SPOILAGE, REWORK, AND SCRAP
18-1Managers have found that improved quality and intolerance for high spoilage have lowered overall costs and increased sales.
18-2Spoilage—units of production that do not meet the standards required by customers for good units and that are discarded or sold at reduced prices.
Rework—units of production that do not meet the specifications required by customers but which are subsequently repaired and sold as good finished units.
Scrap—residual material that results from manufacturing a product. It has low total sales value compared to the total sales value of the product.
18-3Yes. Normal spoilage is spoilage inherent in a particular production process that arises even under efficient operating conditions. Management decides the spoilage rate it considers normal depending on the production process.
18-4Abnormal spoilage is spoilage that is not inherent in a particular production process and would not arise under efficient operating conditions. Costs of abnormal spoilage are “lost costs,” measures of inefficiency that should be written off directly as losses for the accounting period.
18-5Management effort can affect the spoilage rate. Many companies are relentlessly reducing their rates of normal spoilage, spurred on by competitors who, likewise, are continuously reducing costs.
18-6Normal spoilage typically is expressed as a percentage of good units passing the inspection point. Given actual spoiled units, we infer abnormal spoilage as follows:
Abnormal spoilage = Actual spoilage – Normal spoilage
18-7Accounting for spoiled goods deals with cost assignment, rather than with cost incurrence, because the existence of spoiled goods does not involve any additional cost beyond the amount already incurred.
18-8Yes. Normal spoilage rates should be computed from the good output or from the normal input, not the total input. Normal spoilage is a given percentage of a certain output base. This base should never include abnormal spoilage, which is included in total input. Abnormal spoilage does not vary in direct proportion to units produced, and to include it would cause the normal spoilage count to fluctuate irregularly and not vary in direct proportion to the output base.
18-9Yes, the point of inspection is the key to the assignment of spoilage costs. Normal spoilage costs do not attach solely to units transferred out. Thus, if units in ending work in process have passed inspection, they should have normal spoilage costs added to them.
18-10No. If abnormal spoilage is detected at a different point in the production cycle than normal spoilage, then unit costs would differ. If, however normal and abnormal spoilage are detected at the same point in the production cycle, their unit costs would be the same. 18-11No. Spoilage may be considered a normal characteristic of a given production cycle. The costs of normal spoilage caused by a random malfunction of a machine would be charged as a part of the manufacturing overhead allocated to all jobs. Normal spoilage attributable to a specific job is charged to that job.
18-12 No. Unless there are special reasons for charging normal rework to jobs that contained the bad units, the costs of extra materials, labor, and so on are usually charged to manufacturing overhead and allocated to all jobs.
18-13Yes. Abnormal rework is a loss just like abnormal spoilage. By charging it to manufacturing overhead, the abnormal rework costs are spread over other jobs and also included in inventory to the extent a job is not complete. Abnormal rework is rework over and above what is expected during a period, and is recognized as a loss for that period.
18-14A company is justified in inventorying scrap when its estimated net realizable value is significant and the time between storing it and selling or reusing it is quite long.
18-15Company managements measure scrap to measure efficiency and to also control a...