The following data, in physical Units, describe grinding process for January Ins

Question

The following data, in physical Units, describe grinding process for January Inspection occurs at the 100% completion stage. Normal spoilage is 5% of the good units passing inspection. EEB (Click the icon to view the January data.) Rcad the lca roments Requirement 1. Compute the nomal and abnormal spoilage in units Normal spoilage Ahnormal spoilage units Data Table units Requirements Work in process, beginning Started during current period To account for Spoiled units Good units completed and transferred out Work in process, ending Accounted for 18,6i00 157,300 175,900 12,500 138,000 25,400 175,900 1. Compute the normal and abncrmal spoilage in unils 2. Assume that the equivalent-unit cost ot a spoiled unit is S10. Compute the amount of potential savings if all spoilage were eliminated, assuming that all other costs would be unaffected. Comment on your answer. Print Done Print Done

Explanation / Answer

Given

A) work in progress at the beginning = 18,600

B) work in progress incurred during current period = 1,57,300

C) Total number of units for the period (A+B) = 1,75,900

a) Total available units = 1,75,900

b) Normal spoilage@5%on available units = 8,795

c) Total units available after normal loss (a-b) = 1,67,105

d) Units completed and transferred out = 1,38,000

e) units to be held (c-d) = 29,105

f) closing stock in hand = 25,400

g) Abnormal spoilage (e-f) = 3,705

1. Therefore Total normal spoilage in units were  8,795

and abnormal spoilage in units were 3,705

2. Since the equivalent cost per unit is given as $10

Total cost incurred on such spoilage will be = 3705*$10

= 37,050

Here we should know that normal cost is such cost which is unavoidable on account of inherent nature of productiom process.

Abnormal Loss is such loss caused by unexpected or abnormal conditions such as plant breakdown, carelessness, accident etc.,

Therefore the normal cost we can't save such cost. So only we can save abnormal costs if we can save all such amount of potential savings.

total savings can be made will be $37,500

Note

Acutally for calculating equivalent cost we should calculate equivalent production but since the information is already given in question itself we can directly calculate the actual loss incuured and abnormal loss incurred.

And it was assumed that no other cost will be effected the loss incurred so only we can save abnormal loss.

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