eBook

Print Item

Cost of Normal Spoilage Caused by Nature of Job

Stanley Company installs granite countertops in customers' homes. First, the customer chooses the particular granite slab, and then Stanley measures the countertop area at the customer's home, cuts the granite to that shape, and installs it. The Flores job calls for direct materials of $2,600 and direct labor of $700. Overhead is applied at the rate of 160 percent of direct labor cost. Unfortunately, one small countertop breaks during installation and Stanley must cut another piece and install it to properly complete the job. The additional rework required direct materials costing $900 and direct labor costing $250.

Assume that the spoilage was due to the inherently fragile nature of the piece of stone picked out by the Flores family. Stanley had warned them that the chosen piece could require much more care and potentially additional work. As a result, Stanley considers this spoilage to be caused by the Flores' job.

Required:

1. Calculate the cost of the Flores job. $fill in the blank 1

2. Does a journal entry to the overhead control account need to be made?

YesNo

3. What if the additional rework required $200 of direct labor? What would be the effect on the cost of the Flores job?

If the additional rework required $200 of direct labor rather than $250, then the total cost of the Flores job would

decreaseincrease

by $fill in the blank 4 to $fill in the blank 5.