Different Ways of Accounting for Spoilage (CPA) ‘The D. Hayes Cramer Company manufactures product C, whose cost per unit is $1 of materials,

$2 of labor, and $3 of overhead costs. During the month of May, 1,000 units of product C were spoiled. These units could be sold for 60¢ each.

The accountant said that the entry to be made for these 1,000 lost or spoiled units could be one of the following four:

ENTRY NO. 1 Spoiled goods $ 600 Work in process—Materials Sea00 Work in process—Labor 200 Work in process—Overhead 300 ENTRY NO. 2 Spoiled goods $ 600 Manufacturing expenses 5,400 Work in process—Materials $1,000 Work in process—Labor 2,000 Work in process—Overhead 3,000 ENTRY NO. 3 Spoiled goods $ 600 Loss on spoiled goods 5,400 Work in procesg—Materials $1,000 Work in process—Labor 2,000 Work in process—Overhead 3,000 ENTRY NO. 4 Spoiled goods $ 600 Receivable 5,400 Work in process—Materials $1,000 Work in process—Labor 2,000 Work in process—Overhead 3,000 required Indicate the circumstance under which each of the four solutions above would be appropriate. lop5