Romano Foods Inc. manufactures 12-inch Roman Surprise Fresh Frozen Pizzas that retail for $4.69 to $5.99, depending upon the topping. The company employs a process costing system in which the product flows through several processes. Joe Corolla, vice president of production, has had a long-running disagreement with the controller, Sue Marshall, over the way to handle spoilage cost. Joe resists every attempt to charge production with variance responsibilities unless they are favorable. Spoilage costs have not been significant in the past, but, in November, the mixing department had a substantial amount of spoilage. Romano Foods has traditionally treated 10 percent of good output as normal spoilage. The mixing department input 120,000 units of ingredients; inspection rejected 13,000 dough units. Sue is concerned about the abnormal spoilage and wants Joe to take corrective steps. He maintains, however, that the mixing department is operating properly and has prepared the following report to support his contention:

ROMANO FOODS - MIXING DEPARTMENT
Production Cost Report
Month Ended November 30, 2010
					Good	Normal spoilage	Abnormal	Good
		Input units		Total cost	Output Units	(10%)	Spoilage	Unit Cost
		120,000		$45,360	107,000	12,000	1,000	$0.42
Budgeted unit cost								$0.435
Actual cost per good unit								$0.420
Favorable variance								$0.015
Cost Reconciliation
	Cost of 107,000 good units @ $.042 each							$44,940
	Abnormal spoilage (charge to purchasing for buying inferior materials: 1,000 units @ $0.42/unit)							$420
	Total cost							$45,360

Sue read the report and found out that Joe miscalculated both normal and abnormal spoilage units, and he ignored the normal spoilage in calculating the unit cost.

Required
1. Revise Joe Corolla’s production cost report for November 2010 by calculating the correct numbers or amounts for the following:
a. The number of units of normal spoilage.
b. The number of units of abnormal spoilage.
c. The total and per-unit costs of the mixing department’s production of good units in November.
d. The total and per-unit costs of abnormal spoilage.
2. Prepare the journal entry to transfer costs for the mixing department for November to the assembly department.
3. Describe how Joe Corolla’s production cost report has shown the performance of the mixing department to be less favorable than that shown in the revised report in requirement 1.

Transcribed Image Text:

ting Calculations 10% of good output : units of normal spoilage 10 X 107,000 units 10,700 units of normal spoilage 13,000 10.700 2,300 b. Total spoilage Less normal spoilage Abnormal spoilage c. Total cost of November production $45,360 Divide by total input (units) Unit cost of production 120,000 Good units completed (107,000 X$.378) Normal spoilage (10,700 X $.378) Total cost of good units .378 $40,446.00 4,044 60 $44 490 60 4158 Units cost of good units ($44,490.60/107,000) 2,300 378 d. Abnormal spoilage (units) Multiplied by unit cost of production Total cost of abnormal spoilage