuming the following:
a. The value of scrap is immaterial and scrap is recognized at the time of sale.
b. The value of scrap is material, is related to a specific job, and is recognized at the time of sale.
c. The value of scrap is material, is common to all jobs, and is recognized at the time of sale.
d. The value of scrap is material, and scrap is recognized as inventory at the time of production and is recorded at its net realizable value.

Problem 43

Chemet manufactures chemicals in a continuous process. The company combines various materials in a specially configured machine at the beginning of the process, and conversion is considered uniform through the period. 0 ccasionally, the chemical reactions among the materials do not work as expected and the output is then considered spoiled. Normal spoilage is $4 \%$ of the good units that pass inspection. The following information pertains to March 2017:
Using the format on page 728 , compute the normal and abnormal spoilage in units, assuming the inspection point is at (a) the $20 \%$ stage of completion, (b) the $45 \%$ stage of completion, and (c) the $100 \%$ stage of completion.

Problem 44

(A. Atkinson) The Horsheim Company is a furniture manufacturer with two departments: molding and finishing. The company uses the weighted-average method of process costing. In August, the following data were recorded for the finishing department:
Conversion costs are added evenly during the process. Direct material costs are added when production is $90 \%$ complete. The inspection point is at the $80 \%$ stage of production. Normal spoilage is $10 \%$ of all good units that pass inspection. Spoiled units are disposed of at zero net disposal value.
1. For August, summarize total costs to account for and assign these costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process.
2. What are the managerial issues involved in determining the percentage of spoilage considered normal? How would your answer to requirement 1 differ if all spoilage were treated as normal?

Problem 45

Flextron Company is a contract manufacturer for a variety of pharmaceutical and over-the-counter products. It has a reputation for operational excellence and boasts a normal spoilage rate of $2 \%$ of normal input. Normal spoilage is recognized during the budgeting process and is classified as a component of manufacturing overhead when determining the overhead rate.
Lynn Sanger, one of Flextron's quality control managers, obtains the following information for Job No. $\mathrm{M} 102,$ an order from a consumer products company. The order was completed recently, just before the close of Flextron's fiscal year. The units will be delivered early in the next accounting period. A total of 128,500 units were started, and 6,000 spoiled units were rejected at final inspection, yielding 122,500 good units. Spoiled units were sold at 4 dollars per unit. Sanger indicates that all spoilage was related to this specific job. The total costs for all 128,500 units of Job No. M102 follow. The job has been completed, but the costs are yet to be transferred to Finished Goods.
1. Calculate the unit quantities of normal and abnormal spoilage.
2. Prepare the journal entries to account for Job No. M102, including spoilage, disposal of spoiled units, and transfer of costs to the Finished Goods account.
3. Flextron's controller, Vince Chadwick, tells Marta Suarez, the management accountant responsible for Job No. M102, the following: "This was an unusual job. I think all 6,000 spoiled units should be considered normal." Suarez knows that the work involved in Job No. M102 was not uncommon and that Flextron's normal spoilage rate of $2 \%$ is the appropriate benchmark. She feels Chadwick made these comments because he wants to show a higher operating income for the year.
a. Prepare journal entries, similar to requirement 2, to account for Job No. M102 if all spoilage were considered normal. How will operating income be affected if all spoilage is considered normal?
b. What should Suarez do in response to Chadwick's comment?

When rework occurs because of some internal failure the cost of the rework should be charged to?

What is rework in cost accounting?

What's the difference between spoilage and rework?

How do job costing systems account for rework?