Richport company manufactures products

Reference no: EM131112091

Accounting for Spoilage

Richport Company manufactures products that often require specification changes or modifications to meet its customers' needs. Still, Richport has been able to establish a normal spoilage rate of 2.5% of normal input. Normal spoilage is recognized during the budgeting process and classified as a component of manufacturing overhead when determining the overhead rate.

Rose Duncan, one of Richport's inspections managers, obtains the following information for Job No. N1192-122, which was recently completed, just before the end of Richport's current accounting year. The units will be delivered early in the next accounting year. A total of 122,000 units were started, and 5,000 spoiled units were rejected at final inspection, yielding 117,000 good units. Rejected units were sold at $7 per unit.

The total costs for all 122,000 units of the job follow. The job has been completed, but the costs are yet to be transferred to Finished Goods.

Direct materials $2,196,000
Direct manufacturing labor 1,830,000
Manufacturing overhead 2,928,000
Total manufacturing costs $6,954,000

1. Calculate the unit quantities of normal and abnormal spoilage

2. Prepare the journal entry (or entries) to account for the job, including spoilage, disposal of spoiled units, and transfer of costs to the finished goods account.

3. Prepare the journal entry (or entries), similar to the one(s) prepared in Part 2, if all spoilage were considered normal. By how much will Richport's operating income be affected if all spoilage is considered normal?

Exercise 18-38: Spoilage - Process Costing

Ottawa Manufacturing produces a plastic toy in a two-stage molding and finishing operation. The company uses the weighted-average method of process costing. During June, the following data were recorded for the Finishing Department:

Units of beginning inventory		10,000
Percentage completion of beginning units		25%
Cost of direct materials in beginning work in process		$0
Units started		70,000
Units completed		50,000
Units in ending inventory		20,000
Percentage completion of ending units		95%
Spoiled units		10,000
Costs added during current period
Direct materials		$655,200
Direct manufacturing labor		$635,600
Manufacturing overhead		$616,000
Work in process, beginning:
Transferred-in costs		$82,900
Conversion costs		$42,000
Cost of units transferred in during current period		$647,500

Conversion costs are incurred evenly during the process. Direct material costs are incurred when production is 90% complete. The inspection point is at the 80% stage of production. Normal spoilage is 10% of all good units that pass inspection. Spoiled units are disposed of at zero net disposal value.For June, summarize total costs to account for, and assign these costs to units completed and transferred out (including normal spoilage), to abnormal spoilage, and to units in ending work in process.

Reference no: EM131112091

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