Appendix: Normal and Abnormal Spoilage in Process Costing, Changes in Output Measures, Multiple Departments Grayson Company produces an industrial chemical used for cleaning and lubricating machinery. In the Mixing Department, liquid and dry chemicals are blended to form slurry. Output is measured in gallons. In the Baking Department, the slurry is subjected to high heat, and the residue appears in irregular lumps. Output is measured in pounds. In the Grinding Department, the irregular lumps are ground into a powder, and this powder is placed in 50-pound bags. Output is measured in bags produced. In April, the company reported the following data: The Mixing Department transferred 51,000 gallons to the Baking Department, costing $306,000. Each gallon of slurry weighs two pounds. The Baking Department transferred 102,000 pounds (irregular lumps) to the Grinding Department. At the beginning of the month, there were 5,500 gallons of slurry in process, 35 percent complete, costing $42,600 (transferred-in cost of $33,000 plus conversion cost of $9,600). No additional direct materials are added in the Baking Department. At the end of April, there was no ending work in process. Conversion costs for the month totaled $207,300. Normal loss during baking is 5 percent of good output. All transferred-in materials are lost, but since loss occurs uniformly throughout the process, only 50 percent of the conversion units are assumed to be lost. The Grinding Department transferred 2,550 bags of chemicals to its finished goods warehouse. Beginning work in process for this department was 25,500 pounds, 45 percent complete with the following costs: transferred-in cost, $131,500; conversion cost, $18,000. Bags are used at the end of the process and cost $1.70 each. During bagging, normally one out of every 11 bags is torn and must be discarded. No powder is lost (the tearing occurs when the bag is being attached to a funnel). Conversion costs for the month's production are $171,754. There is no ending work in process. Required: 1. Using FIFO, calculate the cost per bag of chemicals transferred to the finished goods warehouse. Round per-unit costs to the nearest cent. Round other solutions to the nearest unit or dollar as needed. Baking Department (to obtain the cost of goods transferred out): Units to account for: Beginning work in process Units started Total units to account for Units accounted for: Units transferred out Normal spoilage Abnormal spoilage Total units accounted for Equivalent Units Conversion Costs Transferred In Total equivalent units Total unit cost $ Cost of units transferred out: Started and competed $ Prior period costs $ Costs to finish Normal spoilage Total $ Grinding Department: Total units accounted for Note: (For direct materials: 11 bags are used to get 10 good bags). Unit cost of units started and completed: Direct Materials Conversion Costs Transferred In Total Costs added $ $ $ Total equivalent units Cost per equivalent unit $ $ $ $ Unit cost of units from beginning work in process: Prior period costs $ Costs to finish: Direct materials Conversion costs Total $ Unit cost $ per unit Feedback A physical flow schedule shows the units to account for and what happened to them. The equivalent units schedule measures the output of the period. A fully completed unit is counted as a unit of output. Output for a unit in ending work in process is counted by its degree of completion. Unit cost = Costs of the period Output of the period. The cost of goods (services) transferred out is the unit cost multiplied by the units completed. The cost of EWIP is the unit cost multiplied by the equivalent units found in EWIP. The partially completed units and all their associated costs are transferred to the next process by debiting the WIP account of the process receiving the unit and crediting the WIP account of the transferring department. 2. Prepare the journal entry needed to remove spoilage from the Baking and Grinding departments. Round your answers to the nearest dollar if rounding is required. Loss Due to Spoilage Work in Process-Baking