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Question by Ckar87: Question for anyone who knows cost accounting?
I’m having a little trouble with my accounting homework, so anyone that has taken accounting or knows about cost accounting, help would be greatly appreciated

Dayton Extruded Plastics is a manufacturer of injection-molded extrusions. Scrapped or defective extrusions were ground into powder and fed back into the extruders as raw materials. Defective extrusions were inspected during line work and in handling returns from customers; they were ground up in special grinding machines and mixed with new raw material and reused in manually controlled injection molding machines. The molding machines use utilities provided for the main manufacturing facility. After grinding, maintenance and cleanup of the facilities were performed by general maintenance personnel. Because all scrapped extruders were reused in this way, company management felt that the cost of the scrap was “free”. The company’s traditional cost accounting system did not associate any cost with the cost of processing scrap.

Required:
Explain why the company’s traditional cost accounting system is giving misleading results related to Dayton Extruded Plastics processing of scrap.

Best answer:

Answer by Nostra
Amazing, I was a cost accountant in a plastics company. However I suspect that your teacher will not like my answer.

Not all plastics can be re-ground. Where I worked, what could be re-ground was limited to a maximum of 5% of the mixture (95% new and 5% re-grind) in new product.

The cost of the inspectors can be ignored since they would be there any way to inspect all the product. You incur no extra cost by having the inspectors toss the rejects into a bin. the cost of the person who collect the reject bins can be ignored since they would have to toss the rejects into the trash if not re-ground.

The special machine (and it is not that special or costly) costs, as does the cost of the person that that operates it.

GAPP would require you to collects those costs and include them in the re-grind inventory. If the costs were 1,000 for depreciation and labor to regrind 1,000 lbs, then your cost of the regrind is .00 (ignoring the initial cost of the material. If your have 2 lb of re-grind left, you have 1.00 of additional inventory.

However the materiality provision would come into play. for it to be worth to collect you would need a very high reject rate. If you do, they the company is failing anyway. If your have one reject in 5,000 then the amount of re-grind is negligible

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