1.What would be considered normal spoilage (in units)? 2.What\'s the equivalent
ID: 2526340 • Letter: 1
Question
1.What would be considered normal spoilage (in units)?
2.What's the equivalent units of production (materials) ?
3.What's the equivalent units of production (conversion)?
4.What is the Materials cost per unit for February production?
5.What is the Conversion cost per unit for February production?
6.How much should be charged to Loss from Abnormal Spoilage in February?
7.What is the total cost of the units transferred out?
8.What is the total cost of ending inventory?
9.What is the cost per unit of the goods transferred out in February?
Ramsha Industries makes rocking chairs. The chairs are assembled in the Assembly Department and stained and sealed in the Finishing Department. Chairs are tested for quality in the Assembly Department before being transferred to Finishing. Normal spoilage (defective chairs averages 1% of good units in the Assembly Department Ramsha uses the FIFO cost method of process costing Activity during February in the Assembly Department Stage of completion Production activity: Work in Started in February Good units transferred out Work in process, ending inventory Material Conversion 1,000 6,000 6,000 900 process, beginning inventory 90% 50% 95% 75% How many units, if any, were rejected? What would be considered normal spoilage (in units)? Cost activity: Total Conversion $ 83,830 65,080 $ 18,750 138,050 Material Costs in beginning WIP February costs 525,570 387,520Explanation / Answer
Solution:
1. It is given that normal spoilage (defective chairs) averages 1% of good units in Assembly Department.
In February Good units transferred out from Assembly Dept = 6000 Chairs
Thus, normal spoilage (in units) = 6000 X 1% = 60 Chairs
Now, Abnormal spoilage/loss will be calculated as below:
Particulars
Chairs (Units)
Opening WIP Inventory
1000
Add: Production Started in February
6000
7000
Less: Good units transferred out
6000
1000
Less: Closing WIP Inventory
900
Balance is Total Rejection
100
Normal Spoilage
60
Abnormal Spoilage/Rejection
40
2 & 3 - Equivalent Units of Produciton (Materials and Conversion)
** Abnormal Spoilage becomes part of good production as we have to allocate cost to normal spoilage and identify it seperately. While cost of normal spoilage has to be absorbed on good units
4 & 5 - Material and Conversion cost per unit for February Production
6. Loss from Abnormal Spoilage in February = Units x Total Cost / Equivalent Units
Thus, Abnormal Spoilage loss in February = 40 units x ($64.64 + $22.21) = $ 3474
7. Total Cost of Units transferred Out
8. Cost of Ending Inventory
Material Cost = Equivalent Units x Cost Per Equivalent Unit = 855 Units x $ 64.64 = $ 55267
Conversion Cost = Equivalent Units x Cost Per Equivalent Unit = 675 Units x $ 22.21 = $ 14992
Total Cost of Ending Inventory = $ 55267 + $ 14992 = $ 70259
* Total $ figures are rounded off
9 Cost per unit of goods transferred out in February = Total Cost / Units = $ 535665/6000 Units = $ 89.28
* For Total Cost of goods transferred out in February refer solution no. 7 above
Particulars
Chairs (Units)
Opening WIP Inventory
1000
Add: Production Started in February
6000
7000
Less: Good units transferred out
6000
1000
Less: Closing WIP Inventory
900
Balance is Total Rejection
100
Normal Spoilage
60
Abnormal Spoilage/Rejection
40
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