Question 3 a) What do you mean by scrap? Will scrap increase cost per unit? Why or why not?

Principles of Accounting Volume 2
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Chapter6: Activity-based, Variable, And Absorption Costing
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Question 3
a) What do you mean by scrap? Will scrap increase cost per unit? Why or why not?
b) Ginger Mechanicals applies process costing as it produces a single product in large volume. The
process line (partial) for Melting Department is given below:
62,000
3,000
6,000
58,000
Units
Units
Units
Units
0%
20%
30%
40%
50%
70%
80%
100%
DM
DL
IP 1
IP 2
ОН
Other Information:
At 20%, we have beginning inventory and at 70%, we have ending inventory. At 50%, a total of 66,000
units were inspected for rework. 2% of the units inspected are considered as normal rework. At 80%,
we have inspection point for spoilage. 1% of input is considered as normal spoilage. However, spoiled
units can be scrapped at $3 per unit.
Costs per equivalent unit data are given below:
Material
Labor
Overhead
Cost per equivalent unit
$8
$5
$3
Required:
i) Compute equivalent units for normal rework and normal spoilage.
ii) Compute cost of normal rework and show the shifting.
iii) Compute cost of normal spoilage and show the shifting.
Transcribed Image Text:Question 3 a) What do you mean by scrap? Will scrap increase cost per unit? Why or why not? b) Ginger Mechanicals applies process costing as it produces a single product in large volume. The process line (partial) for Melting Department is given below: 62,000 3,000 6,000 58,000 Units Units Units Units 0% 20% 30% 40% 50% 70% 80% 100% DM DL IP 1 IP 2 ОН Other Information: At 20%, we have beginning inventory and at 70%, we have ending inventory. At 50%, a total of 66,000 units were inspected for rework. 2% of the units inspected are considered as normal rework. At 80%, we have inspection point for spoilage. 1% of input is considered as normal spoilage. However, spoiled units can be scrapped at $3 per unit. Costs per equivalent unit data are given below: Material Labor Overhead Cost per equivalent unit $8 $5 $3 Required: i) Compute equivalent units for normal rework and normal spoilage. ii) Compute cost of normal rework and show the shifting. iii) Compute cost of normal spoilage and show the shifting.
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