KLM Company operates under a weighted-average method of process costing. It has two departments; Machining and Assembly. For both departments, conversion costs (direct labor costs and overhead costs) are incurred uniformly throughout the processes. Direct materials are added at the beginning of the process in the Machining department, direct materials are added when the assembly process is 70% completed.

Production and costs data for the Machining department for the month of August, 2021 are provided below:

MACHINING DEPARTMENT DATA FOR THE MONTH OF AUGUST, 2021
WIP, beginning inventory (50% completed)							650 Units
Started in August, 2021							2,750 Units
WIP, ending inventory (65% completed)							600 Units
WIP, beginning inventory costs
Direct Materials							$9,800
Conversion costs							$9,370
Costs incurred in August, 2021
Direct materials							$37,800
Conversion costs							$28,958

Rework units are detected when the conversion process is 60% completed in the machining department; rejected units are returned to the 35% conversion process completion point for rework. On average, KLM Company expects rework units to be 4% of the units inspected in the period in the machining department. There were 3,596 units inspected for rework in August.

Spoiled units are detected when the conversion process is 75% completed in the machining department. On average, KLM Company expects spoiled units to be 6% of the units inspected in the period in the machining department.

The spoiled units are sold to a local shop for $2.50 per unit. The proceeds from the sale of spoiled units are credited to the cost of ending work-in-process. In the month of August, 180 units were spoiled and sold to the local shop.

Required:

1. For the month of August 2021, prepare the machining department production report that includes a reconciliation of the physical units, and determines the cost of goods transferred-out, the cost of ending work-in-process, and the loss from abnormal rework and abnormal spoilage. Provide all necessary schedules to support your computations.

2. Prepare the journal entry to record the accounting of the machining department production costs for the month of August, 2021

3. Provide a recommendation as to accounting procedures regarding spoiled units.