21. (Normal vs.

abnormal spoilage; WA) Jacksonville Plastics uses a weighted average process costing system for its production process in which all material is added at the beginning of production. Company management has specified that the normal loss cannot exceed 7 percent of the units started in a period. All losses are caused by shrinkage. March processing information follows: Beginning inventory (10% completeconversion) 8,000 units Started during March 60,000 units Completed during March 53,000 units Ending inventory (60% completeconversion) 10,000 units a. How many total units are there to account for? 8000+60000 = 68000 units b. How many units should be treated as normal loss? 68000*.07 = 4760 units c. How many units should be treated as abnormal loss? 5000-4760 = 240 d. What are the equivalent units of production for direct material? For conversion? D.M = 53000+10000 = 63000 units Conversion = 53000 +6000 = 59000 units 22. (EUP computations; normal and abnormal loss) The Atlanta Division of Southeastern Paint produces environmental paints in processes in which spoilage takes place on a continual basis. Management considers normal spoilage to be 0.5 percent or less of gallons of material placed into production. The following operating statistics are available for June 2000 for the paint BMZ: Beginning inventory (20% complete as to material; 30% complete as to conversion) 8,000 gallons Started during June 180,000 gallons Ending inventory (60% complete as to material; 70% complete as to conversion) 4,000 gallons Spoiled 1,400 gallons a. How many gallons were transferred out? 8000+180000-4000-1400 = 182600 gallons b. How much normal spoilage occurred? 180000*.5% = 900 gallons c. How much abnormal spoilage occurred? 1400-900 = 500 gallons d. What are the FIFO equivalent units of production for materials? For conversion costs? Under separate element of cost DM = 182600-8000+8000*.8+4000*.6 +1400 = 184800 Conversion cost = 182600-8000+8000*.7+4000*.7+1400 = 184400 Under theory of neglect DM = 182600-8000+8000*.8+4000*.6 = 183400 Conversion cost = 182600-8000+8000*.7+4000*.7 = 183000 e. How are costs associated with the normal spoilage handled? Under theory of neglect as the spoilage has been completely ignored therefore it would have been automatically absorbed by remaining number of gallons. But under separate element of cost the normal spoilage cost to be

allocated to the gallons transferred and ending inventory gallons. f. How are costs associated with the abnormal spoilage handled? Under theory of neglect as the spoilage has been completely ignored therefore it would have been automatically absorbed by remaining number of gallons. But under separate element of cost the abnormal spoilage cost to be shown separately under the heading of Loss due to abnormal spoilage 28. (Controlling losses) For each of the following types of production losses or poor service, indicate whether prevention (P) or appraisal (A) techniques would provide the most effective control mechanism. Explain why you made your choice. a. Putting pages in upside down in a book. Preventive as once the book is made and the defect is found during appraisal the whole process will have to be repeat.

b. Bolting the wrong parts together. Preventive once the parts are bolted wrongly it will require additional cost to separate them.

c. Shrinkage from cooking. Appraisal as it is not possible to know unless cooking is done. d. Breaking glasses when they are being boxed. Appraisal to make sure that good quality goods are supplied to customer.

e. Paying an account payable twice. Preventive as once the amount is paid it will be difficult to recover it.

f. Bringing the wrong meal to a restaurant customer. Preventive as the cost of whole meal may be in waste.