Appendix: Normal and Abnormal Spoilage in Process Costing

Novel Toys, Inc., manufactures plastic water guns. Each gun's left and right frames are produced in the Molding Department. The left and right frames are then transferred to the Assembly Department where the trigger mechanism is inserted and the halves are glued together. (The left and right halves together define the unit of output for the Molding Department.) In June, the Molding Department reported the following data:

1. In the Molding Department, all direct materials are added at the beginning of the process.
2. Beginning work in process consisted of 3,000 units, 20 percent complete with respect to direct labor and overhead. Costs in beginning inventory included direct materials, $450; and conversion costs, $138.
3. Costs added to production during the month were direct materials, $950; and conversion costs, $2,174.50.
4. Inspection takes place at the end of the process. Malformed units are discarded. All spoilage is considered abnormal.
5. During the month, 7,000 units were started, and 8,000 good units were transferred out to Finishing. All other units finished were malformed and discarded. There were 1,000 units that remained in ending work in process, 25 percent complete.

Required:

1. Prepare a physical flow schedule.

Novel Toys, Inc.
Physical Flow Schedule
Units to account for:
Units, beginning work in process
Units started
Total units to account for
Units accounted for:
Units transferred out
Units spoiled
Units, ending work in process
Total units accounted for

Feedback

1. The physical flow schedule traces the units in process regardless of their stage of completion.

2. Calculate equivalent units of production using the weighted average method.

	Equivalent Units
Direct Materials
Conversion Costs

3. Calculate the unit cost. Round your answer to the nearest cent. $ per unit

4. What is the cost of goods transferred out? $

What is the ending work in process? Round your answer to the nearest cent. $

What is the loss due to spoilage? $

Feedback

2. To calculate equivalent units, weighted average counts prior-period output in BWIP as belonging to the current period. All units are output in the current period.

3. The unit cost is obtained by dividing the sum of the costs in BWIP and the current-period costs by the weighted average equivalent output.

4. Costing out ending work in process is done by computing the cost of each input and then adding to obtain the total. The valuation of cost of goods transferred out is simplified as it is the total unit cost multiplied by the units completed.

5. Prepare the journal entry to remove spoilage from the Molding Department.

	Loss from Abnormal Spoilage
	Work in Process-Molding