Giddings Pharmaceutical Company is a maker of drugs for high blood pressure and

Question

Giddings Pharmaceutical Company is a maker of drugs for high blood pressure and uses a process costing system. The following information pertains to the final department of Giddings's blockbuster drug called Solcax.

Giddings calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question:

What are the total conversion costs of abnormal spoilage?  

Beginning work-in-process (40% completed) 760 Transferred-in 3,790 Normal spoilage 380 Abnormal spoilage 200 Good units transferred out 3,400 Ending work-in-process (31% completed) 570 Conversion costs in beginning inventory $2,440 Current conversion cost $6,490

Explanation / Answer

Answer A. $430 Particulars Equivalent Units Physical Units Materials Conversion Costs Units to be accounted for Work in process - Beginning                 760 Started into production              3,790 Total units              4,550 Units accounted for Transferred out                3,400              3,400            3,400 Normal Spoilage                 380                 380               380 Abnormal Spoilage                 200                 200               200 Work in process, Ending                 570                 570               177 (100% materials, 31% conversion costs) Equivalent units accounted for              4,550              4,550            4,157 Costs Unit costs Conversion WIP, Beginning              2,440 Costs incurred during the period              6,490 Total Costs              8,930 Equivalent units              4,157 Costs per Equivalent Units                2.15 Cost Assignment Conversion Good Units completed & Transferred out (3400 Units) Cost before adding Normal Spoilage              7,304 Normal Spoilage 80 Units                 816 Total Cost of goods completed & Transferred out              8,121 Abnormal Spoilage - 200 Units                 430 Work in Process - ending Inventory                 380 Total Cost accounted for              8,930

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