Question

The Cole Corporation produces a variety of chairs. The cost for one chair pertaining to an order for 10,000 chairs is as follows: REQUIRED: 1. The inspectors have just rejected 1,000 of the total chairs in this order. These rejected chairs have a $1,000 residual value. What is the journal entry to record the spoilage, assuming that this spoilage is normal and relates specifically to the job? 2. Suppose the Cole Corporation includes a provision for normal spoilage in the predetermined overhead rate. Accordingly, the "factory overhead applied" is $9 per chair, and the total cost for one chair is $22. If the 1,000 units were normally spoiled, and there is a $1,000 residual value, what is the journal entry to record the spoilage? 3. Suppose the 1,000 spoiled chairs are fixed for $15 each, paid to another firm. If this normal occurrence relates to the specific job, what is the revised unit cost?

Answer 1

Step-by-step explanation:

1. Journal Entry to Record Normal Spoilage with $1,000 Residual Value:

Spoilage Expense $1,000

Accumulated Spoilage $1,000

Explanation: The spoilage expense is debited to record the cost of the rejected chairs, and the accumulated spoilage account is credited to accumulate the cost of spoilage.

2. Journal Entry to Record Normal Spoilage with Predetermined Overhead Rate:

Spoilage Expense $9,000

Factory Overhead Applied $9,000

Explanation: The spoilage expense is debited to record the cost of the spoiled chairs, which includes the predetermined overhead rate applied to each chair. The factory overhead applied account is credited to remove the applied overhead from the overall cost.

3. Revised Unit Cost after Fixed Spoilage Cost:

To calculate the revised unit cost, we need to consider the fixed spoilage cost and the number of good units.

Total cost for 10,000 chairs:

Total cost = Cost per chair × Number of chairs

Total cost = $22 × 10,000 = $220,000

Deduct the cost of spoiled chairs:

Spoiled chairs cost = Cost per chair × Number of spoiled chairs

Spoiled chairs cost = $22 × 1,000 = $22,000

Deduct the cost of fixed spoilage (paid to another firm):

Fixed spoilage cost = Cost per chair × Number of fixed spoilage chairs

Fixed spoilage cost = $15 × 1,000 = $15,000

Revised unit cost:

Revised unit cost = (Total cost - Spoiled chairs cost - Fixed spoilage cost) ÷ (Number of good chairs)

Revised unit cost = ($220,000 - $22,000 - $15,000) ÷ (10,000 - 1,000)

Revised unit cost = $183,000 ÷ 9,000

Revised unit cost = $20.33 (rounded)

Therefore, the revised unit cost after accounting for the fixed spoilage cost is $20.33.