Miramar Ltd uses a weighted-average process costing system which recognises normal spoilage as 5% of good output. During the current period, 14,000 units were started and 10,000 units completed. Materials are added at the beginning of the process, conversion costs occur uniformly, and the inspection point is at the 70% point. Beginning work in process was 6,000 units, 40% complete, and ending work in process 9,000 units, 80% complete. The cost per equivalent unit for material was $1.00 and for conversion costs $3.00. The cost of abnormal spoilage was
A) $200
B) $1,550
C) $155
D) $2,000

Question

Quizplus · Accepted Answer

First, we need to find out the total cost for the completed units in order to calculate the cost per equivalent unit:

Materials cost for completed units = $1.00 per unit x 10,000 units = $10,000
Conversion costs for completed units = $3.00 per unit x 10,000 units = $30,000
Total cost for completed units = $40,000

Next, we need to calculate the equivalent units of production for materials and conversion costs:

Equivalent units of materials = (10,000 completed units) + (9,000 ending WIP units x 80% completion rate) = 17,200 units
Equivalent units of conversion costs = (10,000 completed units) + (9,000 ending WIP units x 80% completion rate) + (6,000 beginning WIP units x 40% completion rate) = 20,800 units

Then, we can calculate the cost per equivalent unit:

Cost per equivalent unit of materials = Total materials cost / Equivalent units of materials = $10,000 / 17,200 = $0.58
Cost per equivalent unit of conversion costs = Total conversion costs / Equivalent units of conversion costs = $30,000 / 20,800 = $1.44

Finally, we can calculate the cost of abnormal spoilage:

Abnormal spoilage = (14,000 units x 5% spoilage rate) x ($1.00 material cost + $3.00 conversion cost) = $2,100

Therefore, the cost of abnormal spoilage is not $200, $1,550, or $2,000, but rather $155.

Miramar Ltd Uses a Weighted-Average Process Costing System Which Recognises