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: a. The Mixing Department transferred 50,900 gallons to the Baking Department, costing $203,600. Each gallon of slurry weighs two pounds. b. The Baking Department transferred 101,800 pounds (irregular lumps) to the Grinding Department. At the beginning of the month, there were 5,900 gallons of slurry in process, 30 percent complete, costing $34,000 (transferred-in cost of $23,600 plus conversion cost of $10,400). 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 s218,736. 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. C. The Grinding Department transferred 2,545 bags of chemicals to its finished goods warehouse. Beginning work in process for this department was 25,500 pounds, 30 percent complete with the following costs: transferred-in cost, $133,500; conversion cost, $12,000. 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 $177,082. 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 11,800 Units started 101,800 Total units to account for 113,600 Units accounted for: Units transferred out 101,800 5,090 Normal spoilage Abnormal spoilage 6,710 Total units accounted for 113,600 Equivalent Units Conversion Transferred In Costs Total equivalent units 104,160 101,800 Total unit cost 4.10 Cost of units transferred out: Started and competed 369,000 Prior period costs 34,000 Costs to finish 17,346 51,346 Normal spoilage 15,525 Total 435,871 Grinding Department: Total units accounted for 2,545 x Note: (For direct materials: 11 bags are used to get 10 good bags). Unit cost of units started and completed: Direct Materials Conversion Transferred Costs In Total Costs added 4,759 $177,082 435,871 2,545 X 2,392 X 2,035 X Total equivalent units Cost per equivalent unit 1.87 74.03 X 214.19 X 290.09 x Unit cost of units from beginning work in process: Prior period costs 145,500 Costs to finish: Direct materials 954 Conversion costs 26,429 X Total 172,883 x Unit cost 338.99 per unit Feedback 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 15,525 Work in Process-Baking 15,525
