SPOILAGE, REWORK, AND SCRAP
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.
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.
Normal and abnormal spoilage in units.
Total spoiled units
Normal spoilage in units, 5%
Abnormal spoilage in units
Abnormal spoilage, 5,400
Normal spoilage, 6,600
Potential savings, 12,000
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
Weighted-average method, spoilage.
Solution Exhibit 18-21A calculates equivalent units of work done in the current period for
direct materials and conversion costs.