[SoCalCPA]

The answers in Becker aren’t enough for me to fully grasp the concept, so any explanations would be greatly appreciated!

Q1) In a traditional job order cost system, the issue of indirect materials to a production department increases:

A) Factory overhead control

-> What does it mean when “the issue of indirect materials would decrease store control, and increase factory overhead control?” I’m not familiar with the store control & factory overhead control concept.

Q2) During May, M Corp completed 50K units costing $600K, exclusive of spoilage allocation. Of these completed units, 25K were sold during the month. Additional 10K units, costing $80K, were 50% complete at May 31. All units are inspected between completion of manufacturing and transfer to finished goods inventory. Normal spoilage was $20K, and abnormal spoilage was $50K. The portion of total spoilage that should be charged against revenue in May is:

A2) $60K.

–> I Thought normal spoilage occurs under regular conditions and is included in the standard costs of the manufactured product (meaning in COGS?) Abnormal spoilage is normally expensed separately on the income statement as a period expense.

So, ALL abnormal spoilage is included as “charge against” revenue. Normal spoilage is also charged against revenue? and why do we multiply by normal spoilage ($20K) * percent sold (50%)?

Thanks for your help!

B - (4/2012)
A - (5/2012)
R - (1/2012) Done!
F - (10/2011) Done!

[SMUT_Co]

I can help you with question 2 as i have struggles with that one before. The trick to this question is you must answer the call of the question.

The abnormal spoilage is expenses on the income statement as a period expense, we know that. The question is asking for the total spoilage that reaches the income statement. The additional $10,000 of spoilage is normal spoilage as part of the COGS, 50% of the inventory manufactured was sold. There was a total of $20,000 of normal spoilage added to the cost of goods/manufactured. To try and clarify:

$50,000 abnormal spoilage

+$10,000 normal spoilage ( $20,000 total normal spoilage included in the cost of goods sold * 50% of inventory was sold)

= $60,000 total spoilage on income statement

FAR: Done
REG: Done
AUD: Done
BEC: Done

[SoCalCPA]

Hey Smut, thanks for answering that question. I do understand it now, but I found the question a bit confusing when it discussed ” Additional 10K units, costing $80K, were 50% complete at May 31″ That part threw me off. So we get 50% by ..

Inventory sold = units sold / completed inventory which is…

50% = 25K/50K right?

Thanks again!

B - (4/2012)
A - (5/2012)
R - (1/2012) Done!
F - (10/2011) Done!

[Author]

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