Ch 19 (MIDTERM 2) Flashcards
What is spoilage in production?
Spoilage refers to output that fails to meet a specified performance level or standard of composition, leading to products being discarded or deemed unusable.
What is the difference between normal and abnormal spoilage?
Normal spoilage is inherent in the production process under efficient conditions, while abnormal spoilage is avoidable and arises from unexpected or controllable factors.
How is normal spoilage accounted for?
Normal spoilage is considered part of the cost of good units produced because some level of spoilage is unavoidable. It is included in the manufacturing costs.
how is abnormal spoilage treated in accounting?
Abnormal spoilage is treated as a separate loss and recorded in the “Loss from Abnormal Spoilage” account, which is reported on the income statement.
What is the importance of inspection points in spoilage?
Inspection points are stages in the production process where products are examined for quality.
Spoilage is detected at these points, allowing for
cost allocation
potential corrections
How does normal spoilage affect work-in-progress (WIP)?
Normal spoilage is allocated to units that have passed the inspection point and are part of the WIP, ensuring that costs reflect only the acceptable units produced.
What is the five-step procedure for process costing with spoilage?
Summarize the flow of physical units
Compute output in equivalent units,
Summarize total costs,
Compute cost per equivalent unit, Assign costs to completed units, spoilage, and WIP.
Q: How is spoilage handled in FIFO method for process costing?
: FIFO splits the cost of normal spoilage between units started and completed in the current period and those from beginning WIP. Modified FIFO uses only current-period costs for spoilage allocation.
How does rework differ from spoilage?
Rework involves fixing unacceptable products to make them saleable again, whereas spoilage refers to products that are discarded due to defects or damage.
How is normal rework accounted for in job costing?
Normal rework is treated as part of manufacturing overhead and is allocated across all jobs, as it is common to all production processes.
How is abnormal rework treated in job costing?
Abnormal rework is treated as a separate loss and is recorded in the “Loss from Abnormal Rework” account, appearing on the income statement.
What is the difference between normal and abnormal rework?
Normal rework occurs regularly and is expected in the production process, while abnormal rework happens due to unexpected issues and is considered an additional loss.
What is scrap in production?
residual materials that have minimal or zero sales value
often discarded
may sometimes be reused or sold at a very low value.
How is scrap treated in job costing systems?
: If scrap is common to all jobs, its revenue is credited to the overhead budget. If scrap is specific to a job, the revenue from scrap reduces that job’s cost.
When should scrap be recognized in accounting?
scrap should be recognized either at the time of production (if significant) or when sold, based on the firm’s accounting policies and the materiality of the scrap value.
How does scrap affect the overhead budget in manufacturing?
scrap is considered when setting the overhead budget, which lowers the budgeted overhead rate by accounting for expected scrap revenues.
How do you handle scrap that is specific to a particular job?
The revenue from scrap is traced back to the specific job, reducing the cost of that job, but no cost is assigned to the scrap itself.
What is the treatment of abnormal spoilage in process costing?
Abnormal spoilage is recorded separately as an expense (Loss from Abnormal Spoilage), and does not impact the cost of good units.
Why are spoilage costs important in production accounting?
Spoilage costs need to be identified and tracked separately to avoid distorting the cost of good units produced and to provide insight into inefficiencies in the production process.
How is scrap treated in the context of the electronics industry?
n electronics, scrap like damaged screens may be sold or repurposed. The revenue from scrap helps offset production costs and is accounted for in the overhead budget or traced to specific jobs.
How is abnormal spoilage recognized in food manufacturing?
In food manufacturing, abnormal spoilage (e.g., unusually high defect rates) is recorded separately as a loss, ensuring that it does not impact the cost of normal good units.
How do inspection points impact scrap and spoilage?
Inspection points help detect defects early, reducing the amount of abnormal spoilage and scrap. This improves cost management and minimizes waste.
What is the role of planning and control in scrap management?
Planning and control help track scrap materials, minimize waste, and improve overall production efficiency by adjusting processes to reduce scrap.
In construction, scrap may be tracked back to specific jobs. If scrap occurs due to a specific error or issue, its revenue reduces the job’s overall cost
How is scrap handled in job-costing systems in construction?
How is abnormal spoilage treated in construction?
If an unusually high amount of material spoilage occurs due to error, it is recorded as an abnormal loss in the income statement and not charged to the specific job cost.
How can rework affect the financial reporting of a construction project?
Rework increases the cost of a construction project and is charged either to manufacturing overhead (for normal rework) or separately (for abnormal rework).
How can a company reduce spoilage costs?
identify and control sources of abnormal spoilage through better quality control, preventive maintenance, and improved production processes.
What is the significance of recognizing scrap at the time of production?
Recognizing scrap at production allows for accurate cost accounting, aligning production costs with any potential revenue from scrap in the same accounting period.
Why is scrap revenue credited to the overhead budget in manufacturing?
Scrap revenue is credited to reduce overall production costs, helping to adjust the overhead rate and reflect a more accurate cost of production.
What is the accounting treatment for scrap in manufacturing?
Scrap is either recorded at the time of production or when sold, with its revenue reducing overall production costs or being credited to specific jobs in job-costing systems.
How does abnormal spoilage affect the overall production cost?
Abnormal spoilage increases the cost of production since it is treated as a separate loss and not allocated to the good units produced.
How can early inspection help in managing spoilage costs?
Early inspection helps identify spoilage before further costs are incurred, minimizing waste and improving cost control by stopping defective units from progressing further
What is the treatment of reworked units in job costing?
Reworked units are charged back to the job, and their costs are either absorbed into overhead or directly allocated to the specific job, depending on whether the rework is normal or abnormal.
How does the food industry manage spoilage?
In the food industry, normal spoilage is accepted as part of the process, while abnormal spoilage due to issues like faulty machinery is minimized through better production practices.
How are scrap costs managed in the textile industry?
In the textile industry, scrap is accounted for by crediting the scrap sales revenue against the cost of the job or included in the overhead, depending on whether it’s job-specific or common.
What is the role of the Loss from Abnormal Rework account?
The Loss from Abnormal Rework account records the costs of rework that go beyond normal expectations, helping to track and manage unexpected production losses.
How can a construction company control rework costs?
A construction company can control rework costs by ensuring that quality standards are met at each stage, thus preventing the need for costly repairs or rebuilds later in the project.
What is the purpose of allocating spoilage costs in process costing?
Allocating spoilage costs ensures that the costs of wasted or defective units are appropriately included in the cost of production, providing a more accurate picture of total manufacturing costs.
How do companies handle abnormal spoilage in electronic manufacturing?
In electronics, abnormal spoilage is treated as a separate loss and recorded separately in financial statements, ensuring that the cost of good units is not distorted.
Why is it important to distinguish between normal and abnormal spoilage?
Distinguishing between normal and abnormal spoilage helps in accurately allocating costs to good units, controlling unnecessary waste, and identifying areas for process improvement.
