Sama Company is a contract manufacturer for a variety of pharmaceutical and over-the-counter products. It has a reputation for operational excellence and boasts a normal spoilage rate of 2% of normal input. Normal spoilage is recognized during the budgeting process and is classified as a component of manufacturing overhead when determining the overhead rate. Lynn Sanger, one of Flextron’s quality control managers, obtains the following information for Job No. M102, an order from a consumer products company. The order was completed recently, just before the close of Flextron’s fiscal year. The units will be delivered early in the next accounting period. A total of 128,500 units were started, and 6,000 spoiled units were rejected at final inspection, yielding 122,500 good units. Spoiled units were sold at $4 per unit. Sanger indicates that all spoilage was related to this specific job. The total costs for all 128,500 units of Job No. M102 follow. The job has been completed, but the costs are yet to be transferred to Finished Goods. Direct materials $ 979,000 Direct manufacturing labor 840,000 Manufacturing overhead 1,650,500 Total manufacturing costs $3,469,500 Required: Calculate the unit quantities of normal and abnormal spoilage. Prepare the journal entries to account for Job No. M102, including spoilage, disposal of spoiled units, and transfer of costs to the Finished Goods account. Flextron’s controller, Vince Chadwick, tells Marta Suarez, the management accountant responsible for Job No. M102, the following: “This was an unusual job. I think all 6,000 spoiled units should be considered normal.” Suarez knows that the work involved in Job No. M102 was not uncommon and that Sama’s normal spoilage rate of 2% is the appropriate benchmark. She feels Chadwick made these comments because he wants to show a higher operating income for the year. Prepare journal entries, similar to requirement 2, to account for Job No. M102 if all spoilage were considered normal. How will operating income be affected if all spoilage is considered normal?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Sama Company is a contract manufacturer for a variety of pharmaceutical and over-the-counter products. It has a reputation for operational excellence and boasts a normal spoilage rate of 2% of normal input. Normal spoilage is recognized during the budgeting process and is classified as a component of manufacturing
The total costs for all 128,500 units of Job No. M102 follow. The job has been completed, but the costs are yet to be transferred to Finished Goods.
|
Direct materials |
$ 979,000 |
|
Direct manufacturing labor |
840,000 |
|
Manufacturing overhead |
1,650,500 |
|
Total |
$3,469,500 |
Required:
- Calculate the unit quantities of normal and abnormal spoilage.
- Prepare the
journal entries to account for Job No. M102, including spoilage, disposal of spoiled units, and transfer of costs to the Finished Goods account.
- Flextron’s controller, Vince Chadwick, tells Marta Suarez, the
management accountant responsible for Job No. M102, the following: “This was an unusual job. I think all 6,000 spoiled units should be considered normal.” Suarez knows that the work involved in Job No. M102 was not uncommon and that Sama’s normal spoilage rate of 2% is the appropriate benchmark. She feels Chadwick made these comments because he wants to show a higher operating income for the year.
Prepare journal entries, similar to requirement 2, to account for Job No. M102 if all spoilage were considered normal. How will operating income be affected if all spoilage is considered normal?
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