Heartland Fabrication has very high standards for steel products. The fulfillment of military contracts requires detailed quality-control measures. This quality-control process begins with suppliers of raw materials. In addition, welding procedure specifications are tightly monitored.

Because of the high standards, the production process must account for spoilage, rework, and scrap. When a product does not meet Heartland's standards, it moves through a decision process that results in either reworking the product, discarding it, or selling it at a discounted price.

Because the production process is never perfect, Heartland understands that some spoilage is unavoidable.

1. Explain the factors that may be involved in determining whether a defect is a spoilage, rework, or scrap.

2. Discuss the difference between normal and abnormal spoilage.

3. How are normal and abnormal spoilage accounted for differently in a process-based cost system?

4. Explain the ethical issues inherent in the determination of whether spoilage is normal or abnormal.