Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
Chapter 18 Spoilage, Rework, and Scrap
18.1 Distinguish among spoilage, rework, and scrap, and apply the appropriate
methods to account for the costs of normal and abnormal costs.
1) Scrap products may be reprocessed and subsequently sold as a finished good.
2) The costs of abnormal spoilage are written off as a loss; however, the costs of normal spoilage are
treated as part of cost of goods manufactured.
3) Normal spoilage is avoidable and controllable.
4) Spoilage issues arise in accounting for process costing but not in accounting for job costing.
5) An item classified as spoilage has no value.
6) Reworked goods are unacceptable units of production usually not capable of being repaired or
converted into a salable product.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
7) When calculating normal spoilage rates, the base should be the actual units started in production.
8) Abnormal spoilage is spoilage that should arise under efficient operating conditions.
9) A company whose goal is zero defects would usually treat all spoilage as abnormal.
10) Under efficient operating conditions, all spoilage is considered to be abnormal spoilage.
11) Deducting the disposal value from the costs of the spoiled goods accumulated to the point of
inspection equals
A) the net cost of discarded goods.
B) the net cost of reworked goods.
C) the net cost of spoilage.
D) the net cost of scrap.
E) the net cost of disposals.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
12) Costs of spoilage include all of the following EXCEPT
A) the opportunity cost of the plant and workers.
B) storage.
C) lost contribution margin.
D) the contribution margin gained on rework.
E) all costs incurred to make the spoiled product to date.
13) If the inspection point occurs at 33% into the production cycle, which of the following units would be
allocated costs of spoilage detected at inspection?
A) all units in the system
B) units that are under 33% complete
C) units detected to be spoiled units
D) units that are more than 33% complete
E) units that are under 33% complete, and units detected to be spoiled units
14) Units of production that can be reprocessed and then be sold as finished goods are best known as
A) reworked units.
B) scrap.
C) normal spoilage.
D) work-in-process.
E) abnormal spoilage.
15) Items with minimal sales value are known as
A) reworked units.
B) scrap.
C) spoilage.
D) ending work in process units.
E) abnormal spoilage.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
16) The costs from Abnormal Spoilage should appear
A) on the balance sheet as part of finished goods inventory.
B) as a separate inventory item.
C) as a detailed item on the income statement.
D) as part of cost of goods manufactured.
E) either on the balance sheet as part of finished goods inventory, or as a separate inventory item.
17) Companies that attempt to achieve zero defects in the manufacturing process treat all spoilage as
which of the following?
A) scrap
B) reworked units
C) normal spoilage
D) abnormal spoilage
E) production costs added to inventory
18) Normal spoilage rates for a manufacturing process should be computed on the basis of
A) total good units.
B) total actual units.
C) total reworked units.
D) total production units.
E) total actual units minus total reworked units.
19) Spoilage that should not arise under efficient operating conditions is referred to as
A) ordinary spoilage.
B) normal spoilage.
C) abnormal spoilage.
D) uncontrollable
E) standard spoilage
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
20) Costs of normal spoilage are usually accounted for as
A) part of the cost of goods sold.
B) part of the cost of goods manufactured.
C) a separate line item in the income statement.
D) an asset in the balance sheet.
E) a liability in the balance sheet
21) Material left over when making a product is referred to as
A) reworked units.
B) spoilage.
C) scrap.
D) defective units.
E) indirect material.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
Use the information below to answer the following question(s).
Waldorf Computer Systems, Inc. manufactures computer memory cards, and uses process-costing. All
direct materials are added at the inception of the production process. The accounting department noted
that there was no beginning inventory for January. Direct Materials purchases totalled $150,000 during
the month. Work in process records revealed that 7,500 cards were started in January, 4,500 cards were
complete, and 1,500 units were spoiled as expected. Ending work in process units are complete in respect
to direct materials costs. Inspection occurs at the end of the process.
22) What are the respective direct material costs per equivalent unit assuming spoiled units are
recognized and that they are ignored?
A) $15.00; $20.00
B) $20.00; $25.00
C) $25.00; $30.00
D) $30.00; $35.00
E) $35.00; $40.00
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
23) What is the direct material cost assigned to good units completed when spoilage units are recognized?
A) $150,000
B) $120,000
C) $112,500
D) $90,000
E) $77,000
24) What is the cost transferred out assuming spoilage units are ignored?
A) $120,000
B) $112,500
C) $90,000
D) $82,500
E) $37,500
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
25) What amounts are allocated to ending work-in-process inventory assuming spoilage units are
recognized, and that they are ignored, respectively?
A) $27,500; $30,000
B) $30,000; $34,250
C) $30,000; $37,500
D) $37,500; $40,000
E) $30,000; $40,000
26) Spoilage costs allocated to completed units are larger by which method and by how much?
A) when spoiled units are recognized by $2,500
B) when spoiled units are recognized by $4,250
C) when spoiled units are ignored by $4,250
D) when spoiled units are ignored by $7,500
E) when spoiled units are recognized by $7,500
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
Use the information below to answer the following question(s).
Craft 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 non–
detectable materials defects. Inspection occurs at the end of the process. Spoiled units generally constitute
5 percent of the good units. Data for December are as follows:
WIP, Beginning inventory Dec 1
10,000 units
Direct materials: 100% complete
Conversion costs: 75% complete
Started during December
40,000 units
Completed and Transferred Out during month
38,400 units
WIP, Ending inventory December 31
8,000 units
Direct materials: 100% complete
Conversion costs: 65% complete
Costs:
WIP, Beginning Inventory:
Direct materials
$50,000
Conversion costs
30,000
Direct materials added during December
100,000
Conversion costs added during December
140,000
27) What is the number of total spoiled units?
A) 1,600 units
B) 2,000 units
C) 2,700 units
D) 3,600 units
E) 4,500 units
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
28) Normal spoilage totalled
A) 1,600 units.
B) 2,000 units.
C) 2,700 units.
D) 1,920 units.
E) 1,700 units.
29) Abnormal spoilage totalled
A) 1,600 units.
B) 2,000 units.
C) 1,680 units.
D) 1,920 units.
E) 1,700 units.
30) Distinguish among spoilage, reworked units, and scrap. Give an example of each.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
31) For each of the following items identify whether it is spoilage, reworked units, or scrap.
_______________ a. Defective jeans sold as seconds
_______________ b. Shavings
_______________ 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
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
32) Marble Shop manufactures marble products. All direct materials are included at the inception of the
production process. For April there was no beginning inventory in the processing plant. Direct materials
totalled $420,000 for the month. Work in process records revealed that 7,500 tonnes were started in April
and that 5,500 tonnes were finished; 500 tonnes were spoiled as expected. Ending work in process units
are complete in respect to direct materials costs. Spoilage is not detected until the process is complete.
Required:
a. What is the cost per equivalent unit if spoiled units are recognized and if the units are ignored?
b. What are the costs assigned to completed units when spoilage units are recognized and when they
are not recognized?
c. What are the costs transferred out if spoilage units are recognized and if they are ignored?
d. What are the amounts allocated to the work in process ending inventory when spoilage units are
recognized and when spoilage units are ignored?
33) What are the objectives in accounting for spoilage?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
34) The Clay Shop manufactures pottery products. All direct materials are included at the inception of the
production process. For April, there was no beginning inventory in the processing plant. Direct materials
totaled $310,000 for the month. Work–in-process records revealed that 5,000 kilograms were started in
April and that 3,000 kilograms were finished; 1,000 kilograms were spoiled as expected. Ending
work-in-process units are complete in respect to direct materials costs. Spoilage is not detected until the
process is complete.
Required:
a. What is the cost per equivalent unit if spoiled units are recognized or ignored?
b. What are the costs assigned to completed units when spoilage units are recognized or when they are
not recognized?
c. What are the costs transferred out if spoilage units are recognized or ignored?
d. What are the amounts allocated to the work-in–process ending inventory when spoilage units are
recognized or ignored?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
35) Redwing Shoes manufactures shoes. All direct materials are included at the inception of the
production process. For March there were 2,000 units in beginning inventory with a direct material cost
of $1,000. Direct materials totalled $20,000 for the month. Work in process records revealed that 40,000
shoes were started in March and that 36,000 were finished. Normal spoilage of 5 percent of units finished
was incurred. Ending work in process units are complete in respect to direct materials costs. Spoilage is
not detected until the process is complete. Redwing uses the weighted-average method.
Required:
a. What are the direct materials costs assigned to completed good units when spoilage units are
recognized and when they are not recognized?
b. What are the direct material amounts allocated to the work in process ending inventory when
spoilage units are recognized and when spoilage units are ignored?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
36) Busy Hands Craft Company is a small manufacturing company that specialized 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
had 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.
37) 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?
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
38) 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.
39) Harriette has been reviewing the accounting system for her company and is very concerned about the
accounting for spoilage. It appears that spoilage is accounted for only at the end of the processing cycle.
While this concept is acceptable in general, Harriette believes that a better method can be found to
properly account for the spoilage when it occurs. She believes that there must be something better than
the weighted-average method of accounting for spoilage. She would like the company to use a method
that provides closer tracking of the spoilage with the accounting for the spoilage.
Required:
Discuss the problems Harriette is having with the accounting system.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
40) 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?
18.2 Apply process-costing methods to account for spoilage using weighted-average
and first-in, first-out (FIFO) methods.
1) Costs in beginning inventory are pooled with costs in the current period when determining the costs of
good units under the weighted-average method of process costing.
2) All spoilage costs are related to the units completed during the period using the unit costs of the
current period under FIFO.
3) Under the weighted-average method, the costs of normal spoilage are added to the costs of their
related good units. Hence, the cost per good unit completed and transferred out equals the total costs
transferred out divided by the number of good units produced.
4) The unit costs of abnormal and normal spoilage are equal, when the two are detected simultaneously.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
5) If normal spoilage is presumed to occur prior to a specific inspection point, and abnormal spoilage is
detected at other inspection points,
A) unit costs of abnormal spoilage will differ from the unit cost of normal spoilage.
B) all spoilage will be recognized proportionately across the various inspection points.
C) abnormal spoilage will generally be less than normal spoilage.
D) normal spoilage costs may be allocated prior to inspection of the products and abnormal spoilage will
be allocated after the inspection of the products.
E) unit cost of abnormal spoilage will be the same as unit costs of normal spoilage.
6) Normal spoilage is usually computed on the basis of
A) the number of good units that pass inspection during the current period.
B) the number of units that pass the inspection point during the current period.
C) the number of units that are 100% complete as to materials.
D) the number of spoiled units that pass inspection during the current period.
E) the percentage of good units that passed inspection in the previous period.
7) Which of the following statements is FALSE?
A) The cost of spoiled units is the costs incurred prior to detection.
B) The unit costs of abnormal and normal spoilage are the same if detected simultaneously.
C) the timing of inspection affects the amount of abnormal spoilage.
D) Spoilage may occur at points other than the inspection point.
E) Spoilage units cannot be sold.
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
18–19
Use the information below to answer the following question(s).
Craft 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 non–
detectable materials defects. Inspection occurs at the end of the process. Spoiled units generally constitute
5 percent of the good units. Data for December are as follows:
WIP, Beginning inventory Dec 1
10,000 units
Direct materials: 100% complete
Conversion costs: 75% complete
Started during December
40,000 units
Completed and Transferred Out during month
38,400 units
WIP, Ending inventory December 31
8,000 units
Direct materials: 100% complete
Conversion costs: 65% complete
Costs:
WIP, Beginning Inventory:
Direct materials
$50,000
Conversion costs
30,000
Direct materials added during December
100,000
Conversion costs added during December
140,000
Cost Accounting: A Managerial Emphasis, 6e
Chapter 18 – Spoilage, Rework, and Scrap
8) What is the total cost per equivalent unit using the weighted-average method of process costing?
A) $3.00
B) $3.60
C) $4.60
D) $6.60
E) $6.90
9) What cost is allocated to abnormal spoilage using the weighted–average process costing method?
A) $0
B) $7,360
C) $11,088
D) $16,400
E) $18,100