9) In job-costing systems, abnormal spoilage costs are considered to be inventoriable costs and normal
spoilage costs are not considered to be inventoriable costs and are written off as costs of the accounting
period in which the abnormal spoilage is detected.
10) When normal spoilage is common to all jobs, the budgeted manufacturing overhead rate includes a
provision for the normal spoilage cost.
11) When inventories are present, classifying spoilage as normal rather than abnormal results in an
decrease in current operating income.
12) Shazam Machines produces numerous types of money change machines. All machines are made in
the same production department and many use exactly the same processes. Because customers have such
different demands for the machine characteristics, the company uses a job-costing system. Unfortunately,
some of the production managers have been upset for the last few months when their jobs were charged
with the spoilage that occurred over an entire processing run of several types of machines. Some of the
best managers have even threatened to quit unless the accounting system is changed.
Required:
What recommendations can you suggest to improve the accounting for spoilage?
13) How do job-costing systems account for spoilage?
Objective 18.6
1) Which of the following entries reflects the original cost assignment to spoiled units before considering
rework cost?
A) Work-in-Process Control XXX
Materials Control XXX
Wages Payable Control XXX
Manufacturing Overhead Allocated XXX
B) Finished Goods Control XXX
Work-in-Process Control XXX
C) Manufacturing Overhead Allocated XXX
Materials Control XXX
Wages Payable Control XXX
Work-in-Process Control XXX
D) Materials Control XXX
Wages Payable Control XXX
Work-in-Process Control XXX
Manufacturing Overhead Allocated XXX
2) Which of the following entries is correct when the costs of the rework is normal and common to all the
jobs?
A) Manufacturing Overhead Control XXX
Materials Control XXX
Wages Payable Control XXX
Manufacturing Overhead Allocated XXX
B) Work-in-Process Control XXX
Materials Control XXX
Wages Payable Control XXX
Manufacturing Overhead Allocated XXX
C) Wages Payable Control XXX
Manufacturing Overhead Allocated XXX
D) Wages Payable Control XXX
Manufacturing Overhead Allocated XXX
Manufacturing Overhead Control XXX
Materials Control XXX
3) If the rework is abnormal ________.
A) it is debited to Wages Payable Control
B) it is credited to Wages Payable Control
C) it is credited to Loss from Abnormal Rework
D) it is debited to Loss from Abnormal Rework
4) If a company set a standard of zero rework ________.
A) all rework is treated as abnormal and is written off as a cost of the current period
B) all rework is treated as normal and is written off as a cost of the current period
C) all rework is treated as abnormal and is shown as a liability of the current period
D) all rework is treated as normal and is shown as a liability of the current period
5) When rework is normal and NOT attributable to a specific job, the costs of rework are charged to
manufacturing overhead and are spread, through overhead allocation, over all jobs.
6) Dynalia Florists operate a flower shop. Because most of their orders are via telephone or fax, numerous
orders have to be reworked. The average cost of the reworked orders is $5.25: $3.50 for labor, $1.25 for
more flowers, and $0.50 for overhead. This ratio of costs holds for the average original order. On a recent
day, the shop reworked 40 orders out of 250. The original cost of the 40 orders totaled $700. The average
cost of all orders is $18.34, including rework, with an average selling price of $25.
Required:
Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to
Arrangement Department Overhead Control. Prepare a journal entry to transfer the finished goods to
Finished Goods Inventory.
7) Robolane Incorporated manufactures and distributes small robotic toys. Because most of its orders are
via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is
$12.45: $5 for labor, $5.15 for more materials, and $2.30 for overhead. This ratio of costs holds for the
average original order. On a recent day, the shop reworked 80 orders out of 800. The original cost of the
80 orders totaled $2,000. The average cost of all orders is $26.245, including rework, with an average
selling price of $35.
Required:
Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to
Robo Department Overhead Control. Prepare journal entries to record all relevant rework charges as well
as to transfer the reworked items finished goods to Finished Goods Inventory.
8) When a unit has to be reworked, the rework may be classified in three ways. What are those ways, and
how does the accounting for each differ?
9) What are the advantages of costing rework?
Objective 18.7
1) When the amount of scrap is immaterial, which of the following is the easiest accounting entry when
recording scrap sold for cash?
A) Sales of Scrap
Cash
B) Manufacturing Overhead Control
Cash
C) Cash
Scrap Revenues
D) Sales of scrap
Accounts Receivable
2) In accounting for scrap, which of the following statements is true?
A) Normal scrap is accounted for separately from abnormal scrap.
B) In accounting for scrap, there is no distinction between the scrap attributable to a specific job and scrap
common to all jobs.
C) Initial entries to scrap accounting records are most often made in dollar terms.
D) Scrap records not only help measure efficiency, but also help keep track of scrap, and so reduce the
chances of theft.
3) When the amount of scrap is material and the scrap is sold immediately after it is produced, which of
the following is the journal entry if the scrap attributable to a specific job is sold on account?
A) Scrap Revenues
Accounts Payable
B) Work-in-Process Control
Accounts Receivable
C) Accounts Receivable
Work-in-Process Control
D) Work-in-Process Control
Accounts Payable
4) If scrap, common to all jobs, is returned to the storeroom and the time between the scrap being
inventoried and its disposal is quite lengthy, the journal entry is ________.
A) Accounts Receivable
Materials Control
B) Materials Control
Work-in-Process Control
C) Work-in-Process Control
Materials Control
D) Materials Control
Manufacturing Overhead Control
5) If scrap is reused as direct material rather than sold as scrap ________.
A) Accounts Receivable is debited at its estimated net realizable value and then credited when the scrap
is reused
B) Materials Control is debited at its estimated net realizable value and then credited when the scrap is
reused
C) Manufacturing Overhead Control is debited at its estimated net realizable value and then credited
when the scrap is reused
D) Work-in-Process Control is debited at its estimated net realizable value and then credited when the
scrap is reused
6) Which of the following statements is true of scrap?
A) When a production process yields two or more products with high total sales values relative to the
total sales values of other products, those are called scrap.
B) For accounting purpose, distinction is made between normal and abnormal scrap.
C) Scrap refers to units of production, 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) Scrap is either sold or disposed of quickly or it is stored for later sale, disposal, or reuse.
7) Scrap is usually divided between normal and abnormal scrap.
8) If scrap is returned to the company’s storeroom and inventoried, it should NOT have any value in the
accounting records.
9) When the dollar amount of scrap is immaterial, the simplest accounting is to record the physical
quantity of scrap returned to the storeroom and to regard scrap sales as a separate line item in the income
statement.
10) Costs are assigned to scrap only if it is abnormal scrap.
11) Scrap is residual material that results from manufacturing a product; it has low total sales value
compared with the total sales value of the product.
12) Recognizing the value of scrap in the accounting records is always done at the time the scrap is
produced.
13) Busy Hands Craft Company is a small manufacturing company that specializes in arts and crafts
items. It recently bought an old textile mill that it has refurbished to manufacture and dye special cloth to
be sold in its craft shops. However, it discovered something new for its accounting system. The company
never before had finished goods that did not meet standard, leftover materials from processing runs, or
unacceptable outputs.
Required:
As the business consultant for the company, explain how it can handle the items mentioned. Include any
potential problems with the accounting procedures.
14) Explain the meaning of the terms spoilage, scrap, and rework. Provide an example of each. Is it
possible for a single firm to have all three from a single productive process?
15) You are the chief financial officer of a lumber mill, and you are becoming quite concerned about the
spoilage, scrap, and reworked items associated with your production processes. Your firm produces
mainly products for the building industry.
Required:
Discuss the problems associated with these items and the methods your company can use to reduce
spoilage, scrap, and reworked items.
16) How can a company account for scrap? Include in your explanation a discussion of the two aspects of
accounting for scrap.
17) For each of the following (actual real-world examples), develop products that can be sold from the
listed scrap.
a. The Federal Reserve Banks destroy old money. Burning this money is usually forbidden under the
environmental laws of most municipalities.
b. A manufacturer of cotton undergarments for prisoners has much cotton left over. The manufacturer
is located in a very rural area of Alabama.
c. A hog renderer has hog bristles as a result of the slaughtering process.
1) The standard-costing method ________.
A) adds a layer of complexity to the calculation of equivalent-unit costs in a process-costing environment
B) makes calculating equivalent-unit costs unnecessary
C) requires an analysis of the spoilage costs in beginning inventory
D) requires an analysis of the spoilage costs in ending inventory
2) Under standard costing, there is no need to calculate a cost per equivalent unit.
3) Springfield Sign Shop manufactures only specific orders. It uses a standard cost system. During one
large order for the airport authority, an unusual number of signs were spoiled. The normal spoilage rate
is 10% of units started. The point of first inspection is half way through the process, the second is three-
fourths through the process, and the final inspection is at the end of the process. Other information about
the job is as follows:
Signs started 3,000
Signs spoiled 450
Direct materials put into process at beginning $ 60,000
Conversion costs for job $120,000
Standard direct material costs per sign $27
Standard conversion cost per sign $54
Average point of spoilage is the 3/4 completion point
Average current disposal cost per spoiled sign $15
Required:
Make necessary journal entries to record all spoilage.