Tong Ltd is a manufacturing company that uses a process costing system. All direct material is added at the start of the process, and spoilage is discovered at the end. During the first period of operations 15,000 units of material were placed into production at a cost of $20 each (ignore conversion costs for this process). Ending work in process was 2,000 units, good units completed totaled 11,000 units, and normal spoilage is 15% of the units surviving inspection. Inspection takes place after the units are completed. The unit cost assigned to the normal spoilage is
A) $-0-
B) $22.61
C) $20.00
D) $24.00

Question

Quizplus · Accepted Answer

Normal spoilage cost is absorbed by the good units. Since 11,000 units were completed and normal spoilage is 15% of units surviving inspection, 2,000 units are spoiled (15,000 - 11,000 - 2,000 WIP = 2,000 spoiled). The cost of normal spoilage is included in the cost of good units, so the unit cost assigned to normal spoilage is $20.00, the same as the cost per unit of direct material.

Tong Ltd Is a Manufacturing Company That Uses a Process