Appendix: Normal and Abnormal SpoilageLarkin Company produces leather strips for western belts using three processes: cutting, designand coloring, and punching. The weighted average method is used for all three departments.The following information pertains to the Design and Coloring Department for the month ofJune:a. There was no beginning work in process.b. There were 400,000 units transferred in from the Cutting Department. c. Ending work in process, June 30: 50,000 strips, 80 percent complete with respect to conver-sion costs. d. Units completed and transferred out: 330,000 strips. The following costs were added duringthe month: Transferred in $2,000,000Direct materials 600,000Conversion costs 780,000e. Direct materials are added at the beginning of the process.f. Inspection takes place at the end of the process. All spoilage is considered normal. Required:1. Calculate equivalent units of production for transferred-in materials, direct materials added,and conversion costs.2. Calculate unit costs for the three categories of Requirement 1.3. What is the total cost of units transferred out? What is the cost of ending work-in-process inventory? How is the cost of spoilage treated?4. Assume that all spoilage is considered abnormal. Now, how is spoilage treated? Give the journal entry to account for the cost of the spoiled units. Some companies view all spoilageas abnormal. Explain why. 5. Assume that 80 percent of the units spoiled are abnormal and 20 percent are normal spoil age. Show the spoilage treatment for this scenario.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Appendix: Normal and Abnormal Spoilage
Larkin Company produces leather strips for western belts using three processes: cutting, design
and coloring, and punching. The weighted average method is used for all three departments.
The following information pertains to the Design and Coloring Department for the month of
June:
a. There was no beginning work in process.
b. There were 400,000 units transferred in from the Cutting Department.
c. Ending work in process, June 30: 50,000 strips, 80 percent complete with respect to conver-
sion costs.
d. Units completed and transferred out: 330,000 strips. The following costs were added during
the month:
Transferred in $2,000,000
Direct materials 600,000
Conversion costs 780,000
e. Direct materials are added at the beginning of the process.
f. Inspection takes place at the end of the process. All spoilage is considered normal.
Required:
1. Calculate equivalent units of production for transferred-in materials, direct materials added,
and conversion costs.
2. Calculate unit costs for the three categories of Requirement 1.
3. What is the total cost of units transferred out? What is the cost of ending work-in-process inventory? How is the cost of spoilage treated?
4. Assume that all spoilage is considered abnormal. Now, how is spoilage treated? Give the
as abnormal. Explain why.
5. Assume that 80 percent of the units spoiled are abnormal and 20 percent are normal spoil age. Show the spoilage treatment for this scenario.
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