[flop310]

I am confused on what is done with abnormal loss. I thought when calculating finished goods the abnormal loss is not included. As you can see for the question below to calculate the $ per units all units were used (included the loss units). Anyone please explain? Thank you!

A company started production on 110 widgets. Due to an abnormal loss, 8 of the widgets had to be thrown away after they were finished. Another 12 of the widgets were not complete at the end of the year. These units were 100 percent complete as to direct materials but only 50 percent complete as to conversion costs. The company spent $2,200 on direct materials, $832 on direct labor, and $520 on factory overhead. What amount of cost was moved into finished goods for the year?

A $2,970

B $3,025

C $3,118

D $3,234

Answer A

The company had 110 units: 8 were lost, 12 were not completed, so the remaining 90 must have been completed. Because the loss of 8 units was viewed as abnormal, their cost is computed and then moved into a loss account on the income statement. The number of units of direct material is 110 (90 completed, 8 lost that were completed, and 12 in-process that were completed as to direct material). The direct material cost per unit was $2,200/110 units or $20 each. The number of units of conversion cost (direct labor and factory overhead) is 104 (90 completed, 8 lost that were completed, and 12 that were 50 percent complete as to conversion costs). The conversion cost per unit is $1,352/104 units or $13 each. Because 90 units were completed (and not lost through an abnormal loss), cost transferred from work-in-process to finished goods is 90 times $33 ($20 plus $13) or $2,970. Notice that the decision about using FIFO or weighted average is not addressed because there is no beginning work-in-process.