Question

Elegant, USA manufactures steering wheel covers for various brands of luxury cars. At its Jamaica, plant direct materials and the conversion costs are added evenly during the process. Given the importance of minimizing product returns, spoiled units are detected upon inspection at various levels of the production process and are discarded at a net disposal value of zero.

The following data summarizes the most recent Elegant USA uses the FIFO method of accounting for spoilage and the numbers for the production based on the following numbers respond the question

	Physical Units	Direct Material	Conversion Costs
Beginning Inventory	2500	$ 23,450	$ 32,312
Degree of Completion of Beginning WIP		100%	60%
Costs Added in Current Month		$ 89,250	$ 98,400
Started during the current month	13,000
Good Units Completed and Transferred Out during the month	11,000
WIP, Ending Inventory	2,250
Degree of Completion of Ending WIP		100%	70%
Total Costs Added during the month
Normal Spoilage	1000
Degree of Completion of Normal Spoilage		90%	70%
Abnormal Spoilage	?
Degree of completion of abnormal spoilage		80%	90%

Required: Using the FIFO method

1. Calculate the amount of abnormal spoilage.

2. calculate the cost per equivalent unit for each cost category;

3. assign costs to units completed and transferred out

4. determine the value of normal spoilage and abnormal spoilage, and

5. determine the dollar value of the units in ending work in process.

6. What are the managerial issues involved in selecting or reviewing the percentage of spoilage considered normal? Explain.

Answer 1