HDFRIChapter18Solutions13e - CHAPTER 18 SPOILAGE, REWORK,...

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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. 18-5 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. 18-16 (5–10 min.) 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. 18-24 (25 min.) Weighted-average method, spoilage. 1. Solution Exhibit 18-24, Panel A, calculates the equivalent units of work done to date for each cost category in September 2008. 2. Solution Exhibit 18-24, Panel B, summarizes total costs to account for, calculates the costs per equivalent unit for each cost category, and assigns total costs to units completed (including normal spoilage), to abnormal spoilage, and to units in ending work in process using the weighted-average method. 1
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SOLUTION EXHIBIT 18-24 Weighted-Average Method of Process Costing with Spoilage; Chipcity, September 2008. PANEL A: Steps 1 and 2—Summarize Output in Physical Units and Compute Output in Equivalent Units (Step 1) (Step 2) Equivalent Units Flow of Production Physical Units Direct Materials Conversion Costs Work in process, beginning (given) Started during current period (given) To account for Good units completed and transferred out during current period: Normal spoilage* 315 × 100%; 315 × 100% Abnormal spoilage 285 × 100%; 285 × 100% Work in process, ending (given) 450 × 100%; 450 × 40% Accounted for Work done to date 600 2,55 0 3,15 0 2,100 315 285 450 3,15 0 2,100 315 285
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HDFRIChapter18Solutions13e - CHAPTER 18 SPOILAGE, REWORK,...

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