labor used, and productionpractices of a company. Thequantity of such loss may beestablished from management orengineering; given cost/benefitanalysis, management hasgenerally concluded that a certainlevel of defects is less expensivethan trying to prevent all defectsfrom occurring. Because normalspoilage is to be expected, themost common method of handling itis to include an estimate for theloss in the development of thepredetermined overhead rate.Alternatively, abnormal spoilagerefers to a quantity of loss above theexpected normal loss. Such lossesare more likely to be preventableand, thus, need to be brought tomanagement’s attention by showingthe amount of the loss as a periodcost.
7. a. Direct Material Inventory 41,000Accounts Payable 41,000WIP - Job #217 22,400WIP - Job #218 3,600WIP - other jobs 26,800Direct Material Inventory 52,800WIP - Job #217 5,200WIP - Job #218 7,000WIP - other jobs 9,800Cash (or Wages Payable) 22,000Manufacturing Overhead 113,300Various accounts 113,300WIP - Job #217 26,780WIP - Job #218 36,050WIP - other jobs 50,470Manufacturing Overhead 113,300(Actual rate per DL$ = $113,300 ÷ $22,000 = $5.15)
Finished Goods Inventory 59,980WIP Inventory - Job #217 59,980($5,600 + $22,400 + $5,200 + $26,780 = $59,980)Cash 80,973Sales 80,973($59,980 × 1.35 = $80,973)Cost of Goods Sold 59,980Finished Goods Inventory 59,980
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