CHAPTER18Spoilage,Rework,andScrap

Chapter18,learningobjectivesUnderstandthedefinitionsofspoilage,reworkandscrapIdentifythedifferencesbetweennormalandabnormalspoilageAccountforspoilageinprocesscostingusingtheweighted-averagemethodandthefirst-in,first-out(FIFO)methodAccountforspoilageatvariousstagesofcompletioninprocesscosting18-2

Chapter18learningobjectives,concludedAccountforspoilageinjobcostingAccountforreworkinjobcostingAccountforscrap18-3

BasicdefinitionsSpoilage—unitsofproduction,whetherfullyorpartiallycompleted,thatdonotmeetthespecificationsrequiredbycustomersforgoodunitsandthatarediscardedorsoldforreducedprices.18-4

Basicdefinitions,concludedRework—unitsofproductionthatdonotmeetthespecificationsrequiredbycustomersbutthataresubsequentlyrepairedandsoldasgoodfinishedgoods.Scrap—residualmaterialthatresultsfrommanufacturingaproduct.Scraphaslowtotalsalesvaluecomparedwiththetotalsalesvalueoftheproduct.Scrapissimilartobyproductsbutscraparisesasaresidualfromthemanufacturingprocessandisnotaproducttargetedformanufactureorsalebythefirm.18-5

AccountingforSpoilageAcertainamountofspoilage,reworkorscrapisinherentinmanyproductionprocesses.Accountingforspoilageaimstodeterminethemagnitudeofspoilagecostsandtodistinguishbetweencostsofnormalandabnormalspoilage.1Tomanage,control,andreducespoilagecosts,theyshouldbehighlighted,notsimplyfoldedintoproductioncosts.18-6

TwoTypesofSpoilage:normalNormalspoilageisspoilageinherentinaparticularproductionprocessthatarisesevenunderefficientoperatingconditions.Normalspoilageratesarecomputedbydividingtheunitsofnormalspoilagebytotalgoodunitscompleted,nottotalactualunitsstartedinproduction.Managementmakesaconsciousdecisionabouttheproductionrateperhourwhichgeneratesacertainlevelof