Kim Mills produces yardage for knitwear. The knit cloth is sold by the bolt. November data for its milling process follow. Beginning WIP was 20,000 units. Good units completed and transferred out during current period totaled 90,000. Ending WIP was 17,000 units. Inspection occurs at the 100% stage of completion regarding conversion costs, which are incurred evenly throughout the process. Total spoilage is 7,000 units. Normal spoilage is 3,600 units. Direct materials are added at the beginning of the process.

A. Compute abnormal spoilage in units.
B. Assume that the variable manufacturing cost of a spoiled unit is $1,000. What is the maximum cost that managers would be willing to incur to eliminate this spoilage? Assume that all other costs would be unaffected.
C. Discuss the opportunity costs of spoilage and why it might be important to require low defect rates in a manufacturing process.

  • CreatedJanuary 26, 2015
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