The Lincoln plant manufactures insulated warm-up jackets in a continuous, one-department process.

The process first involves the partial assembly of jackets using materials packet 1 (liner, shell, hood, pocket linings, zippers), which consumes 70 percent of the conversion costs. At this point, partially complete jackets are inspected. Jackets that pass this inspection are finished with materials packet 2 (embroidered logos, numbers, and players’ names). After the finishing process, the jackets are inspected again. Conversion costs are applied uniformly through the process, and the Lincoln plant uses the weighted-average process-costing method. Typical jackets cost $75 to produce and, based on desired return on sales, sell for $125 each in the competitive sports apparel market.

The following information for the most recent month was available to Kimball:

Units in beginning WIP inventory..........c ee 560 jackets CONVETSIOMMOOSIS marndrertrteegi. abceacnceeaastes t $4,506, 25% complete MaAterialSIBaCkKet a eittttitcss aetecdehesevseneun rates $12,500 IMVIESYS TAGGIN ae eee cua cceteen eee: «ccor ueel Siaetcasics stein 7,600 jackets UOa viS MUUN CSL ONEWEG |om actsoceoanprenceedesuanaaenesacaseennse 6,600 jackets SPOilage AtTIFSE INSDSCHION J... .0..06 esr eer 460 jackets Spoilage at second inspection ..................c. 200 jackets Required

a. The Lincoln plant manager indicates to Kimball that all but 160 of the spoiled jackets at the first inspection point should be regarded as normal spoilage, and Rolland concurs. Discuss the accounting and management implications of separating spoilage into normal and abnormal spoilage.

b. Prepare a production cost report that analyzes the most recent month’s process costs.
Given your analysis in requirement (b), what sales price is necessary to generate the desired return on sales? Alternatively, what total process-cost reduction is necessary to maintain the current sales price? What is your recommendation?