Jellyfish Machine Shop is a manufacturer of motorized carts for vacation resorts

Question

Jellyfish Machine Shop is a manufacturer of motorized carts for vacation resorts. Patrick Cullin, the plant manager of Jellyfish, obtains the following information for Job #10 in August 2014. A total of 46 units were started, and 6 spoiled units were detected and rejected at final inspection, yielding 40 good units. The spoiled units were considered to be normal spoilage. Costs assigned prior to the inspection point are $1,100 per unit. The current disposal price of the spoiled units is $235 per unit. When the spoilage is detected, the spoiled goods are inventoried at $235 per unit. What is the normal spoilage rate Prepare the journal entries to record the normal spoilage, assuming the following: The spoilage is related to a specific job. The spoilage is common to all jobs. The spoilage is considered to be abnormal spoilage.

Explanation / Answer

1.   What is the normal spoilage rate? 6/40 = 15.00% 2. Prepare the journal entries to record the spoilage, assuming: a.   The spoilage is normal and related to a specific job. Spoiled Goods Inventory 1,410 WIP, Job #10 1,410     To record normal spoilage specific     Job #10. Note: Cost of a unit produced in Job #10 is 46 units @ $1,100 = $50,600 Less 6 X $235 = 1,410 $49,190 $49,190 Good units 40 Cost per good unit $1,229.75 b.   The spoilage is normal and common to all jobs. Spoiled Goods Inventory 1,410 Actual Manufacturing Overhead 5,190 WIP, Job #10 6,600     To record normal spoilage specific     to Job #10. Note: Cost of a unit produced in Job #10 is 46 units @ $1,100 = $50,600 Less 6 X $1,100 = 6,600 $44,000 Good units 40 Cost per good unit $1,100 c.   The spoilage is considered abnormal. Spoiled Goods Inventory 1,610 Abnormal Production Loss 8,540 WIP, Job #10 10,150     To record abnormal spoilage specific     Job #10. Note: Cost of a unit produced in Job #10 is 46 units @ $1,100 = $50,600 Less 6 X $1,100 = 6,600 $44,000 Good units 40 Cost per good unit $1,100

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