Question

Please by detiels !

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:

1. Calculate the unit quantities of normal and abnormal spoilage.

2. 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.

Answer 1

Solution:

Part 1

Standard given: Normal Spoilage is 2% of Input units

Particulars	Number in units
Input Units (A )	128,500
Output Units (B)	122,500
Actual Spoilage - (C = A - B)	6,000
Normal Spoilgae (D = 2% of A)	2,570
Abnormal Spoilage (E = C-D)	3,430

Part 2

Time of journal entry	Particulars / Account	Debit	Credit
At the time cost incurred	Direct Materials	979,000
	Direct Manufacturing Labor	840,000
	Manufacturing Overhead	1,650,500
	Cash Account		3,469,500
Cost Transfer to Job number M 102	Job Number M102	3,469,500
	Direct Materials		979,000
	Direct Manufacturing Labor		840,000
	Manufacturing Overhead		1,650,500
At the time of Spoilage sale	Cash Account	24,000
	Job Number M102		24,000
At the time of booking abnormal loss (Abnormal Spoilage)	Abnormal Loss	80,500
	Job Number M102		80,500
At the time of transfer to Finished goods	Job Number M102	3,365,000
	Cost of goods sold		3,365,000

working Note:

Particulars	Amount in $ / Units
Total unites as to be manufatured as per Standard	125,930
Total Material Cost	979,000
Less: Normal Spoilage sale	(10,280)
Labour Cost	840,000
Manufacturing overhead	1,650,500
Total Cost for Standard units (for normal spoilgae)	3,459,220
Per Unit cost	27.47
Abnormal Spoilage	3,430
Cost of abnormal Spoilgae (3430*27.47)	94,220
Less: Sale of abnormal spoilage (3430*4)	(13,720)
Abnormal Loss (Cost of spoilage - sale of spoilage)	80,500