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  Page 1  of 3   University of San Jose Recoletos College of Commerce Acctg. 201 - Cost Accounting Process Costing - Spoilage ã Spoilage (scrap) — Inferior goods either discarded or sold for disposal value ã Defective units — Inferior goods reworked and sold as normal product A major distinction is made between normal and abnormal spoilage. a. Normal spoilage is the cost of spoiled units caused by the nature of the manufacturing process (i.e., which occur under efficient operating conditions). (1) Normal spoilage is a necessary cost in the production process and is, therefore, a product cost . b. Abnormal spoilage is the cost of spoiled units which were spoiled through some unnecessary act, event, or condition. (1) Abnormal spoilage is a period cost (e.g., “loss on abnormal spoilage”).  (2) Abnormal spoilage costs should not be included in cost of goods sold. Spoilage must be considered in EUP calculations. For example, if spoilage is discovered at the 60% point in processing and 100 units of abnormal spoilage are discovered, 60 EUP have occurred. The amount of abnormal loss would be the cost of 60 EUP (processing) plus the materials added to 100 units of production up to the 60% point. In contrast, if the spoilage was considered normal in nature, the spoilage cost would be treated as a product cost and simply added to the cost of the good units completed.    Page 2  of 3   Problem 3.3 -   Direct materials added at beginning of the process. -   Conversion incurred evenly throughout the process -   Normal spoilage is 10% of the good units. Spoilage: 50 -   Inspection is upon completion (conversion) of finished units. Degree of Completion Total Costs WIP, beg. WIP, end Beginning August Direct Materials 100% 100% P 12,000 P 18,500 Conversion 60% 50% P 5,873.76 P 15,700 P17,873.76 P 34,200 Normal Spoilage 100% 100% Abnormal Spoilage 100% 100% Weighted Average Equivalent Units Flow of Production Physical Units Direct Materials Conversion WIP, beginning 240 Started during current period 255 To account for 495 Good units completed and transferred out 345 345 345 Normal Spoilage 40 (100%) 40 40 Abnormal Spoilage 10 10 10 WIP, ending 100 100 50 Accounted for 495 Work done in current period 495 445 Cost Data Total Costs Direct Materials Conversion WIP Invty., beginning 17,873.76 12,000 5,873.76 Current Period Costs 34,200.00 18,500 15,700.00 Total cost to account for 52,073.76 30,500 21,573.76 Divided by EUP 495 445 Cost per EUP 110.10 61.62 48.48 Cost Assignment Completed & transferred out Good units before adding spoilage 37,984.50 Normal Spoilage 4,404.00 42,388.50 Abnormal Spoilage 1,101.00 WIP, ending Transferred in Direct Material 6,162.00 Conversion 2,424.00 8,586.00 Total cost accounted for 52,075.50  Page 3  of 3   -   Direct materials added at the beginning of the process. -   Conversion incurred evenly throughout the process -   Normal spoilage is 10% of the good units. -   Inspection is upon completion of finished units. Degree of Completion Total Costs WIP, beg. WIP, end Beginning August Direct Materials 100% 100% P 12,000 P 18,500 Conversion 60% 50% P 5,873.76 P 15,700 P17,873.76 P 34,200 Normal Spoilage 100% 100% Abnormal Spoilage 100% 100% First In, First Out   Equivalent Units Flow of Production Physical Units Direct Materials Conversion WIP, beginning 240 Started during current period 255 To account for 495 Completed and transferred out: From WIP, beg. 240 0 (40%) 96 Started & Completed [WB] 105 (100%) 105 (100%) 105 Normal Spoilage 40 40 40 Abnormal Spoilage 10 10 10 WIP, ending 100 100 50 Accounted for 495 Work done in current period 255 301 Cost Data Total Costs Direct Materials Conversion WIP Invty., beginning 17,873.76 Current Period Costs 34,200.00 18,500 15,700.00 Total cost to account for 52,073.76 18,500 15,700.00 Divided by EUP 255 301 Cost per EUP 124.71 72.55 52.16 Cost Assignment Good units completed & transferred out From Beginning WIP Invty. 17,873.76 Costs added to complete beg. WIP 5,007.36 Total Beginning WIP Invty. 22,881.12 Started and Completed 13,094.55 35,975.67 Normal Spoilage 4,988.40 Abnormal Spoilage 1,247.10 WIP, ending Direct Material 7,255.00 Conversion 2,608.00 9,863.00 Total cost accounted for 52,074.17

Vol3 Issue 1

Sep 22, 2019

20-602-1-PB.pdf

Sep 22, 2019
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