a. Labor hours are used to determine the predetermined overhead rate. What is the predetermined overhead rate per direct labor hour? b. Prepare the journal entry needed to record the spoilage. c. Prepare the journal entry if the spoilage relates only to Job #12 rather than being a part of all production runs.
a. Labor hours are used to determine the predetermined overhead rate. What is the predetermined overhead rate per direct labor hour? b. Prepare the journal entry needed to record the spoilage. c. Prepare the journal entry if the spoilage relates only to Job #12 rather than being a part of all production runs.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Case 2
Grace Company manufactures picture frames of all sizes and shapes and uses a job-
order costing system. There is always some spoilage in each production run. The
following costs relate to the current run:
Estimated overhead (exclusive of spoilage)
Spoilage (estimated)
Sales value of spoiled frames
$160,000
$ 25,000
$ 11,500
Labor hours
100,000
The actual cost of a spoiled picture frame is $7.00. During the year 170 frames are
considered spoiled. Each spoiled frame can be sold for $4. The spoilage is considered a
part of all jobs.
a. Labor hours are used to determine the predetermined overhead rate.
What is the predetermined overhead rate per direct labor hour?
b. Prepare the journal entry needed to record the spoilage.
c. Prepare the journal entry if the spoilage relates only to Job #12 rather than
being a part of all production runs.
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