The following data, in physical units, describe a grinding process for January:
Work in process, beginning............ 19,000
Started during current period........... 150,000
To account for.................. 169,000
Spoiled units.................. 12,000
Good units completed and transferred out...... 132,000
Work in process, ending............ 25,000
Accounted for.................. 169,000
Inspection occurs at the 100% completion stage. Normal spoilage is 5% of the good units passing inspection.
REQUIRED
1. Compute the normal and abnormal spoilage in units.
2. Assume that the equivalent-unit cost of a spoiled unit is $10. Compute the amount of potential savings if all spoilage were eliminated, assuming that all other costs would be unaffected. Comment on your answer.