VIPSolutionsQuestion 8.4 (Total: 30 marks) Shred Zeppelin Company uses a process cost system for making skateboard wheels. Materials are added at the beginning of the process and conversion costs are uniformly incurred. At the beginning of September the work-in-process is 40 percent complete and at the end of the month it is 60 percent complete. Spoilage is detected at the end of the process. Other data for the month include: Beginning work-in-process inventory 1,600 units Units started 20,000 units Units placed in finished goods 12,000 units Ending work-in-process inventory 1,200 units Normal spoilage % on all units finished 20 percent Conversion costs $40,320 Cost of direct materials $40,000 Beginning work-in-process costs: Materials $4,000 Conversion $4,032 Required 1. Prepare a production cost worksheet assuming that spoilage is recognized and the weighted-average method is used. 2. Prepare journal entries to record transferring out of cost from the work-in-process accounts.
Question:
Question 8.4 (Total: 30 marks)
Shred Zeppelin Company uses a process cost system for making skateboard wheels. Materials are
added at the beginning of the process and conversion costs are uniformly incurred. At the beginning of
September the work-in-process is 40 percent complete and at the end of the month it is 60 percent
complete. Spoilage is detected at the end of the process. Other data for the month include:
Beginning work-in-process inventory 1,600 units
Units started 20,000 units
Units placed in finished goods 12,000 units
Ending work-in-process inventory 1,200 units
Normal spoilage % on all units finished 20 percent
Conversion costs $40,320
Cost of direct materials $40,000
Beginning work-in-process costs:
Materials $4,000
Conversion $4,032
Required
1. Prepare a production cost worksheet assuming that spoilage is recognized and the weighted-average
method is used.
2. Prepare journal entries to record transferring out of cost from the work-in-process accounts.
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Asked by: Veera manikanta
Created at: 2025-08-12 03:39:18
Asked by: Veera manikanta
Created at: 2025-08-12 03:39:18
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Let's break down the solution step by step:
---
## 1. **Production Cost Worksheet (Weighted-Average, Spoilage Recognized)**
### **Step 1: Calculate Units Flow**
| Description | Units |
|---------------------------|------------|
| Beginning WIP | 1,600 |
| Started | 20,000 |
| **Total to account for** | 21,600 |
| Finished goods | 12,000 |
| Ending WIP | 1,200 |
| **Spoiled units** | 8,400 |
| **Total accounted for** | 21,600 |
**Spoiled units:**
= Total units to account for - Finished units - Ending WIP
= 21,600 - 12,000 - 1,200
= 8,400 units
**Check Spoilage:**
Normal spoilage is 20% of units finished:
= 20% × 12,000 = **2,400 units**
So, **6,000 units** is abnormal spoilage (8,400 - 2,400).
---
### **Step 2: Equivalent Units Calculation (Weighted-Average Method)**
#### **Materials:**
- 100% complete for all units except ending WIP
- Materials added at the beginning
#### **Conversion Costs:**
- Finished goods: 12,000 × 100% = 12,000
- Spoiled units: 8,400 × 100% = 8,400
- Ending WIP: 1,200 × 60% = 720
**Total Equivalent Units:**
| | Materials | Conversion |
|------------------------|-----------|------------|
| Finished goods | 12,000 | 12,000 |
| Spoilage (normal & abn)| 8,400 | 8,400 |
| Ending WIP | 1,200 | 720 |
| **Total** | **21,600**| **21,120** |
---
### **Step 3: Cost per Equivalent Unit**
#### **Total Costs to Account For:**
- Materials: $40,000 (added) + $4,000 (beg. WIP) = $44,000
- Conversion: $40,320 (added) + $4,032 (beg. WIP) = $44,352
#### **Cost per Equivalent Unit:**
| | Materials | Conversion |
|-----------|-----------|------------|
| Total cost| $44,000 | $44,352 |
| Eq. units | 21,600 | 21,120 |
| **Cost/unit** | $2.037 | $2.101 |
---
### **Step 4: Assign Costs**
#### **To Finished Goods (12,000 units):**
- Materials: 12,000 × $2.037 = $24,444
- Conversion: 12,000 × $2.101 = $25,212
- **Total:** $49,656
#### **To Ending WIP (1,200 units × 100% materials, 60% conversion):**
- Materials: 1,200 × $2.037 = $2,444
- Conversion: 720 × $2.101 = $1,513
- **Total:** $3,957
#### **To Spoilage (Normal, 2,400 units):**
- Materials: 2,400 × $2.037 = $4,889
- Conversion: 2,400 × $2.101 = $5,042
- **Total:** $9,931
#### **To Spoilage (Abnormal, 6,000 units):**
- Materials: 6,000 × $2.037 = $12,222
- Conversion: 6,000 × $2.101 = $12,606
- **Total:** $24,828
---
### **Production Cost Worksheet**
| | Units | Materials | Conversion | Total |
|--------------------------|--------|-----------|------------|-----------|
| Finished goods | 12,000 | $24,444 | $25,212 | $49,656 |
| Ending WIP | 1,200 | $2,444 | $1,513 | $3,957 |
| Normal Spoilage | 2,400 | $4,889 | $5,042 | $9,931 |
| Abnormal Spoilage | 6,000 | $12,222 | $12,606 | $24,828 |
| **Total** | 21,600 | $44,000 | $44,373 | $88,373 |
---
## 2. **Journal Entries to Record Transferring Out of Cost**
### a) **Transfer Finished Goods:**
```
Dr. Finished Goods Inventory $49,656
Cr. Work-in-Process Inventory $49,656
```
### b) **Transfer Normal Spoilage:**
```
Dr. Manufacturing Overhead $9,931
Cr. Work-in-Process Inventory $9,931
```
### c) **Transfer Abnormal Spoilage:**
```
Dr. Loss from Abnormal Spoilage $24,828
Cr. Work-in-Process Inventory $24,828
```
### d) **Ending WIP (not transferred, stays in WIP):**
- No entry required for WIP balance. Just remains as is.
---
## **Summary Table**
| Account | Debit | Credit |
|--------------------------------|-----------|----------|
| Finished Goods Inventory | $49,656 | |
| Manufacturing Overhead | $9,931 | |
| Loss from Abnormal Spoilage | $24,828 | |
| Work-in-Process Inventory | | $84,415 |
---
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