Cost Accounting, 15e Global Edition (Horngren/Datar/Rajan)
Chapter 18 Spoilage, Rework, and Scrap
Objective 18.1
1) Spoilage refers to ________.
A) units of production that do not meet the specifications required by customers but that are
subsequently repaired and sold as good finished units
B) units of production whether fully or partially completed, that do not meet the specifications required
by customers for good units and are discarded or sold at reduced prices
C) residual material that results from manufacturing a product
D) products of a joint production process that have low total sales values relative to the total sales value
of the main product
2) Rework refers to ________.
A) units of production that do not meet the specifications required by customers but that are
subsequently repaired and sold as good finished units
B) products of a joint production process that have low total sales values relative to the total sales value of
the main product
C) units of production whether fully or partially completed, that do not meet the specifications
required by customers for good units and are discarded or sold at reduced prices
D) residual material that results from manufacturing a product
3) Which of the following is an example of spoilage?
A) short lengths from woodworking operations
B) edges from plastic molding operations
C) defective units of laptops detected after the production process but reworked before the units are sold
as good products to customers
D) defective aluminum cans sold to aluminum manufacturers for remelting to produce other aluminum
products
4) Scrap is ________.
A) units of production that do not meet the specifications required by customers but that are
subsequently repaired and sold as good finished units
B) products of a joint production process that have low total sales values relative to the total sales
value of the main product
C) residual material that results from manufacturing a product
D) units of production whether fully or partially completed, that do not meet the specifications
required by customers for good units and are discarded or sold at reduced prices
5) A production process which involves spoilage and rework occurs in ________.
A) the manufacture of high precision machine tools
B) the manufacture of semiconductor units
C) the manufacture of clothing
D) the mining industry
6) Which of the following is an example of scrap?
A) short lengths from woodworking operations
B) defective units of laptops detected after the production process but reworked before the units are sold
as good products to customers
C) defective aluminum cans sold to aluminum manufacturers for remelting to produce other aluminum
products
D) defective shirts, jeans, shoes, and carpeting sold as seconds
7) Some amounts of spoilage, rework, or scrap are inherent in many production processes.
8) An item classified as spoilage has no value.
9) Reworked goods are unacceptable units of production usually NOT capable of being repaired or
converted into a salable product.
10) Rework is finished production that is NOT in accordance with customer desires. The product is
redone and sold as finished goods.
11) Rework is residual material that results from manufacturing a product and can have either a high or
low sales value relative to the product with which it is associated.
12) Scrap and rework are considered to be the same thing by managerial accountants.
13) There is no difference between scrap which can be sold for relatively small amount and a byproduct.
14) Distinguish among spoilage, reworked units, and scrap. Give an example of each.
15) For each of the following items identify whether it is spoilage, reworked units, or scrap.
________ a. Defective shirts sold as seconds
________ b. End cuts from suit-making operations
________ c. Edges from plastic moldings
________ d. Carpets sold as seconds
________ e. Precision tools that are not built successfully to the necessary tolerance,
but which can be successfully converted to a saleable product
________ f. Rock extracted as a result of mining processing
________ g. Complex defective products such as semiconductors
Objective 18.2
1) Spoilage that is an inherent result of the particular production process and arises even under efficient
operating conditions is referred to as ________.
A) incremental spoilage
B) normal spoilage
C) irregular spoilage
D) direct spoilage
2) Spoilage that is not inherent in a particular production process and would not arise under efficient
operating conditions is referred to as ________.
A) incremental spoilage
B) usual spoilage
C) abnormal spoilage
D) indirect spoilage
3) Costs of normal spoilage are usually accounted for as ________.
A) a deduction from the cost of goods sold
B) a component of the costs of good units manufactured
C) a “loss from normal spoilage account” in income statement
D) a liability on a balance sheet
4) Costs of abnormal spoilage are usually accounted for as ________.
A) a deduction from the cost of goods sold
B) a component of the costs of good units manufactured
C) a separate line item in an income statement
D) an asset on a balance sheet
5) The loss from abnormal spoilage account would appear ________.
A) on a balance sheet
B) as a detailed item in the retained earnings schedule of a balance sheet
C) a separate line item on an income statement
D) a deduction from the cost of goods sold
6) Normal spoilage rates are computed by ________.
A) dividing the units of normal spoilage by total actual units started into production
B) dividing the units of normal spoilage by total good units completed
C) dividing total actual units started into production by the units of normal spoilage
D) dividing total good units completed by the units of normal spoilage
7) Companies that attempt to achieve zero defects in the manufacturing process treat spoilage as
________.
A) scrap
B) reworked units
C) abnormal spoilage
D) indirect spoilage
8) Which one of the following conditions usually exists when comparing normal and abnormal spoilage
to controllability?
Normal Spoilage Abnormal Spoilage
A) Controllable Controllable
B) Controllable Uncontrollable
C) Uncontrollable Uncontrollable
D) Uncontrollable Controllable
9) Which of the following statements is true of normal spoilage?
A) It is a spoilage which is not inherent in a particular production process.
B) It occurs due to machine breakdowns and operator errors.
C) It is usually regarded as avoidable and controllable.
D) It arises even when the process is carried out in an efficient manner.
10) Which of the following statements is true of an abnormal spoilage?
A) It is a spoilage which is inherent in a particular production process.
B) It arises even when the process is carried out in an efficient manner.
C) It is usually regarded as avoidable and controllable.
D) The costs of abnormal spoilage are typically included as a component of the costs of good units
manufactured.
11) Which of the following statements is true of normal spoilage and abnormal spoilage?
A) Normal spoilage is inherent in a particular production process, whereas abnormal spoilage is not
inherent in a particular production process.
B) Abnormal spoilage arises even when the process is carried out in an efficient manner, whereas normal
spoilage does not arise when the process is carried out in an efficient manner.
C) Normal spoilage is usually regarded as avoidable and controllable, whereas abnormal spoilage is
unavoidable and uncontrollable.
D) The costs of normal spoilage are recorded as a loss as a separate line item in an income statement,
whereas costs of abnormal spoilage are included as a component of the costs of good units manufactured.
12) The costs of normal spoilage are typically included as a component of the costs of good units
manufactured.
13) Abnormal spoilage is spoilage inherent in a particular production process.
14) Abnormal spoilage is spoilage that should arise under efficient operating conditions.
15) Companies calculate the units of abnormal spoilage and record the cost in the Loss from Abnormal
Spoilage account, which appears as a separate line item in an income statement.
16) Spoilage can be considered either normal or abnormal.
17) Normal spoilage is spoilage that is NOT considered to be inherent in a production process.
18) Under efficient operating conditions, all spoilage is considered to be abnormal spoilage.
19) Normal spoilage rates are computed by dividing units of normal spoilage by total good units
completed, NOT total actual units started in production.
20) Costs of abnormal spoilage are separately accounted for as losses of the period.
21) There is a tradeoff between the speed of production and the normal spoilage rate.
22) Normal spoilage is usually regarded as avoidable and controllable.
23) Units spoiled due to machine breakdowns and operator errors are normal spoilage.
24) Line operators and other plant personnel generally can decrease or eliminate normal spoilage by
identifying the reasons for machine breakdowns, operator errors.
25) Costs of abnormal spoilage are considered inventoriable and are written off as a period expense.
26) What are the objectives in accounting for spoilage?
27) What is the distinction between normal and abnormal spoilage?
Objective 18.3
Answer the following questions using the information below:
Colil Computer Systems, Inc., manufactures printer circuit cards. All direct materials are added at the
inception of the production process. During January, the accounting department noted that there was no
beginning inventory. Direct materials purchases totaled $300,000 during the month. Work-in-process
records revealed that 10,000 card units were started in January, 5,000 card units were complete, and 4,000
card units were spoiled as expected. Ending work-in-process card units are complete in respect to direct
materials costs. Spoilage is not detected until the process is complete.
1) What is the direct material cost per equivalent unit?
A) $20.00
B) $30.00
C) $25.00
D) $35.00
2) What is the direct material cost assigned to good units completed?
A) $150,000
B) $250,000
C) $120,000
D) $270,000
3) What is the amount allocated to the work-in-process ending inventory?
A) $40,000
B) $50,000
C) $30,000
D) $75,000
Answer the following questions using the information below:
Outose Concept manufactures small tables in its Processing Department. Direct materials are added at
the initiation of the production cycle and must be bundled in single kits for each unit. Conversion costs
are incurred evenly throughout the production cycle. Before inspection, some units are spoiled due to
nondetectible materials defects. Inspection occurs when units are 50% converted. Spoiled units generally
constitute 4% of the good units. Data for December 2015 are as follows:
WIP, beginning inventory 12/1/2015 22,000 units
Direct materials (100% complete)
Conversion costs (75% complete)
Started during December 76,000 units
Completed and transferred out 12/31/2015 72,000 units
WIP, ending inventory 12/31/2015 18,000 units
Direct materials (100% complete)
Conversion costs (65% complete)
Costs for December:
WIP, beginning Inventory:
Direct materials $ 150,000
Conversion costs 76,800
Direct materials added 222,400
Conversion costs added 290,000
4) What is the number of total spoiled units?
A) 10,200 units
B) 2,880 units
C) 5,120 units
D) 8,000 units
5) Normal spoilage totals ________.
A) 3,200 units
B) 8,000 units
C) 2,880 units
D) 5,120 units
6) Abnormal spoilage totals ________.
A) 3,200 units
B) 8,000 units
C) 5,120 units
D) 2,880 units
7) What is the total cost per equivalent unit using the weighted-average method of process costing?
A) $3.80
B) $3.60
C) $7.80
D) $4.00
8) What cost is allocated to abnormal spoilage using the weighted-average process-costing method?
A) $ 0
B) $14,720
C) $39,936
D) $19,456
9) What is the amount of direct materials and conversion costs assigned to ending work in process using
the weighted-average process-costing method?
A) $37,440; $48,000
B) $72,000; $44,460
C) $68,400; $46,800
D) $67,120; $44,320
Answer the following questions using the information below:
Fish Fillet Incorporated obtains fish and then processes them into frozen fillets and then prepares the
frozen fish fillets for distribution to its retail sales department. Direct materials are added at the initiation
of the cycle. Conversion costs are incurred evenly throughout the production cycle. Before inspection,
some fillets are spoiled due to nondetectible defects. Inspection occurs when units are 50% converted.
Spoiled fillets generally constitute 4% of the good fillets. Data for April 2015 are as follows:
WIP, beginning inventory 4/1/2015 85,000 fillets
Direct materials (100% complete)
Conversion costs (50% complete)
Started during April 130,000 fillets
Completed and transferred out 4/31/2015 180,000 fillets
WIP, ending inventory 4/31/2015 22,000 fillets
Direct materials (100% complete)
Conversion costs (20% complete)
Costs for April:
WIP, beginning Inventory:
Direct materials $ 130,000
Conversion costs 95,910
Direct materials added 300,000
Conversion costs added 383,130
10) What is the number of total spoiled units?
A) 16,000 units
B) 7,000 units
C) 15,000 units
D) 13,000 units
11) Normal spoilage totals ________.
A) 7,200 units
B) 0 units
C) 13,000 units
D) 5,800 units
12) Abnormal spoilage totals ________.
A) 5,800 units
B) 0 units
C) 7,200 units
D) 13,000 units
13) What is the total cost per equivalent unit using the weighted-average method of process costing?
A) $4.00
B) $2.40
C) $2.00
D) $4.40
14) What cost is allocated to abnormal spoilage using the weighted-average process-costing method?
A) $ 0
B) $25,520
C) $11,600
D) $13,920
15) What is the amount of direct materials and conversion costs assigned to ending work in process using
the weighted-average process-costing method?
A) $26,720; $25,020
B) $44,000 $15,840
C) $83,600; $88,000
D) $88,000; $25,080
16) The cost per good unit in the weighted-average method is equal to the ________.
A) total cost of direct materials and conversion costs per equivalent unit, plus a share of normal spoilage
B) sum of the costs per equivalent unit of direct materials and conversion costs
C) total costs divided by total equivalent units
D) total costs transferred out divided by total abnormal spoilage
17) Excluding spoiled units in the equivalent-unit calculation results in ________.
A) lower cost per good unit.
B) higher cost per good unit
C) better management information
D) higher cost for spoiled units
18) The inspection point is the ________.
A) stage of the production cycle where products are checked to determine whether they are acceptable or
unacceptable units
B) point at which costs are allocated between normal and abnormal spoilage
C) point at which the calculation of equivalent units is made
D) stage of allocating total costs transferred out to good units completed and transferred
19) Under the FIFO method, all spoilage costs are assumed to be related to the units ________.
A) in beginning inventory, plus the units completed during the period
B) completed during the period
C) in ending inventory
D) in both beginning and ending inventory plus the units completed during the period
Answer the following questions using the information below:
Verer Custom Carpentry manufactures chairs in its Processing Department. Direct materials are included
at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs
are incurred evenly throughout the production cycle. Inspection takes place as units are placed into
production. After inspection, some units are spoiled due to nondetectible material defects. Spoiled units
generally constitute 4% of the good units. Data provided for March 20X5 are as follows:
WIP, beginning inventory 3/1/20X5 32,000 units
Direct materials (100% complete)
Conversion costs (85% complete)
Started during March 70,000 units
Completed and transferred out 80,000 units
WIP, ending inventory 3/31/20X5 18,000 units
Direct materials (100% complete)
Conversion costs (80% complete)
Costs:
WIP, beginning inventory:
Direct materials $ 70,000
Conversion costs 40,000
Direct materials added 105,000
Conversion costs added 128,160
20) What are the normal and abnormal spoilage units, respectively, for March when using FIFO?
A) 3,200 units; 800 units
B) 1,950 units; 1,390 units
C) 3,690 units; 1,850 units
D) 1,420 units; 2,000 units