Question

Verer Custom Carpentry manufactures chairs in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to nondetectible material defects. Spoiled units generally constitute 4% of the good units. Data provided for March 20X5 are as follows:

WIP, beginning inventory 3/1/20X5 32,000 units
Direct materials (100% complete)
Conversion costs (85% complete)

Started during March 70,000 units
Completed and transferred out 80,000 units
WIP, ending inventory 3/31/20X5 18,000 units
Direct materials (100% complete)
Conversion costs (80% complete)

Costs:
WIP, beginning inventory:
Direct materials $70,000
Conversion costs 40,000
Direct materials added 105,000
Conversion costs added 128,160

Required:
What are the normal and abnormal spoilage units, respectively, for March when using FIFO?

Answer 1

Verer Custom Carpentry

Processing Department

Normal spoilage units = 3,920

Abnormal spoilage units = 80

Step-by-step explanation:

a) Data for March 20X5 and Calculations:

WIP, beginning inventory 3/1/20X5 32,000 units

Direct materials (100% complete)

Conversion costs (85% complete)

Started during March 70,000 units

Completed and transferred out 80,000 units

WIP, ending inventory 3/31/20X5 18,000 units

Direct materials (100% complete)

Conversion costs (80% complete)

Costs:

WIP, beginning inventory:

Direct materials $70,000

Conversion costs 40,000

Direct materials added 105,000

Conversion costs added 128,160

Spoilage units:

Units Direct materials Conversion

Beginning inventory 3/1/20X5 32,000 0 (0%) 6,400 (20%)

Started during March 70,000

Total units available 102,000

Completed and transferred 80,000

Ending inventory 3/31/20X5 18,000

Spoilage units = 4,000 (102,000 - 80,000 - 18,000)

Good units = 98,000 (80,000 + 18,000)

Normal spoilage units = 3,920 (98,000 * 4%)

Abnormal spoilage units = 80 (4,000 - 3,920)