Module No.

14 – Accounting for Spoiled Units

Learning Outcome/s:
Be able to compute the equivalent units of production and to prepare the cost of production report
when spoilage of products has occurred

Core Values/Biblical Principles:

Little children, you are from God and have overcome them, for he who is in you is greater than he who is
in the world. – 1 John 4:4 (ESV)

Introduction:
To ensure the quality of the products being manufactured, rigid inspection of every unit is made before
they are sold to customers. When units are inspected in every department, spoiled units are detected.
The accounting for spoiled units is discussed below.

Body:
Spoiled units (or lost units) – units that have been damaged or improperly manufactured and cannot be
completed as salable products.

Classification of Spoilage
1. Normal spoilage – spoilage that commonly occurs and is inherent in the manufacturing process.
This type of spoilage is unavoidable and cannot be eliminated. This is to be absorbed by the
remaining good units.

2. Abnormal spoilage – results from unusual and nonrecurring factors, such as fire or wager
damage. This type of spoilage is avoidable and controllable. Costs of abnormal spoilage are
computed separate from the cost of production.

Classification of Lost Units

Lost units – are units started in production but are never completed.
1. Normal lost units – losses that result from normal recurring events.
2. Abnormal lost units – losses that result from nonrecurring and unusual events.

Usually, lost units are discovered or detected at the end of the manufacturing process when completed
units are to be transferred to the next department. Hence, the costs of units lost through normal
spoilage are absorbed by the remaining good units produced during the month.

Costs related to abnormal spoilage are usually removed from the work in process account and charged
to a loss account so that the completed units do not absorb the costs related to abnormal lost units.

Illustration
The data of Star Paper Company will be used to illustrate the preparation of cost of production report
with normal lost units under both the average and FIFO methods.

Average method
Cutting department – Normal lost units
Assume that in February 2020, the second month of operations, the Cutting Department of Star Paper
Company reports that 200 units are at a complete loss. The February cost and production data for the
Cutting Department are presented below:
 Cost Data
Beginning Work in Process:
- Materials Php 22,560
- Labor 13,536
- Overhead 28,952
Balance, January 31 Php 65,048
Current Month Costs:
- Materials Php 69,944
- Labor 82,416
- Overhead 133,886
Total February Costs Php 286,246
Account Balance, February 28 Php 351,294

In computing the equivalent units of production, lost units are assumed to be 100% complete as to
materials, labor, and overhead because spoilage are assumed to occur at the end of the process.

Cutting Department
Monthly Production Report
February 2020
Quantity
- Work in Process – Beginning 3,760
- Started in Process 11,160
- Transferred Out to Next Department 9,400
- Work in Process – Ending 5,320
- Lost Units – Normal 200
Stage of Completion of Work in Process Ending
- Materials 100%
- Labor 45%
- Overhead 55%

Cutting Department
Equivalent Units of Production Computations
February 2020
Materials
- Transferred Out to Next Department 9,400
- Work in Process – Ending (5,320 x 100%) 5,320
- Lost Units – Normal 200
Equivalent Units for Materials 14,920
Labor
- Transferred Out to Next Department 9,400
- Work in Process – Ending (5,320 x 45%) 2,394
- Lost Units – Normal 200
Equivalent Units for Labor 11,994
Overhead
- Transferred Out to Next Department 9,400
- Work in Process – Ending (5,320 x 55%) 2,926
- Lost Units – Normal 200
Equivalent Units for Overhead 12,526

Cutting Department
Cost of Production Report
February 2020
Quantity Schedule Units
a. Quantity to be accounted for:
Work in process – beginning 3,760
Started in process 11,160
Total to be accounted for 14,920
 b. Quantity accounted for:
Transferred out to next department 9,400
Work in process – ending 5,320
Lost units – normal 200
Total accounted for 14,920

Cost Schedule Total Cost EUP Unit Costs

c. Costs to be accounted for:
Costs incurred in this department
Materials: Beginning work in process Php 22,560
Added this month 69,944
Total materials Php 92,504 14,920 Php 6.20
Labor: Beginning work in process Php 13,536
Added this month 82,416
Total labor Php 95,952 11,994 Php 8.00
Overhead: Beginning work in process Php 28,952
Added this month 133,886
Total overhead Php 162,838 12,526 Php 13.00
Total costs to be accounted for Php 351,294 Php 27.20
d. Costs accounted for:
Transferred out to next department
-Costs before adding normal lost units Php 255,680 9,400 Php 27.20
-Lost units 5,440 200 Php 27.20
Total costs of units transferred out Php 261,120
Work in process – end
-Materials 32,984 5,320 Php 6.20
-Labor 19,152 2,394 Php 8.00
-Overhead 38,038 2,926 Php 13.00
Total work in process Php 90,174
Total costs accounted for Php 351,294

Assembly department – Normal lost units

Assume that 450 units were lost and the loss is considered normal. On February 28, the Work in Process
– Assembly Department account shows a balance of Php 469,391 before transfers out to the next
department. This amount is composed of the following:

Cost Data
Beginning Work in Process:
Costs Transferred In from Prior Department Php 28,130
Costs Incurred in this Department:
- Materials 1,455
- Labor 5,529
- Overhead 4,656
Balance, January 31 Php 39,770
Current Month Costs:
Costs Transferred In from Prior Department Php 261,120
Costs Incurred in this Department:
- Materials 23,128
- Labor 70,638
- Overhead 74,735
Total February Costs 429,621
Account Balance, February 28 Php 469,391
Assembly Department
Monthly Production Report
February 2020
Quantity
- Work in Process – Beginning 970
- Transferred In – Current Month 9,400
- Transferred Out to Next Department 8,820
- Work in Process – End 1,100
- Lost Units – Normal 450
Stage of Completion of Work in Process Ending
- Transferred In Cost 100%
- Materials 55%
- Labor 55%
- Overhead 55%

Assembly Department
Equivalent Units of Production Computations
February 2020
Transferred In Cost from Prior Department
- Transferred Out to Next Department 8,820
- Work in Process – Ending (1,100 x 100%) 1,100
- Lost Units (450 x 100%) 450
Equivalent Units for Transferred In Costs 10,370
Materials
- Transferred Out to Next Department 8,820
- Work in Process – Ending (1,100 x 55%) 605
- Lost Units (450 x 100%) 450
Equivalent Units for Materials 9,875
Labor
- Transferred Out to Next Department 8,820
- Work in Process – Ending (1,100 x 55%) 605
- Lost Units (450 x 100%) 450
Equivalent Units for Labor 9,875
Overhead
- Transferred Out to Next Department 8,820
- Work in Process – Ending (1,100 x 55%) 605
- Lost Units (450 x 100%) 450
Equivalent Units for Overhead 9,875
 Assembly Department
Cost of Production Report
February 2020
Quantity Schedule Units
a. Quantity to be accounted for:
Work in process – beginning 970
Started in process 9,400
Total to be accounted for 10,370
b. Quantity accounted for:
Transferred out to next department 9,470
Work in process – ending 1,100
Lost units – normal 450
Total accounted for 10,370

Cost Schedule Total Cost EUP Unit Costs

c. Costs to be accounted for:
Costs transferred in from prior department
Work in process – beginning Php 28,130
Transferred in – current month 261,120
Total transferred in costs Php 289,250 10,370 Php 27.89296
Costs incurred in this department
Materials: Beginning work in process 1,455
Added this month 23,128
Total materials Php 24,583 9,875 Php 2.48942
Labor: Beginning work in process 5,529
Added this month 70,638
Total labor Php 76,167 9,875 Php 7.71311
Overhead: Beginning work in process 4,656
Added this month 74,735
Total overhead Php 79,391 9,875 Php 8.03960
Total costs incurred in this department Php 180,141 Php 18.24213
Total costs to be accounted for Php 469,391 Php 46.13509
d. Costs accounted for:
Transferred out to next department
-Costs before adding lost units Php 406,912 8,820 Php 46.13509
-Lost units – normal 20,761 450 Php 46.13509
Total costs of units transferred out Php 427,673
Work in process – end
Costs from prior department 30,682 1,100 Php 27.89296
Costs incurred in this department
-Materials 1,506 605 Php 2.48942
-Labor 4,666 605 Php 7.71311
-Overhead 4,864 605 Php 8.03960
Total work in process Php 41,718
Total costs accounted for Php 469,391

Packaging department – Abnormal lost units

When abnormal spoilage occurs, the cost of the spoilage is computed as though the spoiled units were
good units. Such cost is recorded in a Loss from Abnormal Spoilage account which is presented as a
separate line item in the income statement.

Assume that the Packaging Department experienced abnormal spoilage of 100 units. The cost data is
presented as follows:
Cost Data
Beginning Work in Process:
Costs Transferred In from Prior Department Php 133,280
Costs Incurred in this Department:
- Materials 0
- Labor 2,230
- Overhead 1,020
Balance, January 31 Php 136,530
Current Month Costs:
Costs Transferred In from Prior Department Php 427,673
Costs Incurred in this Department:
- Materials 2,560
- Labor 20,480
- Overhead 16,885
Total February Costs 467,598
Account Balance, February 28 Php 604,128

Packaging Department
Monthly Production Report
February 2020
Quantity
- Work in Process – Beginning 2,720
- Transferred In – Current Month 8,820
- Transferred Out to Finished Goods 7,620
- Work in Process – End 3,820
- Abnormal Lost Units 100
Stage of Completion of Work in Process Ending
- Transferred In Cost 100%
- Materials 0%
- Labor 20%
- Overhead 15%

Packaging Department
Equivalent Units of Production Computations
February 2020
Transferred In Cost from Prior Department
- Transferred Out to Finished Goods 7,620
- Work in Process – Ending (3,820 x 100%) 3,820
- Abnormal lost units (100 x 100%) 100
Equivalent Units for Transferred In Costs 11,540
Materials
- Transferred Out to Finished Goods 7,620
- Work in Process – Ending (3,820 x 0%) 0
- Abnormal lost units (100 x 100%) 100
Equivalent Units for Materials 7,720
Labor
- Transferred Out to Finished Goods 7,620
- Work in Process – Ending (3,820 x 20%) 764
- Abnormal lost units (100 x 100%) 100
Equivalent Units for Labor 8,484
Overhead
- Transferred Out to Finished Goods 7,620
- Work in Process – Ending (3,820 x 15%) 573
- Abnormal lost units (100 x 100%) 100
Equivalent Units for Overhead 8,293
 Packaging Department
Cost of Production Report
February 2020
Quantity Schedule Units
a. Quantity to be accounted for:
Work in process – beginning 2,720
Started in process 8,820
Total to be accounted for 11,540
b. Quantity accounted for:
Transferred out to next department 7,620
Work in process – ending 3,820
Abnormal lost units 100
Total accounted for 11,540

Cost Schedule Total Cost EUP Unit Costs

c. Costs to be accounted for:
Costs transferred in from prior department
Work in process – beginning Php 133,280
Transferred in – current month 427,673
Total transferred in costs Php 560,953 11,540 Php 48.60945
Costs incurred in this department
Materials: Beginning work in process 0
Added this month 2,560
Total materials Php 2,560 7,720 Php 0.33161
Labor: Beginning work in process 2,230
Added this month 20,480
Total labor Php 22,710 8,484 Php 2.67680
Overhead: Beginning work in process 1,020
Added this month 16,885
Total overhead Php 17,905 8,293 Php 2.15905
Total costs incurred in this department Php 43,175 Php 5.16746
Total costs to be accounted for Php 604,128 Php 53.77691
d. Costs accounted for:
Transferred out Php 409,780 7,620 Php 53.77691
Work in process – end
Costs from prior department Php 185,688 3,820 Php 48.60945
Costs incurred in this department
-Materials 0 0 Php 0.33161
-Labor 2,045 764 Php 2.67680
-Overhead 1,237 573 Php 2.15905
Total work in process Php 188,970
Abnormal lost units Php 5,378 100 Php 53.77691
Total costs accounted for Php 604,128

FIFO method
Cutting department – Normal lost units
The cost data for the month of February are presented as follows:
 Cost Data
Beginning Work in Process:
- Materials Php 22,560
- Labor 13,536
- Overhead 28,952
Balance, January 31 Php 65,048
Current Month Costs:
- Materials Php 69,944
- Labor 82,416
- Overhead 133,886
Total February Costs Php 286,246
Account Balance, February 28 Php 351,294

Cutting Department
Monthly Production Report
February 2020
Quantity
- Work in Process – Beginning 3,760
- Started in Process 11,160
- Transferred Out to Next Department
a. From Work in Process – Beginning 3,760
b. Started and Completed – Current Month 5,640 9,400
- Work in Process – End 5,320
- Lost Units – Normal 200
Stage of Completion of Work in Process Beginning Ending
- Materials 100% 100%
- Labor 40% 45%
- Overhead 55% 55%

Cutting Department
Equivalent Units of Production Computations
February 2020
Materials
- Transferred Out to Next Department
a. Completion of Beginning WIP (3,760 x 0%) 0
b. Started and Completed 5,640
- Work in Process – Ending (5,320 x 100%) 5,320
- Lost Units – Normal (200 x 100%)* 200
Equivalent Units for Materials 11,160
Labor
- Transferred Out to Next Department
a. Completion of Beginning WIP (3,760 x 60%) 2,256
b. Started and Completed 5,640
- Work in Process – Ending (5,320 x 40%) 2,128
- Lost Units – Normal (200 x 100%)* 200
Equivalent Units for Labor 10,224
Overhead
- Transferred Out to Next Department
a. Completion of Beginning WIP (3,760 x 45%) 1,692
b. Started and Completed 5,640
- Work in Process – Ending (5,320 x 55%) 2,926
- Lost Units – Normal (200 x 100%)* 200
Equivalent Units for Overhead 10,458
*Since they are discovered at the end of the process, then they are 100% completed as to materials,
labor and overhead.
 Cutting Department
Cost of Production Report
February 2020
Quantity Schedule Units
a. Quantity to be accounted for:
Work in process – beginning 3,760
Started in process 11,160
Total to be accounted for 14,920
b. Quantity accounted for:
Transferred out to next department
From beginning WIP 3,760
Started and completed 5,640 9,400
Work in process – ending 5,320
Lost units – normal 200
Total accounted for 14,920

Cost Schedule Total Cost EUP Unit Costs

c. Costs to be accounted for:
Work in process – beginning Php 65,048
Costs incurred in current month
Costs incurred in this department
Materials Php 69,944 11,160 Php 6.26738
Labor 82,416 10,224 Php 8.06103
Overhead 133,886 10,458 Php 12.80226
Total costs in this department Php 286,246 Php 27.13067
Total costs to be accounted for Php 351,294
d. Costs accounted for:
Transferred out
From beginning WIP inventory Php 65,048
Current month costs
Materials Php 0 0 Php 6.26738
Labor 18,186 2,256 Php 8.06103
Overhead 21,661 1,692 Php 12.80226
Costs of completed beginning WIP Php 104,895
Started and completed 153,017 5,640 Php 27.13067
Lost units – normal 5,426 200 Php 27.13067
Total costs transferred out Php 263,338 9,600 Php 27.43104
Work in process – end
-Materials Php 33,343 5,320 Php 6.26738
-Labor 17,154 2,128 Php 8.06103
-Overhead 37,459 2,926 Php 12.80226
Total work in process Php 87,956
Total costs accounted for Php 351,294

Assembly department – Normal lost units

The cost data for the assembly department is presented as follows:
Cost Data
Beginning Work in Process:
Costs Transferred In from Prior Department Php 28,130
Costs Incurred in this Department:
- Materials 1,455
- Labor 5,529
- Overhead 4,656
Balance, January 31 Php 39,770
Current Month Costs:
Costs Transferred In from Prior Department Php 263,338
Costs Incurred in this Department:
 - Materials 23,128
- Labor 70,638
- Overhead 74,735
Total February Costs 431,839
Account Balance, February 28 Php 471,609

Assembly Department
Monthly Production Report
February 2020
Quantity
- Work in Process – Beginning 970
- Started in Process – Current Month 9,400
- Transferred Out to Next Department
a. From Work in Process – Beginning 970
b. Started and Completed 7,850 8,820
- Work in Process – End 1,100
- Lost Units – Normal 450
Stage of Completion of Work in Process Beginning Ending
- Transferred In Cost 100% 100%
- Materials 60% 55%
- Labor 60% 55%
- Overhead 60% 55%

Assembly Department
Equivalent Units of Production Computations
February 2020
Transferred In Cost from Prior Department
- Transferred Out to Next Department
a. Completion of Beginning WIP (970 x 0%) 0
b. Started and Completed 7,850
- Work in Process – Ending (1,100 x 100%) 1,100
- Lost Units – Normal (450 x 100%) 450
Equivalent Units for Transferred In Costs 9,400
Materials
- Transferred Out to Next Department
a. Completion of Beginning WIP (970 x 40%) 388
b. Started and Completed 7,850
- Work in Process – Ending (1,100 x 55%) 605
- Lost Units – Normal (450 x 100%) 450
Equivalent Units for Materials 9,293
Labor
- Transferred Out to Next Department
a. Completion of Beginning WIP (970 x 40%) 388
b. Started and Completed 7,850
- Work in Process – Ending (1,100 x 55%) 605
- Lost Units – Normal (450 x 100%) 450
Equivalent Units for Labor 9,293
Overhead
- Transferred Out to Next Department
a. Completion of Beginning WIP (970 x 40%) 388
b. Started and Completed 7,850
- Work in Process – Ending (1,100 x 55%) 605
- Lost Units – Normal (450 x 100%) 450
Equivalent Units for Overhead 9,293
 Assembly Department
Cost of Production Report
February 2020
Quantity Schedule Units
a. Quantity to be accounted for:
Work in process – beginning 970
Started in process 9,400
Total to be accounted for 10,370
b. Quantity accounted for:
Transferred out to next department
From beginning WIP 970
Started and completed 7,850 8,820
Work in process – ending 1,100
Lost units – normal 450
Total accounted for 10,370

Cost Schedule Total Cost EUP Unit Costs

c. Costs to be accounted for:
Work in process – beginning Php 39,770
Costs incurred in current month
Transferred-in costs from prior dept. Php 263,338 9,400 Php 28.01468
Costs incurred in this department
Materials 23,128 9,293 Php 2.48876
Labor 70,638 9,293 Php 7.60121
Overhead 74,735 9,293 Php 8.04208
Total costs added Php 168,501 Php 18.13205
Total costs this month Php 431,839 Php 46.14673
Total costs to be accounted for Php 471,609
d. Costs accounted for:
Transferred out
From beginning WIP inventory Php 39,770
Current month costs
Materials 946 388 Php 2.48876
Labor 2,949 388 Php 7.60121
Overhead 3,120 388 Php 8.04208
Costs of completed beginning WIP Php 46,805
Started and completed 362,251 7,850 Php 46.14673
Lost units – normal 20,766 450 Php 46.14673
Total costs transferred out Php 429,822 8,820 Php 48.73265
Work in process – end
-Transferred-in costs from prior dept. Php 30,816 1,100 Php 28.01468
-Materials 1,506 605 Php 2.48876
-Labor 4,599 605 Php 7.60121
-Overhead 4,866 605 Php 8.04208
Total work in process Php 41,787
Total costs accounted for Php 471, 609

Packaging department – Abnormal spoilage

The cost data for the packaging department is presented below:
Cost Data
Beginning Work in Process:
Costs Transferred In from Prior Department Php 133,280
Costs Incurred in this Department:
- Materials 0
- Labor 2,230
- Overhead 1,020
Balance, January 31 Php 136,530
Current Month Costs:
Costs Transferred In from Prior Department Php 429,822
Costs Incurred in this Department:
- Materials 2,560
- Labor 20,480
- Overhead 16,885
Total February Costs 469,747
Account Balance, February 28 Php 606,277

Packaging Department
Monthly Production Report
February 2020
Quantity
- Work in Process – Beginning 2,720
- Transferred In – Current Month 8,820
- Transferred Out to Finished Goods
a. From Beginning Work in Process 2,720
b. Started and Completed 4,900 7,620
- Work in Process – End 3,820
- Abnormal Lost Units 100
Stage of Completion of Work in Process Beginning Ending
- Transferred In Cost 100% 100%
- Materials 0% 0%
- Labor 20% 20%
- Overhead 15% 15%

Packaging Department
Equivalent Units of Production Computations
February 2020
Transferred In Cost from Prior Department
- Transferred Out to Next Department
a. Completion of Beginning WIP (2,720 x 0%) 0
b. Started and Completed 4,900
- Work in Process – Ending (3,820 x 100%) 3,820
- Abnormal Lost Units (100 x 100%) 100
Equivalent Units for Transferred In Costs 8,820
Materials
- Transferred Out to Next Department
a. Completion of Beginning WIP (2,720 x 100%) 2,720
b. Started and Completed 4,900
- Work in Process – Ending (3,820 x 0%) 0
- Abnormal Lost Units (100 x 100%) 100
Equivalent Units for Materials 7,720
Labor
- Transferred Out to Next Department
a. Completion of Beginning WIP (2,720 x 80%) 2,176
b. Started and Completed 4,900
- Work in Process – Ending (3,820 x 20%) 764
- Abnormal Lost Units (100 x 100%) 100
Equivalent Units for Labor 7,940
Overhead
- Transferred Out to Next Department
a. Completion of Beginning WIP (2,720 x 85%) 2,312
b. Started and Completed 4,900
- Work in Process – Ending (3,820 x 15%) 573
- Abnormal Lost Units (100 x 100%) 100
Equivalent Units for Overhead 7,885
 Packaging Department
Cost of Production Report
February 2020
Quantity Schedule Units
a. Quantity to be accounted for:
Work in process – beginning 2,720
Started in process 8,820
Total to be accounted for 11,540
b. Quantity accounted for:
Transferred out to next department
From beginning WIP 2,720
Started and completed 4,900 7,620
Work in process – ending 3,820
Abnormal lost units 100
Total accounted for 11,540

Cost Schedule
c. Costs to be accounted for:
Work in process – beginning Php 136,530
Costs incurred in current month
Transferred-in costs from prior dept. Php 429,822 8,820 Php 48.73265
Costs incurred in this department
Materials 2,560 7,720 Php 0.33161
Labor 20,480 7,940 Php 2.57935
Overhead 16,885 7,885 Php 2.14141
Total costs added Php 39,925 Php 5.05237
Total costs this month Php 469,747 Php 53.78502
Total costs to be accounted for Php 606,277
d. Costs accounted for:
Transferred out
From beginning WIP inventory Php 136,530
Current month costs
Materials 902 2,720 Php 0.33161
Labor 5,613 2,176 Php 2.57935
Overhead 4,951 2,312 Php 2.14141
Costs of completed beginning WIP Php 147,996
Started and completed 263,546 4,900 Php 53.78502
Total costs transferred out Php 411,542 7,620 Php 54.00814
Work in process – end
-Transferred-in costs from prior dept. 186,159 3,820 Php 48.73265
-Materials 0 0 Php 0.33161
-Labor 1,971 764 Php 2.57935
-Overhead 1,227 573 Php 2.14141
Total work in process Php 189,357
Abnormal lost units Php 5,378 100 Php 53.78502
Total costs accounted for Php 606,277

Inspection points and allocating costs of normal spoilage

Inspection point – stage of production cycle where products are inspected to determine spoiled units.

Note: The costs of normal spoilage are allocated to units in ending work in process – in addition to
completed units – if the units in ending work in process have passed the inspection point.

Illustration
Pink Manufacturing Company uses the average method of process costing. The product is processed in
two departments: forming and finishing. Direct materials are added at the beginning of each
department; conversion costs are incurred evenly during the process. Spoiled units are discovered as
follows:

Forming department – Units are inspected at the end of the process and spoiled units are discovered at
this point.

Finished department – Units are inspected at 40% completion and spoiled units are discovered at this
point.

The following data for the two departments are as follows:

Cost Data
Beginning Work in Process: Forming Finishing
Costs Transferred In from Prior Department Php 0 Php 42,600
Costs Incurred in this Department:
- Materials 18,000 50,000
- Conversion Costs 32,720 52,800
Total Cost Last Month Php 50,720 Php 145,400
Current Month Costs:
Costs Transferred In from Prior Department Php 0 Php ?
Costs Incurred in this Department:
- Materials 150,000 100,000
- Conversion Costs 250,000 480,000
Total Costs This Month Php 400,000 Php 580,000
Total Costs Php 450,720 Php 725,400

Forming Department
Monthly Production Report
Quantity
- Work in Process – Beginning 6,000
- Started in Process 42,000
- Transferred Out 36,000
- Work in Process – End 4,000
- Lost Units – Normal 6,000
- Abnormal Lost Units 2,000
Stage of Completion of Work in Process Ending
- Materials 100%
- Conversion Costs 40%

Forming Department
Equivalent Units of Production Computations
Materials
- Transferred Out to Next Department 36,000
- Work in Process – Ending (4,000 x 100%) 4,000
- Lost Units – Normal (6,000 x 100%) 6,000
- Abnormal Lost Units (2,000 x 100%) 2,000
Equivalent Units for Materials 48,000
Conversion Costs
- Transferred Out to Next Department 36,000
- Work in Process – Ending (4,000 x 40%) 1,600
- Lost Units – Normal (6,000 x 100%) 6,000
- Abnormal Lost Units (2,000 x 100%) 2,000
Equivalent Units for Conversion Costs 45,600
Forming Department
Cost of Production Report
Quantity Schedule Units
a. Quantity to be accounted for:
Work in process – beginning 6,000
Started in process 42,000
Total to be accounted for 48,000
b. Quantity accounted for:
Transferred out to next department 36,000
Work in process – ending 4,000
Lost units – normal 6,000
Abnormal lost units 2,000
Total accounted for 48,000

Cost Schedule Total Cost EUP Unit Costs

c. Costs to be accounted for:
Costs incurred in this department
Materials: Beginning work in process Php 18,000
Added this month 150,000
Total materials Php 168,000 48,000 Php 3.50
Conversion: Beginning work in process Php 32,720
Added this month 250,000
Total conversion costs Php 282,720 45,600 Php 6.20
Total costs to be accounted for Php 450,720 Php 9.70
d. Costs accounted for:
Transferred out to next department
-Costs before adding normal lost units Php 349,200 36,000 Php 9.70
-Lost units 58,200 6,000 Php 9.70
Total costs of units transferred out Php 407,400 36,000 Php 11.31667
Work in process – end
-Materials Php 14,000 4,000 Php 3.50
-Conversion costs 9,920 1,600 Php 6.20
Total work in process Php 23,920
Abnormal lost units Php 19,400 2,000 Php 9.70
Total costs accounted for Php 450,720

Finishing Department
Monthly Production Report
Quantity
- Work in Process – Beginning 14,000
- Transferred In 36,000
- Transferred Out 38,000
- Work in Process – End 8,000
- Lost Units – Normal 3,000
- Abnormal Lost Units 1,000
Stage of Completion of Work in Process Ending
- Transferred In Costs 100%
- Materials 100%
- Conversion Costs 60%

Finishing Department
Equivalent Units of Production Computations
Transferred In Cost
- Transferred Out to Next Department 38,000
- Work in Process – Ending (8,000 x 100%) 8,000
- Lost Units – Normal (3,000 x 100%) 3,000
- Abnormal Lost Units (1,000 x 100%) 1,000
Equivalent Units for Transferred In Cost 50,000
Materials
- Transferred Out to Next Department 38,000
- Work in Process – Ending (8,000 x 100%) 8,000
- Lost Units – Normal (3,000 x 100%) 3,000
- Abnormal Lost Units (1,000 x 100%) 1,000
Equivalent Units for Materials 50,000
Conversion Costs
- Transferred Out to Next Department 38,000
- Work in Process – Ending (8,000 x 60%) 4,800
- Lost Units – Normal (3,000 x 40%) 1,200
- Abnormal Lost Units (1,000 x 40%) 400
Equivalent Units for Conversion Costs 44,400

Finishing Department
Cost of Production Report
Quantity Schedule Units
a. Quantity to be accounted for:
Work in process – beginning 14,000
Started in process 36,000
Total to be accounted for 50,000
b. Quantity accounted for:
Transferred out to next department 38,000
Work in process – ending 8,000
Lost units – normal 3,000
Abnormal lost units 1,000
Total accounted for 50,000

Cost Schedule Total Cost EUP Unit Costs

c. Costs to be accounted for:
Costs incurred from prior department
Work in process – beginning Php 42,600
Transferred in – current month 407,400
Total transferred in costs Php 450,000 50,000 Php 9.00
Costs incurred in this department
Materials: Beginning work in process Php 50,000
Added this month 100,000
Total materials Php 150,000 50,000 Php 3.00
Conversion: Beginning work in process Php 52,800
Added this month 480,000
Total conversion costs Php 532,800 44,400 Php 12.00
Total costs added in this department Php 682,800 Php 15.00
Total costs to be accounted for Php 1,132,800 Php 24.00
d. Costs accounted for:
Transferred out to finished goods
-Costs before adding normal lost units Php 912,000 38,000 Php 24.00
-Lost units* 41,832
Total costs of units transferred out Php 953,832 38,000 Php 25.10
Work in process – end
-Transferred in costs Php 72,000 8,000 Php 9.00
-Materials 24,000 8,000 Php 3.00
-Conversion costs 57,600 4,800 Php 12.00
-Lost units* 8,568
Total work in process Php 162,168
Abnormal lost units
-Transferred in costs Php 9,000 1,000 Php 9.00
-Materials 3,000 1,000 Php 3.00
 -Conversion costs 4,800 400 Php 12.00
Costs of abnormal lost units Php 16,800
Total costs accounted for Php 1,132,800

*Computation and allocation of the cost of normal lost units

Cost of normal lost units (3,000 units):
Transferred in costs (3,000 x Php 9) Php 27,000
Materials (3,000 x Php 3) 9,000
Conversion costs (1,200 x Php 12) 14,400
Total costs of normal lost units Php 50,400

Allocated as follows:
Actual units Ratio Allocated cost
Units transferred out 38,000 38k/46k Php 41,832
Units in ending WIP 8,000 8k/46k 8,568
Total 46,000 Php 50,400

Summary:
Normal losses are inherent and recurring part of the production process hence, normal lost units are
usually included in computing the EUP and costs are subsequently absorbed by the good units. On the
other, the costs of abnormal lost units are removed from the work in process and charged to a loss
account.

References:
Cost Accounting Principles and Procedural Applications by Pedro P. Guerrero, 2014-2015 edition