Verer Custom Carpentry manufactures chairs in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for March 2017 are as follows:

What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing? (Round any cost per unit calculations to the nearest cent.)
A) $149,611; $5290
B) $1250; $4858
C) $4858; $2297
D) $10,651; $2297

Question

Verer Custom Carpentry manufactures chairs in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to undetectable material defects. Spoiled units generally constitute 4% of the good units. Data provided for March 2017 are as follows:

What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing? (Round any cost per unit calculations to the nearest cent.)

What costs would be associated with normal and abnormal spoilage, respectively, using the FIFO method of process costing? (Round any cost per unit calculations to the nearest cent.)
A) $149,611; $5290 
B) $1250; $4858 
C) $4858; $2297 
D) $10,651; $2297

Quizplus · Accepted Answer

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Total cost per equivalent unit: $1.51 + $1.81 = $3.32 per unit
Normal spoilage (units): 4% x 80,200 = 3208 spoiled units
Abnormal spoilage (units): (32,700 + 70,000) - 80,200 + 18,600) - 3208 = 692 spoiled units
* Equivalent units, Direct Materials: (80,200 - 32,700) + 3208 + 692 + 18,600 = 70,000 units
** Equivalent units, Conversion Costs: (32,700 x (100% - 80%)) + (80,200 - 32,700) + 3208 + 692 + (18,600 x 70%) = 70,960 units
Normal spoilage (cost): 3208 units x $3.32 = $10,651
Abnormal spoilage (cost): 692 units x $3.32 = $2297

Verer Custom Carpentry Manufactures Chairs in Its Processing Department