A company employs a process costing system for its two-department manufacturing operation using the first-in, first-out (FIFO) inventory method. When units are completed in Department 1, they are transferred to Department 2 for completion. Inspection takes place in Department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units.

The number of defective units (that is, those failing inspection) is usually below the normal tolerance limit of 4% of units inspected. Defective units have minimal value, and the company sells them without any further processing for whatever it can. Generally, the amount collected equals, or slightly exceeds, the transportation cost. A summary of the manufacturing activity for Department 2, in units for the current month, is presented

Physical Flow

(output units)

Beginning inventory (60% complete with respect to conversion)              20,000

Units transferred in from Department 1                                      180,000

Total units to account for                                                     200,000

Units completed in Department 2 during the month                          170,000

Units found to be defective at inspection                                        5,000

Ending inventory (80% complete with respect to conversion)                  25,000

Total units accounted for                                                     200,000

The units that failed inspection during the current month would be classified as

A. Normal waste.

B. Normal scrap.

C. Abnormal spoilage.

D. Normal reworked units.