Question
A company employs a process costing system for its two-department manufacturing operation using a first-in, first-out (FIFO) inventory method. When units are competed in Department
A company employs a process costing system for its two-department manufacturing operation using a first-in, first-out (FIFO) inventory method. When units are competed in Department 1, they are transferred to Department 2 for completion. Inspection takes place in Department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units. The number of defective units (that is, those failing inspection) is usually below the normal tolerance limit of 4% of units inspected. Defective units have minimal value, and the company sells them without any further processing for whatever it can. Generally, the amount collected equals, or slightly exceeds, the transportation cost. A summary of the manufacturing activity for Department 2, in units for the current month, is presented below. UNITS Beginning Inventory (60% complete with regards to conversion) 20,000 Units transferred in from Department 1 180,000 Total Units to account for 200,000 Units completed in Dept 2 during month 170,000 Ending inventory (80% complete with respect to conversion) 25,000 Units found to be defective at inspection 5,000 Total units accounted for 200,000 The units that failed inspection during the current month would be classified as:
Normal waste | ||
Normal spoilage | ||
Abnormal spoilage | ||
Normal reworked units |
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