Question 1. Which of the following statements is NOT true? A. Spoilage is a norm

Question

Question 1. Which of the following statements is NOT true?

A. Spoilage is a normal part of the manufacturing process

B. Spoilage might occur in a single job.

C. Spoilage might effect multiple jobs.

D. If spoiled goods represented more than 1% of a job, they would automatically be considered abnormal.

Question 2. Ulla Industries spent $100,000 in Job 25-92 making 10,000 units of Product 122-45. 30 of the 10,000 units completed were defective and could not be repaired or sold as seconds. This was considered normal spoilage in the company and was not directly related to the job specifications. Which of the following statements is true?

A. No journal entry should be made

B. Ulla should debit WIP for $300 and credit MOH for $300.

C. Ulla should debit Spoiled Goods Inventory for $300 and credit WIP for $300

D. Ulla should debit MOH for $300 and credit WIP for $300.

Explanation / Answer

Question 1

The following statement is not true

If spoiled goods represented more than 1% of a job, they would automatically be considered abnormal.

Reason -

Spoilage of certain percentage of the goods cannot be considered as spoilage. The spoilage would depend on each of the items, fixing certain percentage above which is spoilage cannot be imposed as such. Therefore, Spoiled goods represented more than 1% of a job, they would automatically be considered abnormal is not true.

Question 2

The following statement is true

No journal entry should be made.

Reason -

As this is considered normal spoilage in the company and was not directly related to job specification, there requires no journal entry to be passed. In case of abnormal loss or gain alone the entry has to be passed.

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