Cost Accounting (14th Edition)

INSPECTION POINTS AND ALLOCATING COSTS OF NORMAL SPOILAGE 653
amount of normal and abnormal spoilage? As before, consider the forming department,
and recall that direct materials are added at the start of production, while conversion
costs are added evenly during the process.
Consider three different cases: Inspection occurs at (1) the 20%, (2) the 55%, or
(3) the 100% completion stage. The last option is the one we have analyzed so far (see
Exhibit 18-2). Assume that normal spoilage is 10% of the good units passing inspection.
A total of 1,000 units are spoiled in all three cases. Normal spoilage is computed on the
basis of the number of good units that pass the inspection point during the current period.
The following data are for July 2012. Note how the number of units of normal and
abnormal spoilage changes, depending on when inspection occurs.
1
2
3
4
5
6
7
8
9
10
11
A
Flow of Production
Work in process, beginning a
Started during July
To account for
Good units completed and transferred out
(10,000 – 1,000 spoiled – 2,000 ending)
Normal spoilage
Abnormal spoilage (1,000 – normal spoilage)
Work in process, ending b
Accounted for
B
C
D
Physical Units: Stage of Completion at
Which Inspection Occurs
20%
1,500
8,500
10,000
7,000
750 c
250
2,000
10,000
55%
1,500
8,500
10,000
7,000
550 d
450
2,000
10,000
100%
1,500
8,500
10,000
7,000
700 e
300
2,000
10,000
12
13
a Degree of completion in this department: direct materials, 100%; conversion costs, 60%.
14
b Degree of completion in this department: direct materials, 100%; conversion costs, 50%.
15
c 10% × (8,500 units started – 1,000 units spoiled), because only the units started passed the 20% completion
16 inspection point in the current period. Beginning work in process is excluded from this calculation because,
17 being 60% complete at the start of the period, it passed the inspection point in the previous period.
18
d 10% × (8,500 units started – 1,000 units spoiled – 2,000 units in ending work in process). Both beginning and
19 ending work in process are excluded since neither was inspected this period.
20
e 10% × 7,000, because 7,000 units are fully completed and inspected in the current period.
The following diagram shows the flow of physical units for July and illustrates the
normal spoilage numbers in the table. Note that 7,000 good units are completed and
transferred out—1,500 from beginning work in process and 5,500 started and completed
during the period—while 2,000 units are in ending work in process.
0% 20% 50% 55% 60%
100%
1,500 units from beginning work in process
5,500 units started and completed
Work done on 2,000 units in ending work in process
To see the number of units passing each inspection point, consider in the diagram the vertical
lines at the 20%, 55%, and 100% inspection points. Note that the vertical line at
20% crosses two horizontal lines—5,500 good units started and completed and
2,000 units in ending work in process—for a total of 7,500 good units. (The 20% vertical
line does not cross the line representing work done on the 1,500 good units completed