Problem:
Hebert Industries uses a weighted average process costing system. Management has specified that the normal loss from shrinkage cannot exceed 3 percent of the units started in a period. All raw material is added at the start of the production process. Spoilage is determined upon inspection at the end of the production process. March processing information follows.
Beginning WIP Inventory (30% complete as to conversion) ............... 20,000 units
Started during March .............................................................120,000 units
Completed during March ........................................................116,400 units
Ending WIP Inventory (20% complete as to conversion) 16,000 units
a. How many total units are there to account for?
b. How many units were spoiled during processing? Of the spoiled units, how many should be treated as a normal loss? As an abnormal loss?
c. What are the equivalent units of production for direct material? For conversion?
d. How are costs associated with the company's normal spoilage handled?
e. How are costs associated with the company's abnormal spoilage handled?