Spoilage Exam Question (Process Costing) Fish Fillet Incorporated obtains fish,

Question

Spoilage Exam Question (Process Costing) Fish Fillet Incorporated obtains fish, processes them into frozen fillets and then prepares the frozen fish fillets for distribution to its retail sales department. Direct materials are added at the start of the cycle. Conversion costs are incurred evenly throughout the production process. Before inspection, some fillets are spoiled due to non-detectible defects. Inspection occurs at the end of the process. Spoiled fillets generally constitute 3.5% of the good fillets. All good units completed are transferred to Finished Goods Data for April 2016 are as follows: WIP, beginning inventory 1/4/2016 80,000 fillets Direct materials (100% complete) Conversion costs (50% complete) Started during April Completed and transferred out 30/4/2016 200,000 fillets WIP, ending inventory 30/4/2016 150,000 fillets 16,000 fillets Direct materials (100% complete) Conversion costs (20% complete) Costs for April: WIP, beginning Inventory: Direct materials Conversion costs 110,000 80,000 Direct materials added Conversion costs added 290,200 376,130 Required: (a) Calculate the number of normal and abnormally spoiled units, if any (b) In process costing, what impact do normal spoilage and abnormal spoilage respectively have on the unit cost of good units completed? Briefly explain why (c) Using the weighted average method, prepare the Cost of Production Report treating spoilage appropriately as answered in (a) above (d) Prepare the journal entry to transfer out the completed units and recognise abnormal spoilage (if any (e) If a salvage value could be obtained for the spoiled units of $0.50 per piece (as these are to be used in fish cakes and do not need to use uniform shapes etc.), how would this affect the treatment of the spoilage cost? (Do not recalculate the costs, just explain the treatment) (f) What are the key objectives in accounting for spoilage?

Explanation / Answer

e. if salvage value can be obtained, it will reduce cost by 0.5 per unit

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. a. Quantities Equivalent Units Whole Units Materials Conversion Cost Units to be account for Work in Process, Beginning 100%, 50% 80000 add:Started into production 150000 -Total Units 230000 Units accounted for Transferred out 200000 200000 200000 100% 100% Normal Spoilage 7000 7000 7000 100% 100% Abnormal Spoilage 7000 7000 7000 100% 100% Work in Process, Ending 100%, 20% 16000 16000 3200 100% 20% Equivalent Units-Weighted Average 230000 230000 217200 Normal Spoilage 200000*3.5% 7000 Abnormal Spoilage 7000 (80000+150000-200000-16000-7000) b. Normal Spoilage being routine part of production, will increase per unit cost of production Abnormal Spoilage being one off, is not being passed to customer and charged to PnL account in overhead c. Cost Materials Convsersion Cost Total Work in Process, Beginning 110000 80000 190000 add:Started into production 290200 376130 666330 Total Cost to account for 400200 456130 856330 Equivalent Units 230000 217200 Unit Cost Total Cost/Equivalent Units 1.74 2.10 3.84 Cost accounted for Work in Process, Ending Material Conversion Total Equivalent Units 16000 3200 Cost per Equivalent Unit 1.74 2.10 -Total Cost Accounted For 27840 6720 34560 4. Unit Completed and transferred out Equivalent Units 200000 200000 Cost per Equivalent Unit 1.74 2.10 -Total Cost Accounted For 348000 420009 768009 5. Reconcilliation Cost to be accounted for: Cost of beginning work in process 190000 Cost added to production during period 666330 Total Cost to be accounted for 856330 Cost accounted for as follows: Cost of ending work in process 34560 Cost of units transferred out 768009 Cost of Normal Loss (7000*3.84) 26880 Cost of Abnormal Loss (7000*3.84) 26880 Total Cost accounted for 856329 Event Account Debit Credit a1 Work in process 348000 Materials 348000 (Material charged to production) a2 Work in process 420009 Wages Payable 420009 (conversion cost charged to production) a3 Finished Goods 768009 Work in process 768009

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