Question

Giddings Pharmaceutical Company is a maker of drugs for high blood pressure and uses a process costing system. The following information pertains to the final department of Giddings's blockbuster drug called Solcax. Beginning work-in-process (40% completed) Transferred-in Normal spoilage Abnormal spoilage Good units transferred out Ending work-in-process (1/3 completed) Conversion costs in beginning inventory Current conversion costs 800 units 4,000 units 400 units 200 units 3,600 units 600 units $2,560 $6,900 Giddings calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Solcax that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the total conversion costs of abnormal spoilage?

Answer 1

Answer:
Calculation of total conversion costs of abnormal spoilage:	= Abnormal spoilage units * Unit conversion costs
	= 200 * 2.15
	= $ 430
Working Note:
1. Calculation of unit conversion costs:	= (Beginning conversion cost + Current Conversion Cost) / Equivalent units for conversion costs
	= (2560 + 6900) / ((3600 + 400 + 200 + (600/3))
	= $ 2.15