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Unformatted text preview: CHAPTER 18 SPOILAGE, REWORK, AND SCRAP 18-2 Spoilage—units of production that do not meet the standards required by customers for good units and that are discarded or sold at reduced prices. Rework—units of production that do not meet the specifications required by customers but which are subsequently repaired and sold as good finished units. Scrap—residual material that results from manufacturing a product. It has low total sales value compared to 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. 18-5 Management effort can affect the spoilage rate. Many companies are relentlessly reducing their rates of normal spoilage, spurred on by competitors who, likewise, are continuously reducing costs. 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 manufacturing overhead and allocated to all jobs. 18-16 Normal and abnormal spoilage in units. 1. Total spoiled units 12,000 Normal spoilage in units, 5% × 132,000 6,600 Abnormal spoilage in units 5,400 2. Abnormal spoilage, 5,400 × $10 $ 54,000 Normal spoilage, 6,600 × $10 66,000 Potential savings, 12,000 × $10 $120,000 Regardless of the targeted normal spoilage, abnormal spoilage is non-recurring and avoidable. The targeted normal spoilage rate is subject to change. Many companies have reduced their spoilage to almost zero, which would realize all potential savings. Of course, zero spoilage usually means higher-quality products, more customer satisfaction, more employee satisfaction, and various beneficial effects on nonmanufacturing (for example, purchasing) costs of direct materials. 18-27...
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This note was uploaded on 07/07/2009 for the course ACCT 2102 taught by Professor Unknown during the Three '08 term at Queensland.
- Three '08