CHAPTER 18

SPOILAGE, REWORK, AND SCRAP

18-21 (30 min.) Weighted-average method, spoilage.

1. Solution Exhibit 18-21A calculates equivalent units of work done in the current
period for direct materials and conversion costs.

SOLUTION EXHIBIT 18-21A

Summarize Output in Physical Units and Compute Output in Equivalent Units;
Weighted-Average Method of Process Costing with Spoilage,
Appleton Company for August 2006.

(Step 2) (Step 1)
Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
2,0
Work in process, beginning (given) 00
Started during current period (given) 10,000
To account for 12,000
Good units completed and tsfd. out during current period: 9,000 9,000 9,000
a
Normal spoilage 900
(900 �100%; 900 �100%) 900 900
b
Abnormal spoilage 300
(300 �100%; 300 �100%) 300 300
Work in process, endingc (given) 1,800
(1,800 �100%; 1,800 �75%) ______ 1,800 1,350
Accounted for 12,000 _____ _____
Work done to date 12,000 11,550
a
Normal spoilage is 10% of good units transferred out: 10% × 9,000 = 900 units. Degree of completion of normal spoilage
in this department: direct materials, 100%; conversion costs, 100%.
b
Total spoilage = Beg. units + Units started - Good units tsfd. out – Ending units = 2,000 + 10,000 - 9,000 - 1,800 = 1,200;
Abnormal spoilage = Total spoilage – Normal spoilage = 1,200 – 900 = 300 units. Degree of completion of abnormal spoilage
in this department: direct materials, 100%; conversion costs, 100%.
c
Degree of completion in this department: direct materials, 100%; conversion costs, 75%.
2 & 3. Solution Exhibit 18-21B calculates the costs per equivalent unit for direct
materials and conversion costs, summarizes total costs to account for, and assigns these
costs to units completed and transferred out (including normal spoilage), to abnormal
spoilage, and to units in ending work in process, using the weighted-average method.

SOLUTION EXHIBIT 18-21B

Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign
Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in
Process;
Weighted-Average Method of Process Costing,
Appleton Company, August 2006.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) $ 28,600 $17,700 $ 10,900
Costs added in current period (given) 174,300 81,300 93,000
Costs incurred to date $99,000 $103,900
Divide by equivalent units of work done to date �12,000 �11,550
Cost per equivalent unit _______ $ 8.250 $ 8.9957
(Step 4) Total costs to account for $202,900
(Step 5) Assignment of costs:
Good units completed and transferred out (9,000 units)
Costs before adding normal spoilage $155,211 (9,000d �$8.25) + (9,000 d �$8.9957)
Normal spoilage (900 units) 15,521 (900d �$8.25) + (900d �$8.9957)
(A) Total costs of good units completed and transferred out 170,732
(B) Abnormal spoilage (300 units) 5,174 (300d �$8.25) + (300d �$8.9957)
(C) Work in process, ending (1,800 units): 26,994 (1,800d �$8.25) + (1,350d �$8.9957)
(A) + (B) + (C) Total costs accounted for $202,900

d
Equivalent units of direct materials and conversion costs calculated in step 2 of Solution Exhibit 18-21A.
18-22 (30 min.) FIFO method, spoilage.

1. Solution Exhibit 18-22A calculates equivalent units of work done in the current
period for direct materials and conversion costs.

SOLUTION EXHIBIT 18-22A

Summarize Output in Physical Units and Compute Output in Equivalent Units;
FIFO Method of Process Costing with Spoilage,
Appleton Company for August 2006.

(Step 1) (Step 2)
Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 2,000
Started during current period (given) 10,000
To account for 12,000
Good units completed and transferred out during current period:
From beginning work in process a 2,000
[2,000 × (100% – 100%); 2,000 × (100% – 50%)] 0 1,000
Started and completed 7,000b
(7,000 × 100%; 7,000 × 100%) 7,000 7,000
Normal spoilagec 900
(900 × 100%; 900 × 100%) 900 900
Abnormal spoilaged 300
(300 × 100%; 300 × 100%) 300 300
Work in process, endinge (given) 1,800
(1,800 × 100%; 1,800 × 75%) 1,800 1,350
Accounted for 12,000 _____
Work done in current period only 10,000 10,550
a
Degree of completion in this department: direct materials, 100%; conversion costs, 50%.
b
9,000 physical units completed and transferred out minus 2,000 physical units completed and transferred out from beginning
work-in-process inventory.
c
Normal spoilage is 10% of good units transferred out: 10% × 9,000 = 900 units. Degree of completion of normal spoilage in this
department: direct materials, 100%; conversion costs, 100%.
d
Total spoilage = Beg. units + Units started – Good units tsfd. Out - ending units = 2,000 + 10,000 – 9,000 – 1,800 = 1,200
Abnormal spoilage = Actual spoilage – Normal spoilage = 1,200 – 900 = 300 units. Degree of completion of abnormal spoilage in
in this department: direct materials, 100%; conversion costs, 100%.
e
Degree of completion in this department: direct materials, 100%; conversion costs, 75%.
2 & 3. Solution Exhibit 18-22B calculates the costs per equivalent unit for direct
materials and conversion costs, summarizes total costs to account for, and assigns these
costs to units completed and transferred out (including normal spoilage), to abnormal
spoilage, and to units in ending work in process, using the FIFO method.

SOLUTION EXHIBIT 18-22B

Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign
Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in
Process;
FIFO Method of Process Costing,
Appleton Company, August 2006.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Work in process, beginning (given) ($17,700 + $10,900) $ 28,600
Costs added in current period (given) 174,300 $ 81,300 $93,000
Divide by equivalent units of work done in current period �10,000 �10,550
Cost per equivalent unit $ 8.130 $ 8.8152
(Step 4) Total costs to account for $202,900
(Step 5) Assignment of costs:
Good units completed and transferred out (9,000 units)
Work in process, beginning (2,000 units) $ 28,600
Costs added to beg. work in process in current period 8,815 (0f × $8.13) + (1,000f × $8.8152)
Total from beginning inventory before normal spoilage 37,415
Started and completed before normal spoilage (7,000 units) 118,616 (7,000f × $8.13) + (7,000f × $8.8152)
Normal spoilage (900 units) 15,521 (900f × $8.13) + (900f × $8.8152)
(A) Total costs of good units completed and transferred out 171,282
(B) Abnormal spoilage (300 units) 5,084 (300f × $8.13) + (300f × $8.8152)
(C) Work in process, ending (1,800 units): 26,534 (1,800f × $8.13) + (1,350f × $8.8152)
(A) + (B) + (C) Total costs accounted for $202,900

f
Equivalent units of direct materials and conversion costs calculated in step 2 in Solution Exhibit 18-22A.
18-23 (30 min.) Standard-costing method, spoilage.
1. Solution Exhibit 18-23A calculates equivalent units of work done in the current period
for direct materials and conversion costs. (It is the same as Solution Exhibit 18-22A.)

SOLUTION EXHIBIT 18-23A

Summarize Output in Physical Units and Compute Output in Equivalent Units;
Standard Costing Method of Process Costing with Spoilage,
Appleton Company for August 2006.

(Step 1) (Step 2)
Equivalent Units
Physical Direct Conversion
Flow of Production Units Materials Costs
Work in process, beginning (given) 2,000
Started during current period (given) 10,000
To account for 12,000
Good units completed and transferred out during current period:
From beginning work in process a 2,000
[2,000 × (100% – 100%); 2,000 × (100% – 50%)] 0 1,000
b
Started and completed 7,000
(7,000 × 100%; 7,000 × 100%) 7,000 7,000
Normal spoilagec 900
(900 × 100%; 900 × 100%) 900 900
Abnormal spoilaged 300
(300 × 100%; 300 × 100%) 300 300
Work in process, endinge (given) 1,800
(1,800 × 100%; 1,800 × 75%) 1,800 1,350
Accounted for 12,000
Work done in current period only 10,000 10,550
a
Degree of completion in this department: direct materials, 100%; conversion costs, 50%.
b
9,000 physical units completed and transferred out minus 2,000 physical units completed and transferred out from beginning
work-in-process inventory.
c
Normal spoilage is 10% of good units transferred out: 10% × 9,000 = 900 units. Degree of completion of normal spoilage in this
department: direct materials, 100%; conversion costs, 100%.
d
Total spoilage = Beg. units + Units started – Good units tsfd. Out - ending units = 2,000 + 10,000 – 9,000 – 1,800 = 1,200
Abnormal spoilage = Actual spoilage – Normal spoilage = 1,200 – 900 = 300 units. Degree of completion of abnormal spoilage in
in this department: direct materials, 100%; conversion costs, 100%.
e
Degree of completion in this department: direct materials, 100%; conversion costs, 75%.
2 & 3. Solution Exhibit 18-23B calculates the costs per equivalent unit for direct
materials and conversion costs, summarizes total costs to account for, and assigns these
costs to units completed and transferred out (including normal spoilage), to abnormal
spoilage, and to units in ending work in process, using standard costing.

SOLUTION EXHIBIT 18-23B

Compute Cost per Equivalent Unit, Summarize Total Costs to Account For, and Assign
Total Costs to Units Completed, to Spoiled Units, and to Units in Ending Work in
Process;
Standard Costing Method of Process Costing,
Appleton Company, August 2006.

Total
Production Direct Conversion
Costs Materials Costs
(Step 3) Standard cost per equivalent unit (given) $ 17.50 $8.00 $9.50
Work in process, beginning (given) $ 25,500 (2,000 × $8.00) + (1,000 × $9.50)
Costs added in current period at standard prices 180,225 (10,000 × $8.00) + (10,550 × $9.50)
(Step 4) Total costs to account for $205,725
(Step 5) Assignment of costs at standard costs:
Good units completed and transferred out (9,000 units)
Work in process, beginning (2,000 units) $ 25,500
Costs added to beg. work in process in current period 9,500 (0f × $8.00) + (1,000f × $9.50)
Total from beginning inventory before normal spoilage 35,000
Started and completed before normal spoilage (7,000 units) 122,500 (7,000f × $8.00) + (7,000f × $9.50)
Normal spoilage (900 units) 15,750 (900f × $8.00) + (900f × $9.50)
(A) Total costs of good units completed and transferred out 173,250
(B) Abnormal spoilage (300 units) 5,250 (300f × $8.00) + (300f × $9.50)
(C) Work in process, ending (1,800 units): 27,225 (1,800f × $8.00) + (1,350f × $9.50)
(A) + (B) + (C) Total costs accounted for $205,725
f
Equivalent units of direct materials and conversion costs calculated in step 2 in Solution Exhibit 18-23A.
18-28 (15 min.) Reworked units, costs of rework.

1. The two alternative approaches to account for the materials costs of reworked
units are:
a. To charge the costs of rework to the current period as a separate expense item
as abnormal rework. This approach would highlight to White Goods the costs
of the supplier problem.
b. To charge the costs of the rework to manufacturing overhead as normal
rework.

2. The $50 tumbler cost is the cost of the actual tumblers included in the washing
machines. The $44 tumbler units from the new supplier were eventually never used in
any washing machine and that supplier is now bankrupt. The units must now be disposed
of at zero disposal value.

3. The total costs of rework due to the defective tumbler units include the following:
a. the labor and other conversion costs spent on substituting the new tumbler
units;
b. the costs of any extra negotiations to obtain the replacement tumbler units;
c. any higher price the existing supplier may have charged to do a rush order for
the replacement tumbler units; and
d. ordering costs for the replacement tumbler units.

18-29 (25 min.) Scrap, job costing.

1. Journal entry to record scrap generated by a specific job and accounted for at the
time scrap is sold is:

Cash or Accounts Receivable 490

Work-in-Process Control 490
To recognize asset from sale of scrap.
A memo posting is also made to the specific job record.

2. Scrap common to various jobs and accounted for at the time of its sale can be
accounted for in two ways:

a. Regard scrap sales as a separate line item of revenues (the method generally used
when the dollar amount of scrap is immaterial):

Cash or Accounts Receivable 4,000

Sale of Scrap 4,000
To recognize revenue from sale of scrap.
b. Regard scrap sales as offsets against manufacturing overhead (the method
generally used when the dollar amount of scrap is material):

Cash or Accounts Receivable 4,000

Manufacturing Department Overhead Control 4,000
To record cash raised from sale of scrap.

3. Journal entry to record scrap common to various jobs at the time scrap is returned
to storeroom:
Materials Control 4,000
Manufacturing Department Overhead Control 4,000
To record value of scrap returned to storeroom.

When the scrap is reused as direct material on a subsequent job, the journal entry
is:
Work-in-Process Control 4,000
Materials Control 4,000
To record reuse of scrap on a job.

Explanations of journal entries are provided here but are not required.