Requirement:Attached is the exhibit relevant production information. Calculate the spoilage for the Pitching
Department, separated by type of spoilage.
Then, prepare a memo advising on the following: An explanation detailing the different type(s) of spoilage. The financial statement treatment needed for each type of spoilage. Make recommendations on actions that the company should take with respect to this
contamination to prevent similar occurrences going forward.
Not including Excel, your memo should not exceed two pages.
EXHIBIT – Spoilage
In October, it was found that some of the raw materials used in the production of specific
batches of beer during the month were contaminated. This was the case for all four types of
beer that had been processed during the third week in October. As a result, a portion of the
work-in-progress during October was spoiled.
Production data for October 20X3, for the Pitching Department, is as follows: Total litres received from the Boiling Department – 411,143. Total litres transferred to the Fermentation Department – 308,357. Normal spoilage in the Pitching Department is 5% of volume.
The following table provides the allocation of costs across the departments: Material
Direct Labour
Variable
Overhead Grain
Processing &
Boiling
28%
60%
60% Pitching 20%
20% Fermentation 10%
10% Bottling &
packaging
72%
10%
10% Average total costs for each case are: (Per case = 24 bottles; per bottle finished product =
355 ml of beer)
Materials
$19.68
Direct labour $ 3.07
Variable
$ 1.01
overhead