The following question-and-answer format summarizes the chapter’s learning objectives. Each decision presents a key question related to a learning objective. The guidelines are the answer to that question.
| Decision | Guidelines |
|---|---|
| 1. What are spoilage, rework, and scrap? | Spoilage refers to units of production that do not meet the specifications required by customers for good units and that are discarded or sold at reduced prices. Rework refers to unacceptable units that are subsequently repaired and sold as acceptable finished goods. Scrap is residual material that results from manufacturing a product; it has low total sales value compared with the total sales value of the product. |
| 2. What is the distinction between normal and abnormal spoilage? | Normal spoilage is inherent in a particular production process and arises when the process is done in an efficient manner. Abnormal spoilage is not inherent in a particular production process and would not arise under efficient operating conditions. Abnormal spoilage is usually regarded as avoidable and controllable. |
| 3. How do the weighted-average and FIFO methods of process costing calculate the costs of good units and spoilage? | The weighted-average method combines costs of beginning inventory with costs of the current period when determining costs of good units, which include normal spoilage, and costs of abnormal spoilage, which are written off as a loss of the accounting period. |
| The FIFO method keeps costs of beginning inventory separate from costs of the current period when determining costs of good units (which include normal spoilage) and costs of abnormal spoilage, which are written off as a loss of the accounting period. | |
| 4. How does inspection at various stages of completion affect the amount of normal and abnormal spoilage? | The cost of spoiled units is assumed to equal all costs incurred in producing spoiled units up to the point of inspection. Spoilage costs therefore vary based on different inspection points. |
| 5. How do job-costing systems account for spoilage? | Normal spoilage specific to a job is assigned to that job or, when common to all jobs, is allocated as part of manufacturing overhead. The cost of abnormal spoilage is written off as a loss in the accounting period. |
| 6. How do job-costing systems account for rework? | Normal rework specific to a job is assigned to that job or, when common to all jobs, is allocated as part of manufacturing overhead. Cost of abnormal rework is written off as a loss of the accounting period. |
| 7. How is scrap accounted for? | Scrap is recognized in a firm’s accounting records either at the time of sale or at the time of production. If scrap is immaterial, it is recognized as revenue when sold. If material, the net realizable value of scrap reduces the cost of a specific job or, when common to all jobs, reduces Manufacturing Overhead Control. |