Cost15EChapter18-Solutions

18-1CHAPTER18SPOILAGE,REWORK,ANDSCRAP18-1Managershavefoundthatimprovedqualityandintoleranceforhighspoilagehaveloweredoverallcostsandincreasedsales.18-2Spoilage—unitsofproductionthatdonotmeetthestandardsrequiredbycustomersforgoodunitsandthatarediscardedorsoldatreducedprices.Rework—unitsofproductionthatdonotmeetthespecificationsrequiredbycustomersbutthataresubsequentlyrepairedandsoldasgoodfinishedunits.Scrap—residualmaterialthatresultsfrommanufacturingaproduct.Ithaslowtotalsalesvaluecomparedtothetotalsalesvalueoftheproduct.18-3Yes.Normalspoilageisspoilageinherentinaparticularproductionprocessthatarisesevenunderefficientoperatingconditions.Managementdecidesthespoilagerateitconsidersnormaldependingontheproductionprocess.18-4Abnormalspoilageisspoilagethatisnotinherentinaparticularproductionprocessandwouldnotariseunderefficientoperatingconditions.Costsofabnormalspoilageare“lostcosts,”measuresofinefficiencythatshouldbewrittenoffdirectlyaslossesfortheaccountingperiod.18-5Managementeffortcanaffectthespoilagerate.Manycompaniesarerelentlesslyreducingtheirratesofnormalspoilage,spurredonbycompetitorswho,likewise,arecontinuouslyreducingcosts.18-6Normalspoilagetypicallyisexpressedasapercentageofgoodunitspassingtheinspectionpoint.Givenactualspoiledunits,weinferabnormalspoilageasfollows:Abnormalspoilage=Actualspoilage–Normalspoilage.18-7Accountingforspoiledgoodsdealswithcostassignment,ratherthanwithcostincurrence,becausetheexistenceofspoiledgoodsdoesnotinvolveanyadditionalcostbeyondtheamountalreadyincurred.18-8Yes.Normalspoilageratesshouldbecomputedfromthegoodoutputorfromthenormalinput,notthetotalinput.Normalspoilageisagivenpercentageofacertainoutputbase.Thisbaseshouldneverincludeabnormalspoilage,whichisincludedintotalinput.Abnormalspoilagedoesnotvaryindirectproportiontounitsproducedandtoincludeitwouldcausethenormalspoilagecounttofluctuateirregularlyandnotvaryindirectproportiontotheoutputbase.18-9Yes,thepointofinspectionisthekeytotheassignmentofspoilagecosts.Normalspoilagecostsdonotattachsolelytounitstransferredout.Thus,ifunitsinendingworkinprocesshavepassedinspection,theyshouldhavenormalspoilagecostsaddedtothem.18-10No.Ifabnormalspoilageisdetectedatadifferentpointintheproductioncyclethannormalspoilage,thenunitcostswoulddiffer.If,however,normalandabnormalspoilagearedetectedatthesamepointintheproductioncycle,theirunitcostswouldbethesame.18-218-11No.Spoilagemaybeconsideredanormalcharacteristicofagivenproductioncycle.Thecostsofnormalspoilagecausedbyarandommalfunctionofamachinewouldbechargedasapartofthemanufacturingoverheadallocatedtoalljobs.Normalspoilageattributabletoaspecificjobischargedtothatjob.18-12No.Unlesstherearespecialreasonsforchargingnormalreworktojobsthatcontainedthebadunits,thecostsofextramaterials,labor,andsoonareusuallychargedtomanufacturingoverheadandallocatedtoalljobs.18-13Yes.Abnormalreworkisalossjustlikeabnormalspoilage.Bychargingittomanufacturingoverhead,theabnormalreworkcostsarespreadoverotherjobsandalsoincludedininventorytotheextentajobisnotcomplete.Abnormalreworkisreworkoverandabovewhatisexpectedduringaperiodandisrecognizedasalossforthatperiod.18-14Acompanyisjustifiedininventoryingscrapwhenitsestimatednetrealizablevalueissignificantandthetimebetweenstoringitandsellingorreusingitisquitelong.18-15Companiesmeasurescraptomeasureefficiencyandtoalsocontrolatemptingsourceoftheft.Managersofcompaniesthatreporthighlevelsofscrapfocusattentiononwaystoreducescrapandtousethescrapthecompanygeneratesmoreprofitably.Somecompanies,forexample,mightredesignproductsandprocessestoreducescrap.Othersmayalsoexamineifthescrapcanbereusedtosavesubstantialinputcosts.18-16(5–10min.)Normalandabnormalspoilageinunits.1.Totalspoiledunits12,600Normalspoilageinunits,4%170,0006,800Abnormalspoilageinunits5,8002.Abnormalspoilage,5,800$11$63,800Normalspoilage,6,800$1174,800Potentialsavings,12,600$11$138,600Regardlessofthetargetednormalspoilage,abnormalspoilageisnonrecurringandavoidable.Thetargetednormalspoilagerateissubjecttochange.Manycompanieshavereducedtheirspoilagetoalmostzero,whichwouldrealizeallpotentialsavings.Ofcourse,zerospoilageusuallymeanshigher-qualityproducts,morecustomersatisfaction,moreemployeesatisfaction,andvariousbeneficialeffectsonnonmanufacturing(forexample,purchasing)costsofdirectmaterials.18-318-17(20min.)Weighted-averagemethod,spoilage,equivalentunits.SolutionExhibit18-17calculatesequivalentunitsofworkdonetodatefordirectmaterialsandconversioncosts.SOLUTIONEXHIBIT18-17SummarizetheFlowofPhysicalUnitsandComputeOutputinEquivalentUnits;Weighted-AverageMethodofProcessCostingwithSpoilage,GrayManufacturingCompanyforNovember2014.(Step1)(Step2)EquivalentUnitsFlowofProductionPhysicalUnitsDirectMaterialsConversionCostsWorkinprocess,beginning(given)StartedduringcurrentperiodToaccountforGoodunitscompletedandtransferredoutduringcurrentperiod:Normalspoilage*100100%;100100%Abnormalspoilage†50100%;50100%Workinprocess,ending‡(given)2,000100%;2,00030%AccountedforEquivalentunitsofworkdonetodate1,00010,150a11,1509,000100502,00011,150