CASE STUDY SPECIAL FABRICATOR

SpecialFabricator assembles its product in several departments. It has two departmentsthat process all units - cutting and finishing.

During October the beginning work-in-process in the Cutting department was half completed as to conversion and completed as to direct materials.The beginning inventoryin this department,included $12,000 for materials and $3,000 for conversion.Ending work-in-processinventory in the Cutting department was 40 percent complete. In the Cutting department, directmaterials are added at the beginning of the process and conversion costs are incurred evenly during the process.SpecialFabricator uses the weighted averagemethod for inventoryin the Cutting department.Inspection for spoilage takes place at the 45% completion point in the department.Total defective units this periodwere 750 with expected spoilage to be 2 percent of units inspected. All spoiled units are scrapped.

Beginning work-in-process in the Finishing department was 55 percent completed as to conversion. In the Finishing department, direct materials are added atthe 50% completion point and at the end of the process with conversion costs being incurred evenly during the process. Beginning inventory included $16,000 for transferred in costs, $10,500 regardingdirectmaterial oneand $20,000 of conversion costs. Ending inventory was35percent complete.SpecialFabricator applies the FIFO method in the Finishing department.The first inspection point for spoilage is at the 25% completion point. All defective units at this point are scrapped.At the 65% completion point, there is a second inspection where rejected units are returned for rework to the 30% completion point.Thethirdinspection point is at the 70% completion point.Units spoiled at this point can be sold for $0.20 each.At inspection point one, one percent of units inspected are expected to be defective. For the second inspection point, the rate is 1%of units surviving inspection.At the third inspection point,the expected rate of spoilage is 2%of unitsinspected.

Additional data:

CuttingFinishing

Beginning work-in-processunits20,75020,000

Units started this period40,000

Units transferred this period50,000?

Ending work in process units?20,000

Totalactualspoiled units Inspection 1700

Totalactualreworkedunits Inspection 2520

Totalactualspoiled units Inspection 3800

Material one cost added$48,000$34,000

Material twocostadded$15,000

Direct manufacturing labourcost$16,000$40,000

Factory overhead cost$8,000$24,000

Required:

1.Prepare production cost reports for the Cutting andFinishingdepartments.

2. Indicate the journal entries to be recorded at the end of October regarding the Finishing department.