Question

Ralph Co manufactures products on a job-order basis. Job 4 is an order for 100 units. It requires $3,000 direct materials, $1,000 direct labor, and $1,500 overhead applied based on 150% the direct labor hours. After inspection, 2 units required rework which required $80 additional direct labor costs and $60 of materials.

(1) If the rework is considered normal spoilage due to the nature of the job, determine the cost of Job 4. Prepare the journal entry for overhead.

(2) If the rework is considered normal spoilage, determine the cost of Job 4. Prepare the journal entry for overhead.

(3) If the rework is considered abnormal spoilage, determine the cost of Job 4. Prepare the journal entry for overhead control?

Answer 1

1.a) cost of Job 4.

Particulars	Amount($)
Direct Materials(3000+60)	3,060
Direct Labour(1000+80)	1,080
Overhead(1080*150%)	1,620
Total Cost	5,760

b) Since all the costs are added to the Job order cost , no other entry is required for overhead control.

2.a) Considering it as a normal spoilage but not assinging it to Job 4, Cost sheet of Job 4 is as follows-

Particulars	Amount($)
Direct Material	3,000
Direct Labour	1,000
Overhead(1000*150%)	1,500
Total Cost	5,500

b)Overhead control cost

Particulars	Amount($)
Direct material	60
Direct Labour	80
Overhead(80*150%)	120
Total cost	260

As the spoilage is normal as the rework cost is not directly assigned to Job 4 , the cost is charged to overhead control

Particulars	Debit($)	Credit($)
Overhead control	120
Direct material		60
Direct Labour		80

3.a) If the spoilage is abnormal then the Job cost will be calculated as

Particulars	Amount($)
Direct Material	3,000
Direct Labour	1,000
Overhead(1000*150%)	1,500
Total Cost	5,500

b) Spoilage amount is same as calculated in 2.b above i.e. $260. The jounal entry is as under

Particulars	Debit($)	Credit($)
Abnormal loss	260
Job 4		260