14. Malaya Co. manufactures carts. One order for Malayo Corp. for 2,000 carts showed the following costs per unit: direct materials - P40; direct labor - P20 and factory overhead applied at 140% of direct labor cost if defective work is charged to a specific job and 150% if defective work is charged to all jobs. Final inspection revealed that the wheels were assembled with improper bearings. The wheels were disassembled and the proper bearings inserted. The cost of correcting each defective cart consists of P2 added cost for bearings, P4 for labor and factory overhead at the predetermined rate. Required: a. Prepare journal entries to record correction of the defective units and transfer of the work in process to finished goods if: 1. The Malayo is to be charged with the cost of defective units. 2. The cost of correcting the defective units is not charged to Malayo. b. Compute the cost per unit of finished goods if: 1. The Malayo is to be charged with the cost of defective units. 2. The cost of correcting the defective units is not charged to Malayo. Solution: