Question : 4) Costs of abnormal spoilage NOT considered to be inventoriable : 1217035

4) Costs of abnormal spoilage are NOT considered to be inventoriable costs and are written off as costs of the accounting period in which the abnormal spoilage is detected.

5) When assigning costs, job-costing systems generally distinguish normal spoilage attributable to a specific job from normal spoilage common to all jobs.

6) When normal spoilage occurs because of the specifications of a particular job, that job bears the cost of the spoilage minus the disposal value of the spoilage.

7) Shazam Machines produces numerous types of money change machines. All machines are made in the same production department and many use exactly the same processes. Because customers have such different demands for the machine characteristics, the company uses a job-costing system. Unfortunately, some of the production managers have been upset for the last few months when their jobs were charged with the spoilage that occurred over an entire processing run of several types of machines. Some of the best managers have even threatened to quit unless the accounting system is changed.

Required:

What recommendations can you suggest to improve the accounting for spoilage?

Objective 18.6

1) Which of the following entries reflects the original cost assignment before production items are reworked?

A) Work-in-Process ControlXXX

Materials ControlXXX

Wages Payable ControlXXX

Manufacturing Overhead AllocatedXXX

B) Finished Goods ControlXXX

Work-in-Process ControlXXX

C) Manufacturing Overhead AllocatedXXX

Materials ControlXXX

Wages Payable ControlXXX

Work-in-Process ControlXXX

D) Materials ControlXXX

Wages Payable ControlXXX

Work-in-Process ControlXXX

Manufacturing Overhead AllocatedXXX

2) Accounting for rework in a process-costing system:

A) accounts for normal rework in the same way as a job-costing system

B) requires abnormal rework to be distinguished from normal rework

C) if the rework is normal, then rework is accounted for in the same manner as accounting for normal rework common to all jobs

D) All of these answers are correct.

3) In accounting for scrap, which one of the following statements is FALSE?

A) Normal scrap is accounted for separately from abnormal scrap

B) In accounting for scrap, there is no distinction between the scrap attributable to a specific job and scrap common to all jobs

C) Initial entries to scrap accounting records are most often made in dollar terms

D) All of these answers are correct.

4) When rework is normal and NOT attributable to a specific job, the costs of rework are charged to manufacturing overhead and are spread, through overhead allocation, over all jobs.

5) Valentine Florists operate a flower shop. Because most of their orders are via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is $6: $3.75 for labor, $1.50 for more flowers, and $0.75 for overhead. This ratio of costs holds for the average original order. On a recent day, the shop reworked 48 orders out of 249. The original cost of the 48 orders totaled $720. The average cost of all orders is $16.16, including rework, with an average selling price of $30

Required:

Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to Arrangement Department Overhead Control. Prepare a journal entry to transfer the finished goods to Finished Goods Inventory.

6) Robotoys Incorporated manufactures and distributes small robotic toys. Because most of its orders are via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is $11.30: $4.15 for labor, $5.00 for more materials, and $2.15 for overhead. This ratio of costs holds for the average original order. On a recent day, the shop reworked 83 orders out of 700. The original cost of the 83 orders totaled $1,909. The average cost of all orders is $24.34, including rework, with an average selling price of $34.50.

Required:

Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to  Robo Department Overhead Control. Prepare journal entries to record all relevant rework charges as well as to transfer the reworked items finished goods to Finished Goods Inventory.

7) When a unit has to be reworked, the rework may be classified in three ways. What are those ways, and how does the accounting for each differ?