Question

Fairchild

Kitchens produces a variety of items in accordance with special job orders from​ hospitals, plant​ cafeterias, and university dormitories. An order for

2,200

cases of mixed vegetables costs

$9

per​ case: direct​ materials,

$4​;

direct manufacturing​ labor,

$3​;

and manufacturing overhead​ allocated,

$2.

The manufacturing overhead rate includes a provision for normal spoilage. Consider each requirement independently.Read the requirements

LOADING...

.

Requirement 1. Assume that a laborer dropped

440

cases. Suppose part of the

440

cases could be sold to a nearby prison for

$440

cash. Prepare a journal entry to record this event. Calculate and explain briefly the unit cost of the remaining

1,760

cases.

Prepare a journal entry to record this event. ​(Abbreviations used: Mfg.​ = Manufacturing, Pay.​ = Payable. Record debits​ first, then credits. Exclude explanations from any journal​ entries.)

1.	Assume that a laborer dropped 440 cases. Suppose part of the 440 cases could be sold to a nearby prison for $440 cash. Prepare a journal entry to record this event. Calculate and explain briefly the unit cost of the remaining 1,760 cases.
2.	Refer to the original data. Tasters at the company reject 440 of the 2,200 cases. The 440 cases are disposed of for $880. Assume that this rejection rate is considered normal.
	a.	Prepare a journal entry to record this​ event, and calculate the unit cost if the rejection is attributable to exacting specifications of this particular job.
	b.	Prepare a journal entry to record this​ event, and calculate the unit cost if the rejection is characteristic of the production process and is not attributable to this specific job.
	c.	Are unit costs the same in requirements 2a and​ 2b? Explain your reasoning briefly.
3.	Refer to the original data. Tasters rejected 440 cases that had insufficient salt. The product can be placed in a​ vat, salt can be​ added, and the product can be reprocessed into jars. This​ operation, which is considered​ normal, will cost $440.
	a.	Prepare a journal entry to record this​ event, and calculate the unit cost of all the cases if this additional cost was incurred because of the exacting specifications of this particular job.
	b.	Prepare a journal entry to record this​ event, and calculate the unit cost of all the cases if this additional cost occurs regularly because of difficulty in seasoning.
	c.	Are unit costs the same in requirements 3a and​ 3b? Explain your reasoning briefly.

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Answer 1

SOLUTION:

	Account Title	Calculations Debit	Credit
Part 1	Cash	$ 440
	Loss from Abnormal Spoilage	$ 3960
	Work-in-Process Control (440*$9)		$ 4400
	Remaining cases cost = $9.00 per case. The cost of these cases is unaffected by the loss from abnormal spoilage.
Part 2a	Cash	$ 880
	Work-in-Process Control		$ 880
	The cost of the remaining good cases =	[($9.00*2,200) – $880]	$ 18920
	The unit cost of a good case	$18920/1,760	$ 10.75
Part 2b	Cash	$ 880
	Manufacturing Department Overhead Control	$ 3080
	Work-in-Process Control (440*$9)		$ 3960
	The unit cost of a good case remains at $9.00.
Part 2c	The unit costs in 2a and 2b are different because in 2a the normal spoilage cost is charged as a cost of the job which has exacting job specifications
	In 2b however, normal spoilage is due to the production process, not the particular attributes of this specific job
Part 3a	Work-in-Process Control	$ 440
	Materials Control, Wages Payable Control,
	Manufacturing Overhead Allocated		$ 440
	The cost of the remaining good cases =	[($9.00*2,200) + $440]	$ 20240
	The unit cost of a good case	$20,240/2,200	$ 9.2
Part 3b	Manufacturing overheads Control	$ 440
	Materials Control, Wages Payable Control,
	Manufacturing Overhead Allocated		$ 440
	The unit cost of a good case remains at $9.00.
Part 3c	The unit costs in 3a and 3b are different because in 3a the normal rework cost is charged as a cost of the job which has exacting job specifications.
	In 3b however, normal rework is due to the production process, not the particular attributes of this specific job.

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