Process Costing - FIFO - Spoilage Marvel, Inc. had 500 units in beginning invent

Question

Process Costing - FIFO - Spoilage
Marvel, Inc. had 500 units in beginning inventory (5/1). During May, they started 9,000 units. They Completed and transferred out 8,500 units. They had 500 uncompleted units at 5/31. Their normal spoilage rate is 3%.

Show calculations for credit.

My calculations:

How many units were defective (spoiled) during May?
   My calculation: 500

How many defective units would be considered normal?
   My calculation: 285

If the cost per equivalent unit of production is $14 in May, what is the total cost of abnormal spoilage?

How did the cost of the abnormal spoilage effect net income?
Increase?
Decrease?
No effect?

Normal spoilage of good units 3% Activity during May: Production activity: WIP, beginning inventory 500 Started in May 9,000 Good units transferred out 8,500 WIP, ending inventory 500 WIP, beginning 500 Started 9,000 Total units to account for 9,500 500+9,000 WIP, beginning 500 Started and completed 8,000 8,500-500 Ending inventory 500 Spoiled units 500 Plug In Total units to account for 9,500 Normal spoilage 285 9,500*3% Abnormal spoilage 215 500-285 Total spoilage 500

Explanation / Answer

Total cost of abnormal spoilage=215*14=$3,010

abnormal spoilage will not effect net income, as this item is shown separately, it has its impact on balance sheet rather than net income.

abnormal spoilage is separately shown

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