18-32 Spoilage and job costing. (L.

Bamber) Satiated Ninja produces a variety of items in

accordance with special job orders from hospitals, plant cafeterias, and university dormitories.
An order for 2,100 to-go boxes of uramaki 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.

Required:
1. Assume that a laborer dropped 420 to-go boxes. Suppose part of the 420 to-go boxes could
be sold to a nearby prison for $420 cash. Prepare a journal entry to record this event.
Calculate and explain briefly the unit cost of the remaining 1,680 to-go boxes.
2. Refer to the original data. Tasters at the company reject 420 of the 2,100 to-go boxes. The
420 to-go boxes are disposed of for $840. Assume that this rejection rate is considered
normal. Prepare a journal entry to record this event, and do the following:
a. Calculate the unit cost if the rejection is attributable to exacting specifications of this
particular job.
b. 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 420 to-go boxes 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 $420. Prepare a journal entry to
record this event and do the following:
a. Calculate the unit cost of all the to-go boxes if this additional cost was incurred because
of the exacting specifications of this particular job.
b. Calculate the unit cost of all the to-go boxes 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.
SOLUTION
Spoilage and job costing.

1. Cash 420
Loss from Abnormal Spoilage 3,360
Work-in-Process Control 3,780
Loss = ($9.00  420) – $420 = $3,360

Remaining to-go boxes cost = $9.00 per case. The cost of these to-go boxes are unaffected
by the loss from abnormal spoilage.

2. a. Cash 840
Work-in-Process Control 840
The cost of the remaining good to-go boxes = [($9.00  2,100) – $840] = $18,060
The unit cost of a good case now becomes $18,060  1,680 = $10.75

b. Cash 840
Manufacturing Department Overhead Control 2,940
Work-in-Process Control 3,780
The unit cost of a good case remains at $9.00.

c. The unit costs in 2a and 2b are different because in 2a the normal spoilage cost is
charged as a cost of the job that has exacting job specifications. In 2b, however,
normal spoilage is due to the production process, not the particular attributes of this
specific job. These costs are, therefore, charged as part of manufacturing overhead
and the manufacturing overhead cost of $2 per case already includes a provision for
normal spoilage.

3. a. Work-in-Process Control 420

Materials Control, Wages Payable Control,
Manufacturing Overhead Allocated 420
The cost of the good to-go boxes = [($9.00  2,100) + $420] = $19,320
The unit cost of a good case is $19,320  2,100 = $9.20

b. Manufacturing Department Overhead Control 420

Materials Control, Wages Payable Control,
Manufacturing Overhead Allocated 420
The unit cost of a good case = $9.00 per case

c. The unit costs in 3a and 3b are different because in 3a the normal rework cost is
charged as a cost of the job that has exacting job specifications. In 3b, however,
normal rework is due to the production process, not the particular attributes of this
specific job. These costs are, therefore, charged as part of manufacturing overhead
and the manufacturing overhead cost of $2 per case already includes a provision for
this normal rework.
18-33 Reworked units, costs of rework. Heyer Appliances assembles dishwashers at its plant
in Tuscaloosa, Alabama. In February 2017, 60 circulation motors that cost $110 each (from a
new supplier who subsequently went bankrupt) were defective and had to be disposed of at zero
net disposal value. Heyer Appliances was able to rework all 60 dishwashers by substituting new
circulation motors purchased from one of its existing suppliers. Each replacement motor cost
$125.

Required:
1. What alternative approaches are there to account for the materials cost of reworked units?
2. Should Heyer Appliances use the $110 circulation motor or the $125 motor to calculate the
cost of materials reworked? Explain.
3. What other costs might Heyer Appliances include in its analysis of the total costs of rework
due to the circulation motors purchased from the (now) bankrupt supplier?

SOLUTION
Reworked units, costs of rework.

1. The two alternative approaches to account for the materials costs of reworked units are:
a. To charge the costs of rework to the current period as a separate expense item as
abnormal rework. This approach would highlight to Heyer Appliances the costs of the
supplier problem.
b. To charge the costs of the rework to manufacturing overhead as normal rework.

2. The $125 circulation motor cost is the cost of the actual motors included in the
dishwashers. The $110 motors from the first supplier were eventually never used in any
dishwasher, and that supplier is now bankrupt. The units have now been disposed of at zero
disposal value.

3. The total costs of rework due to the defective circulation motors include the following:
a. the labor and other conversion costs spent on substituting the new circulation motors;
b. the costs of any extra negotiations to obtain the replacement circulation motors;
c. any higher price the existing supplier may have charged to do a rush order for the
replacement circulation motors; and
d. ordering costs for the replacement circulation motors.
18-34 Scrap, job costing. Rufenstein War Systems Pvt. Ltd. has an extensive job-costing
facility that uses a variety of metals. Consider each requirement independently.

Required:
1. Job 372 uses a particular metal alloy that is not used for any other job. Assume that scrap is
material in amount and sold for $480 quickly after it is produced. Prepare the journal entry.
2. The scrap from Job 372 consists of a metal used by many other jobs. No record is maintained
of the scrap generated by individual jobs. Assume that scrap is accounted for at the time of its
sale. Scrap totaling $4,500 is sold. Prepare two alternative journal entries that could be used
to account for the sale of scrap.
3. Suppose the scrap generated in requirement 2 is returned to the storeroom for future use, and
a journal entry is made to record the scrap. A month later, the scrap is reused as direct
material on a subsequent job. Prepare the journal entries to record these transactions.

SOLUTION
Scrap, job costing.
1. Journal entry to record scrap generated by a specific job and accounted for at the time
scrap is sold is as follows:
Cash or Accounts Receivable 480
Work-in-Process Control 480
To recognize asset from sale of scrap.
A memo posting is also made to the specific job record.
2. Scrap common to various jobs and accounted for at the time of its sale can be accounted
for in two ways:
a. Regard scrap sales as a separate line item of revenues (the method generally used
when the dollar amount of scrap is immaterial):
Cash or Accounts Receivable 4,500
Scrap Revenues 4,500
To recognize revenue from sale of scrap.
b. Regard scrap sales as offsets against manufacturing overhead (the method
generally used when the dollar amount of scrap is material):
Cash or Accounts Receivable 4,500
Manufacturing Department Overhead Control 4,500
To record cash raised from sale of scrap.

3. Journal entry to record scrap common to various jobs at the time scrap is returned to
storeroom:
Materials Control 4,500
Manufacturing Department Overhead Control 4,500
To record value of scrap returned to storeroom.
When the scrap is reused as direct material on a subsequent job, the journal entry is as
follows:
Work-in-Process Control 4,500
Materials Control 4,500
To record reuse of scrap on a job.