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 undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for March 2017 are as follows: WIP, beginning inventory 3/1/2017 32,500 units Direct materials (100% complete) Conversion costs (90% complete) Started during March 70,500 units Completed and transferred out 80,100 units WIP, ending inventory 3/31/2017 18,300 units Direct materials (100% complete) Conversion costs (70% complete) Costs: WIP, beginning inventory: Direct materials $71,000 Conversion costs 40,000 Direct materials added 105,700 Conversion costs added 128,160 What are the normal and abnormal spoilage units, respectively, for March when using FIFO?

A) 3204 units; 1396 units
B) 1968 units; 1420 units
C) 9749 units; 1540 units
D) 530 units; 2032 units

Answer 1

A) 3204 units; 1396 units

Step-by-step explanation:

NORMAL SPOILAGE UNITS:

Normal Spoilage Units = Completed and transferred out x Percent of Spoiled units generally constitute good units

Normal Spoilage Units = 80,100 units x 4%

Normal Spoilage Units = 3,204 units

ABNORMAL SPOILAGE UNITS:

Abnormal Spoilage Units = WIP, beginning inventory + Started during March - Completed and transferred out - WIP, ending inventory - Normal Spoilage Units

Abnormal Spoilage Units = 32,500 units + 70,500 units - 80,100 units - 18,300 units - 3,204 units

Abnormal Spoilage Units = 1,396 units