ABC Manufacturing Co. produces a variety of items in accordance with special orders from its various customers.  The following $12 manufacturing cost per unit pertains to an order of 1,250 units of "A" from Canadian Tire:

 

Direct materials Direct labour Manufacturing overhead allocated

$   6.00 4.00     2.00 $ 12.00

 The overhead allocation rate includes a provision for normal spoilage and normal rework.  Consider each requirement independently unless otherwise instructed.

 

Required: 

 

1. A forklift operator dropped and totally destroyed 250 units of "A" during delivery to Canadian Tire.  Require a journal entry to record this event.

 2. Reconsider requirement 1.  Suppose that the 250 units of "A" were not totally destroyed and could be sold to a junk dealer for $500 cash.  Require a journal entry to record this event.

 3. Assume that 50 units of "A" were spoiled during production and then destroyed.  This rejection of 50 units was considered normal.  Require a journal entry to record this event assuming that the spoilage is attributable to the overall production process and not to this specific job.

 4. Reconsider requirement 3.  Suppose that the 50 spoiled units can be reworked at a total cost of $400.  Require a journal entry to record this event, assuming that this rework is normal and is attributable to this specific job.  Note that the rework costs are comprised of $200 of materials, $150 of direct labour, and $50 of allocated manufacturing overhead.

 5. Refer to the original data.  Assume that ABC Manufacturing Company allows for a normal spoilage rate of 10% of good units completed.  In its production run for Canadian Tire, in addition to the 1250 good units in manufactured, the company spoiled and destroyed 150 units.  Any normal spoilage incurred on this job was attributable to the quality demands of this particular customer (and not to the general production process).  Require a journal entry to record this event.

   6. Refer to the original data.  Suppose that all 1250 units of this job have been manufactured, and that the job has been fully charged the cost of all direct materials that were requisitioned for the job.  Suppose further that because of the nature of this particular customer's order, the production process has yielded some scrap plastic cuttings which can be sold to a plastic recycler for $175.  Require a journal entry to record this event.

 7. Reconsider requirement 6.  Suppose now that the type of scrap plastic cuttings that resulted from this job is common to all jobs that manufacture this product, and that this job's scrap is sold to the plastics recycler for $210.  Require a journal entry to record this event assuming the company records the amount of such sales as a reduction of its manufacturing costs rather than as a separate revenue item.