Silver Spoon Incorporated is a manufacturer of kitchen utensils. They use a proc

Question

Silver Spoon Incorporated is a manufacturer of kitchen utensils. They use a process costing system. They had the following activity in one of their departments during September: Final Inspection of the units occurs at the end of the process. Silver Spoon considers normal spoilage to be 1% of the good units (good units passing inspection). There is no resale value for spoiled units at Silver Spoon. How many "spoiled units" were there, in total, for the month? Compute the normal and abnormal spoilage, if any, for the month in units. Normal spoilage Abnormal spoilage Silver Spoon spreads the cost of normal spoilage over the units transferred out of the department. The cost of abnormal spoilage is charged to the income statement as a period cost. If the cost per equivalent unit of production (including all material and conversion costs) for the month was $10.00. What was the amount, in total, charged to the income statement during the month for abnormal spoilage? what was the final cost per unit of the 175,000 units transferred out of the department? (if necessary, round to two decimals.)

Explanation / Answer

Unit Op Unit WIP                  37,500 Add Started During Month                155,000 less Completed & trsfd out                175,000 Less Closing WIP                  14,500 Total loss in Production                     3,000 No of units passes in inspection                175,000 Normal loss @1% of units passed                     1,750 Abnormal Loss                     1,250 a. So total spoilt units in month                     3,000 b. Normal spoilage                     1,750 Abnormal spoilage                     1,250 c. Abnormal spoilage is chagred at good production in rate To income statement I So Amount to be debied to Income statement =1250*$10 $                                                 12,500.00 for abnormal spoilage II 175000 units transferred out from department absorbs the cost of normal loss in its normal cost of prodcution. So the cost of 175000 units@10 is = $ 1,750,000.00 The abnormal loss is transferred to Income stetement in abnormal loss account and not shown as part of normal production cost. However, if we want to see the full cost including abnormal loss cost for 175000 units transferred , it will be $1,750,000+$12,500= $17,62,500

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