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2. The cost per equivalent unit of beginning inventory and of work done in the current
period differ substantially:
Beginning
Inventory
Work Done in
Current Period
Direct
Materials
Conversion
Costs
* from Solution Exhibit 18-29, Panel B
**from Solution Exhibit 18-30, Panel B
The cost per equivalent unit differs between the two methods because each method uses different
costs as the numerator of the calculation. FIFO uses only the costs added during the current
period whereas weighted-average uses the costs from the beginning work-in-process as well as
costs added during the current period. Both methods also use different equivalent units in the
denominator.
The following table summarizes the costs assigned to units completed and those still in
process under the weighted-average and FIFO process-costing methods for our example.
FIFO
(Solution
Exhibit 18-30B)
Wtd.-Avg.
(Solution
Exhibit 18-29B) Difference
Total costs accounted for
$1 ,008,882
$1 ,008,882
The FIFO ending inventory is higher than the weighted-average ending inventory by $10,486.
This is because FIFO assumes that all the lower-cost prior-period units in work in process are the
LogicCo’s managers should consider the weighted-average method because it leads to a
higher cost of goods completed and transferred (and sold), thereby lowering taxes. The managers
may have an incentive, however, to use the FIFO method and show a higher level of current
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18-31 Standard-costing method, spoilage. Refer to the information in Exercise 18-29.
Suppose LogicCo determines standard costs of $215 per equivalent unit for direct materials and
$92 per equivalent unit for conversion costs for both beginning work in process and work done
in the current period.
Required:
1. Do Exercise 18-29 using the standard-costing method.
2. What issues should the manager focus on when reviewing the equivalent units calculation?
SOLUTION
(30 min.) Standard-costing method, spoilage.
1. Solution Exhibit 18-30, Panel A, shows the computation of the equivalent units of work
done in September 2017 for direct materials (2,754 units) and conversion costs (2,943 units).
(This computation is the same for FIFO and standard-costing.)
SOLUTION EXHIBIT 18-31
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;
Standard Costing Method of Process Costing with Spoilage,
LogicCo for September 2017
Total
Production
Costs
Direct
Materials
Conversion
Costs
(Step 5) Assignment of costs at standard costs:
Good units completed and transferred out
(2,500 units)
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(A)+(B)+(C) Total costs accounted for
*Work in process, beginning has 900 equivalent units (900 physical units 100%) of direct materials and 270
equivalent units (900 physical units 30%) of conversion costs.
§Equivalent units of direct materials and conversion costs calculated in Step 2 in Solution Exhibit 18-30, Panel A.
2. To show better performance, a department supervisor might report a higher degree of
completion resulting in understated cost per equivalent unit and overstated operating income. If
performance for the period is very good, the department supervisor may be tempted to report a
To guard against the possibility of bias, managers should ask supervisors specific
18-32 Spoilage and job costing. (L. Bamber) Barrett Kitchens produces a variety of items in
accordance with special job orders from hospitals, plant cafeterias, and university dormitories.
An order for 2,100 cases of mixed vegetables costs $9 per case: direct materials, $4; direct
manufacturing labor, $3; and manufacturing overhead allocated, $2. The manufacturing overhead
rate includes a provision for normal spoilage. Consider each requirement independently.
Required:
1. Assume that a laborer dropped 420 cases. Suppose part of the 420 cases could be sold to a
nearby prison for $420 cash. Prepare a journal entry to record this event. Calculate and
explain briefly the unit cost of the remaining 1,680 cases.
2. Refer to the original data. Tasters at the company reject 420 of the 2,100 cases. The 420 cases
are disposed of for $840. Assume that this rejection rate is considered normal. Prepare a
journal entry to record this event, and do the following:
a. Calculate the unit cost if the rejection is attributable to exacting specifications of this
particular job.
b. Calculate the unit cost if the rejection is characteristic of the production process and is
not attributable to this specific job.
c. Are unit costs the same in requirements 2a and 2b? Explain your reasoning briefly.
3. Refer to the original data. Tasters rejected 420 cases that had insufficient salt. The product
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can be placed in a vat, salt can be added, and the product can be reprocessed into jars. This
operation, which is considered normal, will cost $420. Prepare a journal entry to record this
event and do the following:
a. Calculate the unit cost of all the cases if this additional cost was incurred because of the
exacting specifications of this particular job.
b. Calculate the unit cost of all the cases if this additional cost occurs regularly because of
difficulty in seasoning.
c. Are unit costs the same in requirements 3a and 3b? Explain your reasoning briefly.
SOLUTION
(20–30 min.) Spoilage and job costing.
1. Cash 420
from abnormal spoilage.
2. a. Cash 840
Work-in-Process Control 840
b. Cash 840
The unit cost of a good case remains at $9.00.
c. The unit costs in 2a and 2b are different because in 2a the normal spoilage cost is
charged as a cost of the job which has exacting job specifications. In 2b however,
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b. Manufacturing Department Overhead Control 420
c. The unit costs in 3a and 3b are different because in 3a the normal rework cost is
charged as a cost of the job which has exacting job specifications. In 3b however,
18-33 Reworked units, costs of rework. Heyer Appliances assembles dishwashers at its plant
in Tuscaloosa, Alabama. In February 2017, 60 circulation motors that cost $110 each (from a
new supplier who subsequently went bankrupt) were defective and had to be disposed of at zero
net disposal value. Heyer Appliances was able to rework all 60 dishwashers by substituting new
circulation motors purchased from one of its existing suppliers. Each replacement motor cost
$125.
Required:
1. What alternative approaches are there to account for the materials cost of reworked units?
2. Should Heyer Appliances use the $110 circulation motor or the $125 motor to calculate the
cost of materials reworked? Explain.
3. What other costs might Heyer Appliances include in its analysis of the total costs of rework
due to the circulation motors purchased from the (now) bankrupt supplier?
SOLUTION
(15 min.) Reworked units, costs of rework.
1. The two alternative approaches to account for the materials costs of reworked units are:
a. To charge the costs of rework to the current period as a separate expense item as
b. To charge the costs of the rework to manufacturing overhead as normal rework.
2. The $125 circulation motor cost is the cost of the actual motors included in the
3. The total costs of rework due to the defective circulation motors include the following:
a. the labor and other conversion costs spent on substituting the new circulation motors;
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18-34 Scrap, job costing. The Russell Company has an extensive job-costing facility that uses
a variety of metals. Consider each requirement independently.
Required:
1. Job 372 uses a particular metal alloy that is not used for any other job. Assume that scrap is
material in amount and sold for $480 quickly after it is produced. Prepare the journal entry.
2. The scrap from Job 372 consists of a metal used by many other jobs. No record is maintained
of the scrap generated by individual jobs. Assume that scrap is accounted for at the time of its
sale. Scrap totaling $4,500 is sold. Prepare two alternative journal entries that could be used
to account for the sale of scrap.
3. Suppose the scrap generated in requirement 2 is returned to the storeroom for future use, and
a journal entry is made to record the scrap. A month later, the scrap is reused as direct
material on a subsequent job. Prepare the journal entries to record these transactions.
SOLUTION
(25 min.) Scrap, job costing.
1. Journal entry to record scrap generated by a specific job and accounted for at the time
scrap is sold is:
To recognize asset from sale of scrap.
A memo posting is also made to the specific job record.
2. Scrap common to various jobs and accounted for at the time of its sale can be accounted
for in two ways:
a. Regard scrap sales as a separate line item of revenues (the method generally used when
the dollar amount of scrap is immaterial):
To recognize revenue from sale of scrap.
b. Regard scrap sales as offsets against manufacturing overhead (the method generally used
when the dollar amount of scrap is material):
To record cash raised from sale of scrap.
3. Journal entry to record scrap common to various jobs at the time scrap is returned to
storeroom:
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To record value of scrap returned to storeroom.
When the scrap is reused as direct material on a subsequent job, the journal entry is:
To record reuse of scrap on a job.
Explanations of journal entries are provided here but are not required.
18-35 Weighted-average method, spoilage. World Class Steaks is a meat-processing
firm based in Texas. It operates under the weighted-average method of process costing and has
two departments: preparation (prep) and shipping. For the prep department, conversion costs are
added evenly during the process, and direct materials are added at the beginning of the process.
Spoiled units are detected upon inspection at the end of the prep process and are disposed of at
zero net disposal value. All completed work is transferred to the shipping department. Summary
data for May follow:
Required:
For the prep department, summarize the total costs to account for and assign those costs to units
completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in
ending work in process. (Problem 18-37 explores additional facets of this problem.)
SOLUTION
(30 min.) Weighted-average method, spoilage.
Solution Exhibit 18-35 summarizes total costs to account for, calculates the equivalent units of
work done to date for each cost category, and assigns total costs to units completed (including
normal spoilage), to abnormal spoilage, and to units in ending work in process using the
weighted-average method.
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SOLUTION EXHIBIT 18-35
Weighted-Average Method of Process Costing with Spoilage,
Prep Department for World Class Steaks for May
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
Direct
Materials
Conversion
Costs
Work in process, beginning (given)
Started during current period (given)
To account for
Good units completed and transferred out
Equivalent units of work done to date
7,200
60 ,000
67 ,2 00
*Normal spoilage is 10% of good units transferred out: 10% 49,200 = 4,920 units. Degree of completion of
normal spoilage in this department: direct materials, 100%; conversion costs, 100%.
†Total spoilage = 7,200 + 60,000 – 49,200 – 10,080 = 7,920 units; Abnormal spoilage = 7,920 – 4,920 = 3,000 units.
Degree of completion of abnormal spoilage in this department: direct materials, 100%; conversion costs, 100%.
‡Degree of completion in this department: direct materials, 100%; conversion costs, 25%.
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
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
(Step 5) Assignment of costs
Good units completed and transferred out (49,200 units)
$ 13,410
200 ,664
$ 214 ,074
$ 10,632
111 ,000
$121 ,632
$ 2,778
89 ,664
$92 ,442
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#Equivalent units of direct materials and conversion costs calculated in Step 2 in Panel A above.
18-36 FIFO method, spoilage. Refer to the information in Problem 18-35.
Required:
Do Problem 18-35 using the FIFO method of process costing. (Problem 18-38 explores
additional facets of this problem.)
SOLUTION
(25 min.) FIFO method, spoilage.
For the Prep Department, Solution Exhibit 18-36 summarizes the total costs for May, calculates
the equivalent units of work done in the current period for direct materials and conversion costs,
and assigns total costs to units completed and transferred out (including normal spoilage), to
abnormal spoilage, and to units in ending work in process under the FIFO method.
SOLUTION EXHIBIT 18-36
First-in, First-out (FIFO) Method of Process Costing with Spoilage,
Prep Department for World Class Steaks for May
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
Direct
Materials
Conversion
Costs
Work in process, beginning (given) 7,200
Started during current period (given) 60 ,000
To account for 67 ,200
Good units completed and transferred out during current period:
18-<
|| Degree of completion in this department: direct materials, 100%; conversion costs, 50%.
#49,200 physical units completed and transferred out minus 7,200 physical units completed and transferred out from
beginning work-in-process inventory.
*Normal spoilage is 10% of good units transferred out: 10% 49,200 = 4,920 units. Degree of completion of
normal spoilage in this department: direct materials, 100%; conversion costs, 100%.
†Total spoilage = 7,200 + 60,000 – 49,200 – 10,080 = 7,920 units; Abnormal spoilage = 7,920 – 4,920 = 3,000 units.
Degree of completion of abnormal spoilage in this department: direct materials, 100%; conversion costs, 100%.
‡Degree of completion in this department: direct materials, 100%; conversion costs, 25%.
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
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
$ 13,410
200 ,664
$ 214 ,074
$ 10,632
111 ,000
$121 ,632
$ 2,778
89 ,664
$92 ,442
§Equivalent units of direct materials and conversion costs calculated in Step 2 in Panel A.
18-37 Weighted-average method, shipping department (continuation of 18-35). In the
shipping department of World Class Steaks, conversion costs are added evenly during the
process, and direct materials are added at the end of the process. Spoiled units are detected upon
inspection at the end of the process and are disposed of at zero net disposal value. All completed
work is transferred to the next department. The transferred-in costs for May equal the total cost
of good units completed and transferred out in May from the prep department, which were
calculated in Problem 18-35 using the weighted-average method of process costing. Summary
data for May follow.
18-<
Required:
For the shipping department, use the weighted-average method to summarize the total costs to
account for and assign those costs to units completed and transferred out (including normal
spoilage), to abnormal spoilage, and to units in ending work in process.
18-<
