Question

Mela Incorporated obtains fish and then processes them into frozen fillets for distribution to its retail sales department. Direct materials are added at the initiation of the cycle. Conversion costs are incurred evenly throughout the production cycle. Before inspection, some fillets are spoiled due to nondetectible defects. Inspection occurs when units are 50% converted. Spoiled fillets generally constitute 3.5% of the good fillets. Data for April 2008 are as follows:

WIP, beginning inventory 4/1/2008	40,000 fillets
Direct materials (100% complete)
Conversion costs (50% complete)
Started during April		75,000 fillets
Completed and transferred out 4/31/2008		100,000 fillets
WIP, ending inventory 4/31/2008		8,000 fillets
Direct materials (100% complete)
Conversion costs (20% complete)
Costs for April:
WIP, beginning Inventory:
Direct materials	$ 55,000
Conversion costs	40,000
Direct materials added			145,100
Conversion costs added			188,065

What is the number of total spoiled units?

Normal spoilage totals?

What cost is allocated to abnormal spoilage using the weighted-average process-costing method?

Answer 1

	Total number of spoiled units:
				Units	Units
	WIP beginning inventory				40000
	Add: Stareted during April				75000
	To account for				115000
	Less:
	Completed and transferred out			100000
	WIP, ending inventory			8000	108000
	Spoiled units				7000
	Normal spoilage=Good units completed and transferred out*3.5%=100000*3.5%=3500 units
	Cost allocated to Abnormal spoilage:
	Abnormal spoilage in units=Total units spoiled-Normal spoilage=7000-3500=3500 units
						Direct Materials	Conversion costs
	Cost of beginning work in process					55000	40000
	Cost added during the month					145100	188065
	Total costs to account for					200100	228065
	Equivalent units of production			(Note:1)		115000	108600
	Cost per equivalent unit					1.74	2.10
	Cost allocated to abnormal spoilage=Units abnormally spoiled*Cost per equivalent unit=3500*(1.74+2.10)=$ 13440
	Note:1- Computation of equivalent units of production:
					Physical Units	Direct Materials	Conversion costs
	Units started and completed				100000	100000	100000
						(100000*100%)	(100000*100%)
	Normal spoilage				3500	3500	3500
						(3500*100%)	(3500*100%)
	Abnormal spoilage				3500	3500	3500
						(3500*100%)	(3500*100%)
	Ending work in process				8000	8000	1600
						(8000*100%)	(8000*20%)
	Equivalent units					115000	108600