SOLUTION
(2025 min.) Physical units, inspection at various stages of completion
Inspection Inspection Inspection
at 20% at 45% at 100%
Work in process, beginning (25%)*
Started during March
2,500
30 ,000
2,500
30 ,000
2,500
30 ,000
*Degree of completion for conversion costs at the dates of the work-in-process inventories
18-44 Weighted-average method, inspection at 80% completion. (A. Atkinson) The
Horsheim Company is a furniture manufacturer with two departments: molding and finishing.
The company uses the weighted-average method of process costing. In August, the following
data were recorded for the finishing department:
Units of beginning work-in-process inventory 25,000
Percentage completion of beginning work-in-process units 25%
Total costs added during current period:
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Work in process, beginning:
Conversion costs are added evenly during the process. Direct material costs are added when
Required:
1. For August, summarize total costs to account for and assign these costs to units completed
and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending
work in process.
2. What are the managerial issues involved in determining the percentage of spoilage
considered normal? How would your answer to requirement 1 differ if all spoilage were
treated as normal?
SOLUTION
(35 min.) Weighted-average method, inspection at 80% completion
The computation and allocation of spoilage is the most difficult part of this problem. The units in
the ending inventory have passed inspection. Therefore, of the 200,000 units to account for
Solution Exhibit 18-44, Panel A, calculates the equivalent units of work done for each
cost category. We comment on several points in this calculation:
Ending work in process includes an element of normal spoilage since all the ending
Spoilage includes no direct materials units because spoiled units are detected and
Direct materials units are included for ending work in process, which is 95%
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Solution Exhibit 18-44, Panel B, summarizes total costs to account for, computes the costs
per equivalent unit for each cost category, and assigns costs to units completed (including
normal spoilage), to abnormal spoilage, and to units in ending work in process using the
weighted-average method. The cost of ending work in process includes the assignment of normal
spoilage costs since these units have passed the point of inspection. The costs assigned to each
cost category are as follows:
Cost of good units completed and transferred out
SOLUTION EXHIBIT 18-44
Weighted-Average Method of Process Costing with Spoilage,
Finishing Department of the Horsheim Company for August
PANEL A: Summarize the Flow of Physical Units and Compute Output in Equivalent Units
(Step 1) (Step 2)
Equivalent Units
Flow of Production
Physical
Units
Transferred-
in Costs
Direct
Materials
Conversion
Costs
Work in process, beginning (given)
Started during current period (given)
To account for
25,000
175 ,0 00
20 0 ,000
PANEL B: Summarize the Total Costs to Account For, Compute the Cost per Equivalent Unit,
and Assign Costs to the Units Completed, Spoiled Units, and Units in Ending Work-in-Process
Inventory
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Total
Production
Costs
Transferred-
in Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given)
Costs added in current period (given)
Total costs to account for
(Step 4) Costs incurred to date
$ 312,250
6 ,385,750
$ 6 ,698,0 00
$ 207,250
1 ,618,750
$1 ,826,0 00
$1,826,000
$
1 ,638,0 00
$1 ,638,0 00
$1,638,000
$ 105,000
3 , 129,0 00
$ 3 , 234,0 00
$3,234,000
(A)+(B)+(C) Total costs accounted for
$ 6 ,698,0 00
#Equivalent units of transferred-in costs, direct materials, and conversion costs calculated in Step 2 in Panel A.
18-45 Job costing, classifying spoilage, ethics. Flextron Company is a contract manufacturer
for a variety of pharmaceutical and over-the-counter products. It has a reputation for operational
excellence and boasts a normal spoilage rate of 2% of normal input. Normal spoilage is
recognized during the budgeting process and is classified as a component of manufacturing
overhead when determining the overhead rate.
Lynn Sanger, one of Flextron’s quality control managers, obtains the following information
for Job No. M102, an order from a consumer products company. The order was completed
recently, just before the close of Flextron’s fiscal year. The units will be delivered early in the
next accounting period. A total of 128,500 units were started, and 6,000 spoiled units were
rejected at final inspection, yielding 122,500 good units. Spoiled units were sold at $4 per unit.
Sanger indicates that all spoilage was related to this specific job.
The total costs for all 128,500 units of Job No. M102 follow. The job has been completed,
but the costs are yet to be transferred to Finished Goods.
18-=
Required:
1. Calculate the unit quantities of normal and abnormal spoilage.
2. Prepare the journal entries to account for Job No. M102, including spoilage, disposal of
spoiled units, and transfer of costs to the Finished Goods account.
3. Flextron’s controller, Vince Chadwick, tells Marta Suarez, the management accountant
responsible for Job No. M102, the following: “This was an unusual job. I think all 6,000
spoiled units should be considered normal.” Suarez knows that the work involved in Job No.
M102 was not uncommon and that Flextron’s normal spoilage rate of 2% is the appropriate
benchmark. She feels Chadwick made these comments because he wants to show a higher
operating income for the year.
a. Prepare journal entries, similar to requirement 2, to account for Job No. M102 if all
spoilage were considered normal. How will operating income be affected if all spoilage is
considered normal?
b. What should Suarez do in response to Chadwick’s comment?
SOLUTION
(40 min.) Job costing, classifying spoilage, ethics.
1. Analysis of the 6,000 units rejected by Flextron Company for Job No. M102 yields the
following breakdown between normal and abnormal spoilage.
Units
Normal spoilage* 2,500
2. The journal entries required to properly account for Job No. M102 are presented below
and use an average cost per unit of $27 ($3,469,500 ÷ 128,500).
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To transfer 128,500 units to finished goods inventory (costs incurred on job and debited to WIP
Control, $3,469,500, minus $104,500 credited to WIP control).
1Units sold: 6,000 units at $4 each.
3a. If all spoilage were considered normal, the journal entries to account for Job No. M102
would be as follows:
To account for 6,000 units of normal spoilage, credited to WIP Control at $24,000
(6,000 units $4).
By considering all spoilage as normal, Flextron will show no abnormal loss of $80,500
3b. Incorrect reporting of spoilage as normal instead of abnormal with the goal of increasing
operating income is unethical. In assessing the situation, the management accountant should
consider the following:
Competence
Spoilage should be accounted for using relevant and reliable information. Accounting for
Integrity
The management accountant has a responsibility to avoid actual or apparent conflicts of interest
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Objectivity
The management accountant’s standards of ethical conduct require that information should be
fairly and objectively communicated and that all relevant information should be disclosed. From
Suarez should indicate to Chadwick that the classification of normal and abnormal
Try It! 18-1
Weighted-Average Method of Process Costing:
Units started during July = 9,000 + 100 + 50 + 2,000 – 1,000 = 10,150
Summarize the Flow of Physical Units and Compute Output in Equivalent Units:
(Step 1) (Step 2)
Equivalent Units
Flow of Production
Physical
Units
Direct
Materials
Conversion
Costs
Work in process, beginning (given)
Started during current period
To account for
Good units completed and transferred out
1,000
10 ,150
11 ,150
18-=
Summarize the Total Costs to Account For, Compute the Cost per Equivalent Unit, and Assign
Costs to the Units Completed, Spoiled Units, and Units in Ending Work-in-Process Inventory:
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given)
(Step 5) Assignment of costs
Good units completed and transferred out (9,000 units)
$ 2,533
$ 1,423
$ 1,110
Try It! 18-2
First-In, First-Out (FIFO) Method of Process Costing:
Summarize the Flow of Physical Units and Compute Output in Equivalent Units:
(Step 1)
(Step 2)
Equivalent Units
Flow of Production
Physical
Units
Direct
Materials
Conversion
Costs
Work in process, beginning (given)
Started during current period
To account for
Good units completed and transferred out during current period:
1,000
10 ,150a
11 ,150
||Degree of completion in this department: direct materials, 100%; conversion costs, 50%.
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#9,000 physical units completed and transferred out minus 1,000 physical units completed and transferred out from
beginning work-in-process inventory.
Summarize the Total Costs to Account For, Compute the Cost per Equivalent Unit, and Assign
Costs to the Units Completed, Spoiled Units, and Units in Ending Work-in-Process Inventory:
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 3) Work in process, beginning (given)
Costs added in current period (given)
Total costs to account for
$ 2,533
39 ,930
$42 ,463
$ 1,423
12 ,180
$13 ,603
$ 1,110
27 ,750
$28 ,860
Try It! 18-3
Inspection Inspection Inspection
at 15% at 40% at 100%
Work in process, beginning (20%)*
Started during March
To account for
14,000
120 ,000
134 ,000
14,000
120 ,000
134 ,000
14,000
120 ,000
134 ,000
*Degree of completion for conversion costs of the forging process at the dates of the work-in-process inventories
a14,000 beginning inventory +120,000 –10,000 spoiled – 11,000 ending inventory = 113,000
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Try It! 18-4
a. Manufacturing Overhead Control (rework costs) 3,600
Normal rework on 50 units, but not attributable to any specific
controller
Loss from Abnormal Rework ($72 30) 2,160
Total costs of abnormal rework on 30 controllers
(Abnormal rework = Actual rework – Normal rework
= 80 – 50 = 30 controllers)
b. Total rework costs for controllers in August 2014 are as follows:
c. Manufacturing costs of job #9 before rework:
Manufacturing costs for 200 controllers on Job #9
Normal rework for 50 controllers attributable to Job #9
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