Mountain Meadow Grains produces trail mix. Materials are added at the beginning of the process, and the company uses the FIFO process costing method. Inspection takes place when the product is 100% complete. Normal spoilage is 4% of good units completed. Here is the production information for the latest period:
Beginning WIP (75% complete)20,000 units
Good units completed and transferred out 80,000
Ending WIP inventory (90% complete)24,000
Total spoilage 4,800
FIFO cost per equivalent unit:
Materials $1.00
Conversion costs 1.50
Total unit cost $2.50
Cost of Beginning WIP $50,000
a)Calculate the cost of abnormal spoilage.
b)Calculate the cost of good units completed and transferred, including an allocation of normal spoilage costs.
c)The costs recorded in the accounting system for spoilage include direct materials and conversion costs up to the point of completion. However, these recorded costs are only part of the costs incurred when spoilage occurs. Write a brief paragraph that discusses other costs of spoilage that are not recorded in the accounting system and explain why they might be more important to an organization than the costs in the accounting system.
d)Discuss why uncertainties exist about how much spoilage is normal versus abnormal.

Question

Quizplus · Accepted Answer

The Answer of Mountain Meadow Grains produces trail mix. Materials are added at the beginning of the process, and the company uses the FIFO process costing method. Inspection takes place when the product is 100% complete. Normal spoilage is 4% of good units completed. Here is the production information for the latest period:
Beginning WIP (75% complete)20,000 units
Good units completed and transferred out 80,000
Ending WIP inventory (90% complete)24,000
Total spoilage 4,800
FIFO cost per equivalent unit:
Materials $1.00
Conversion costs 1.50
Total unit cost $2.50
Cost of Beginning WIP $50,000
a)Calculate the cost of abnormal spoilage.
b)Calculate the cost of good units completed and transferred, including an allocation of normal spoilage costs.
c)The costs recorded in the accounting system for spoilage include direct materials and conversion costs up to the point of completion. However, these recorded costs are only part of the costs incurred when spoilage occurs. Write a brief paragraph that discusses other costs of spoilage that are not recorded in the accounting system and explain why they might be more important to an organization than the costs in the accounting system.
d)Discuss why uncertainties exist about how much spoilage is normal versus abnormal.

Mountain Meadow Grains Produces Trail Mix