MA28 Problem: Process Costing – Normal and Abnormal Spoilage – Oil Lite

MA28 Problem: Process Costing – Normal and Abnormal Spoilage – Oil Lite

Oil-Lite Ltd. uses actual costs and applies process cost accounting. The following data isavailable for the month of October.Beginning W-I-P 4,000 units(100% complete for direct materials and 50%complete for labour & overhead)Beginning W-I-P $59,000consisting of $48,000 for direct materials and$11,000 for labour & overheadGood units completed and transferred out 20,000 unitsEnding W-I-P 3,000 units(100% complete for direct materials and 40%complete for labour and overhead)Direct material costs incurred during the month $262,600Labour & conversion costs incurred during the month $121,800Direct materials are added at the beginning of the process, and labour and overhead is appliedthroughout the process.Inspection occurs at the end of the process. Normal spoilage for the month was 700 units.Abnormal spoilage for the month was 500 units. The abnormal spoilage was due to a machinemalfunction that occurred when the units were 80% complete for conversion.Required:1.

How many units were started during the month?2.

Under the FIFO method, what is:(a) the cost of the abnormal spoilage?(b) the value of ending W-I-P?(c) the number of equivalent units for both Direct Materials and conversion?(d) the cost of units completed and transferred out?3.

Answer 2. (a) through (d) using the weighted average method.