Question: 1. Do Exercise 18- 21 using the FIFO method. In Exercise 18- 21, LaCroix Company produces handbags from leather of moderate quality. It distributes the
1. Do Exercise 18- 21 using the FIFO method.
In Exercise 18- 21, LaCroix Company produces handbags from leather of moderate quality. It distributes the product through outlet stores and department store chains. At LaCroix’s facility in northeast Ohio, direct materials (primarily leather hides) are added at the beginning of the process, while conversion costs are added evenly during the process. Given the importance of minimizing product returns, spoiled units are detected upon inspection at the end of the process and are discarded at a net disposal value of zero. LaCroix uses the weighted-average method of process costing. Summary data for April 2014 are as follows:
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2. What are the managerial issues involved in selecting or reviewing the percentage of spoilage considered normal? How would your answer to requirement 1 differ if all spoilage were viewed asnormal?
PhysicalDirect Conversion Units Materials Costs Work in process, beginning inventory (April 1) 2400 $21.240 13,332 100%| 50% Degree of completion of beginning work in process Started during Apr Good units completed and transferred out during Apri Work in process, ending inventory (April 30 10,800 2,160 100% 75% $97 560 111408 Degree of completion of ending work in process INormalspolageasapercentageot good units Degree of completion of normal spolilage Degree of completion of abnormal spoilage 10% 100% | 100% 100% | 100%
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1 Solution Exhibit 1822 Panel A calculates equivalent units of work done in the current period for direct materials and conversion costs Solution Exhibit 1822 Panel B summarizes total costs to accountforcalculates the costs per equivalent unit for direct materials and conversion costsand assigns total costs to units completed and transferred out including normal spoilage to abnormal spoilage and to units in ending work in process using the FIFO method IN EXHIBIT 1822 Firstin firstout FIFO Method of Process Costing with SpoilageLa Croix Company for April 2014 PANEL A Summarize the Flow of Physical Units and Compute Output in Equivalent Units Step 1 Step 2 Equivalent Units Flow of Production Physical Units Direct Materials Conversion Costs Work in process beginning given Started during current period given To account for Good units completed and transferred out during current period From beginning work in process 2400 100 100 2400 100 50 Startedand completed 8400 100 8400 100 Normal spoilage 1080 100 1080 100 Abnormal spoilage 360 100 360 100 Work in process ending 2160 100 2160 75 Accounted for Equivalent units of work done in current period 2400 12000 14400 2400 8400 1080 360 2160 14400 0 8400 1080 360 2160 12000 1200 8400 1080 360 1620 12660 Degree of completion in this departmentdirect materials 100 conversion costs 50 10800 physical units completed and transferred out minus 2400 physical units completed and transferred out from beginning workinprocess inventory Degree of completion of normal spoilage in this departmentdirect materials 100 conversion costs 100 Degree of completion of abnormal spoilage in this departmentdirect materials 100 conversion costs 100 Degree of completion in this departmentdirect materials 100 conversion costs 75 PANEL B Summarize the Total Costs to Account for Compute the Cost per Equivalent Unit and Assign Costs to the Units Completed Spoiled Units and Units in Ending WorkinProcess Inventory Total Production Costs Direct Materials Conversion Costs Step3 Work in process beginning given Costs added in current period given Total costs to account ... View full answer
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