Richport Company manufactures products that often require specification changes or modifications to meet customer needs. Consequently, Richport employs a job costing system for its operations. Although the specification changes and modifications are commonplace, Richport has been able to establish a normal spoilage rate of 2.5% of total units produced (before spoilage is identified). The company recognizes normal spoilage during the budgeting process and classifies it as a component of factory overhead. Thus, the predetermined overhead rate used to apply factory overhead costs to jobs includes an allowance for net spoilage cost for normal spoilage. If spoilage on a job exceeds the normal rate, it is considered abnormal and must be analyzed. The cause of the spoilage must then be submitted to management. Randa Duncan, one of Richport's inspection managers, has been reviewing the output of Job N1192-122 that was recently completed. A total of 128,850 units had been started for the job, and 6,000 units were rejected at final inspection, meaning that the job yielded 122,850 good units. Randa noted that 900 of the first units produced were rejected due to a very unusual design defect that was corrected immediately; no more units were rejected for this reason. Randa was unable to identify a pattern for the remaining 5,100 rejected units. They can be sold at a salvage value of $9 per unit. The total costs accumulated for all 128,850 units of Job N1192-122 follow. Although the job is completed, all of these costs are still in the Work-in-Process Inventory account (i.e., the cost of the completed job has not been transferred to the Finished Goods Inventory account). $ 2,283,000 1,855,000 3,206,450 $ 7,344,450 Direct materials Direct labor Applied factory overhead Total cost of job
Richport Company manufactures products that often require specification changes or modifications to meet customer needs. Consequently, Richport employs a job costing system for its operations. Although the specification changes and modifications are commonplace, Richport has been able to establish a normal spoilage rate of 2.5% of total units produced (before spoilage is identified). The company recognizes normal spoilage during the budgeting process and classifies it as a component of factory overhead. Thus, the predetermined overhead rate used to apply factory overhead costs to jobs includes an allowance for net spoilage cost for normal spoilage. If spoilage on a job exceeds the normal rate, it is considered abnormal and must be analyzed. The cause of the spoilage must then be submitted to management. Randa Duncan, one of Richport's inspection managers, has been reviewing the output of Job N1192-122 that was recently completed. A total of 128,850 units had been started for the job, and 6,000 units were rejected at final inspection, meaning that the job yielded 122,850 good units. Randa noted that 900 of the first units produced were rejected due to a very unusual design defect that was corrected immediately; no more units were rejected for this reason. Randa was unable to identify a pattern for the remaining 5,100 rejected units. They can be sold at a salvage value of $9 per unit. The total costs accumulated for all 128,850 units of Job N1192-122 follow. Although the job is completed, all of these costs are still in the Work-in-Process Inventory account (i.e., the cost of the completed job has not been transferred to the Finished Goods Inventory account). $ 2,283,000 1,855,000 3,206,450 $ 7,344,450 Direct materials Direct labor Applied factory overhead Total cost of job
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Richport Company manufactures products that often require specification changes or modifications to meet customer
needs. Consequently, Richport employs a job costing system for its operations.
Although the specification changes and modifications are commonplace, Richport has been able to establish a normal
spoilage rate of 2.5% of total units produced (before spoilage is identified). The company recognizes normal spoilage
during the budgeting process and classifies it as a component of factory overhead. Thus, the predetermined overhead
rate used to apply factory overhead costs to jobs includes an allowance for net spoilage cost for normal spoilage. If
spoilage on a job exceeds the normal rate, it is considered abnormal and must be analyzed. The cause of the spoilage
must then be submitted to management.
Randa Duncan, one of Richport's inspection managers, has been reviewing the output of Job N1192-122 that was recently
completed. A total of 128,850 units had been started for the job, and 6,000 units were rejected at final inspection,
meaning that the job yielded 122,850 good units.
Randa noted that 900 of the first units produced were rejected due to a very unusual design defect that was corrected
immediately; no more units were rejected for this reason.
Randa was unable to identify a pattern for the remaining 5,100 rejected units. They can be sold at a salvage value of $9
per unit.
The total costs accumulated for all 128,850 units of Job N1192-122 follow. Although the job is completed, all of these costs
are still in the Work-in-Process Inventory account (i.e., the cost of the completed job has not been transferred to the
Finished Goods Inventory account).
$ 2,283,000
1,855,000
3,206,450
$ 7,344,450
Direct materials
Direct labor
Applied factory overhead
Total cost of job
Transcribed Image Text:a. Determine the normal input required to yield 122,850 good units.
b. Prepare an analysis separating the spoiled units into normal and abnormal spoilage.
c. Prepare the appropriate journal entries to account for Job N1192-122.
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