Spoilage, Cost, and Inventory Flow

Question 1

What are the two types of spoilage?

Answer 1

1) Normal- Unavoidable (unexpected)- Included in COGS
2) Abnormal- Controllable/avoidable (exceptions from the normal course of business, natural disasters)- Period cost, not included in COGS

Question 2

What is scrap?

Answer 2

Scrap is material left over after production

Any monies received from the sale of scrap can be used to reduce factory overhead, and thereby reduce COGS

If significant and salable it can be treated as OTHER SALES

Question 3

Cost of NORMAL spoilage is spread equally across all jobs?

Answer 3

TRUE

Question 4

ABNORMAL spoilage is removed from the costing system and and treated as a PERIOD COST?

Answer 4

TRUE

Question 5

For manufacturing organizations, what are three distinct inventories:

Answer 5

1) Raw materials
2) WIP
3) Finished Goods

Question 6

What are the four sections for manufactured good when calculated COGS?

Answer 6

1) Direct materials
2) Total manufacturing cost
3) COGS manufactured
4) COGS

Question 7

What is the formula direct materials?

Answer 7

Beginning inventory direct materials 
\+ Direct materials purchased 
= DM available 
- Ending inventory DM 
= Direct materials used

Question 8

What is the formula for total manufacturing

Answer 8

Direct materials used
+ Direct labor
+ Manufacturing overhead
= Total manufacturing costs

Question 9

What is the formula for COGS manufactured?

Answer 9

Beginning WIP 
\+ Total manufacturing cost 
= WIP available 
- Ending Inventory WIP 
= COGS Manufactured

Question 10

What is the formula for COGS?

Answer 10

Beginning inventory finished goods manufactured 
\+ COGS manufactured 
= Goods amiable for sale 
- Ending Inventory FG 
= COGS