SOLUTIONS TO PROBLEMS ON DEFECTIVE WORK (RAIBORN):

No. 29(Red) No.33 (Textbook)

Canyon City Co.

A. Predetermined OH rate = $1,421,000 ÷ 145,000 = $9.80 per MH

Direct material $47,500
Direct labor 21,800
Overhead (325 × $9.80) 3,185
Total cost $72,485
Per-unit cost = $72,485 ÷ 1,500 = $48.32 (rounded)

B. The $750 rework cost is included in Manufacturing Overhead Control.

C. Total original cost $72,485

Cost of new 30 units 1,390
Less sale of defective units (240)
Total cost of Job #876 $73,635

No.30(Red), No.34(Textbook)

A. The estimated cost of the spoilage should be included in calculating the predetermined
overhead rate. This approach spreads the cost of spoilage across all
good units produced.

B. The cost of this spoilage should be charged to the specific job. Since there is no
salvage value for the spoilage, no journal entry would be necessary as the cost
of the spoiled units would be included in the prior charges to the job for direct
materials, direct labor, and manufacturing overhead.

C. In this case, the spoilage is unexpected and the net cost should be recorded as a
loss of the period in which it occurred. Any salvage value associated with the
spoilage will reduce the amount of the loss. To record the transaction, work in
process (and the specific job’s job order cost sheet) should be credited for the
cost of the spoilage and the expected, net salvage of the spoilage should be debited
(Disposal value of defective work). A loss account (e.g., Loss from Abnormal
Spoilage) should be debited to balance the transaction.

.
 No.31 (Red) No.32 (Textbook)
San Angeles Corporation

A. Manufacturing Overhead 1,150

Raw Material Inventory 250
Wages Payable 900

B. WIP—Job #BA468 1,150

Raw Material Inventory 250
Wages Payable 900
Given that the rework costs were not necessary to the completion of the job,
San Angelo Corp. should probably not charge its markup percentage on the
$1,150 of rework costs unless the customer had already been informed that such
charges might be charged and the customer had agreed to such charges.

C. Loss on Abnormal Rework 1,150

Raw Material Inventory 250
Wages Payable 900

No.51(Red) No.54(Textbook)
PlastiCo

A. Predetermined rate = $925,000 ÷ 100,000 = $9.25 per MH

B. Total cost of direct material $687,100

Total cost of direct labor 157,750
Applied OH (3,080 × $9.25) 28,490
Total cost of Job B316 $873,340

C. The rework cost is debited to the manufacturing overhead account since the
company uses a predetermined rate that includes rework costs to apply overhead.
Manufacturing Overhead 75,500
Various accounts 75,500

D. Predetermined rate = $850,000 ÷ 100,000 = $8.50 per MH

Total cost of direct material $687,100
Total cost of direct labor 157,750
Applied OH (3,080 × $8.50) 26,180
Total cost of Job B316 $871,030

E. Total cost of direct material $687,100

Total cost of direct labor 157,750
Applied OH (3,080 × $8.50) 26,180
Rework cost ($75,500 × 0.20) 15,100
Sale of reworked pipe (200 × $3.50) (700)
Total cost of Job B316 $885,430
 No.52 (Red), No.53 (Textbook)
Prudoe Compounds

A. Overhead other than spoilage $600,000

Estimated spoilage cost $ 50,000
Less salvage value (20,000) 30,000
Adjusted estimated overhead cost $630,000
POR = $630,000 ÷ 40,000 = $15.75 per DLH

B. Disposal value of chemical 496

Manufacturing Overhead 1,234
Work in Process—Job #788 1,730