Flight

Company is a contract manufacturer for a variety of pharmaceutical and over-the-counter products. It has a reputation for operational excellence and boasts a normal spoilage rate of

2%

of normal input. Normal spoilage is recognized during the budgeting process and is classified as a component of manufacturing overhead when determining the overhead rate.Lynn Sanger, one of

Flight's

quality control managers, obtains the following information for Job No. M102, an order from a consumer products company. The order was completed recently, just before the close of

Flight's

fiscal year. The units will be delivered early in the next accounting period. A total of

129,380

units were started, and

5,900

spoiled units were rejected at final inspection, yielding

123,480

good units. Spoiled units were sold at

$5

per unit. Sanger indicates that all spoilage was related to this specific job.

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Question content area bottom

Part 1

Requirement 1. Calculate the unit quantities of normal and abnormal spoilage.

	Units
Normal spoilage
Abnormal spoilage
Total units rejected

Part 2

Requirement 2. Prepare the journal entries to account for Job No. M102, including spoilage, disposal of spoiled units, and transfer of costs to the Finished Goods account. (Record debits first, then credits. Exclude explanations from journal entries. Leave unused cells blank.)

Prepare the journal entry to record the spoilage and disposal of spoiled units for Job No. M102.

Date	Accounts	Debit	Credit

Part 3

Prepare the journal entry to record the transfer of costs to the Finished Goods account for Job No. M102.

Date	Accounts	Debit	Credit

Part 4

Requirement 3a.

Flight's

controller, Vince Chadwick, tells Marta Suarez, the management accountant responsible for Job No. M102, the following: "This was an unusual job. I think all 6,000 spoiled units should be considered normal." Suarez knows that the work involved in Job No. M102 was not uncommon and that

Flight's

normal spoilage rate of

2%

is the appropriate benchmark. She feels Chadwick made these comments because he wants to show a higher operating income for the year. Prepare journal entries, similar to requirement 2, to account for Job No. M102 if all spoilage were considered normal. How will operating income be affected if all spoilage is considered normal? (Record debits first, then credits. Exclude explanations from journal entries. Leave unused cells blank.)

Prepare the journal entry to record the spoilage and disposal of spoiled units for Job No. M102.

Date	Accounts	Debit	Credit

Part 5

Prepare the journal entry to record the transfer of costs to the Finished Goods Control account for Job No. M102.

Date	Accounts	Debit	Credit

Part 6

How will operating income be affected if all spoilage is considered normal?

Showing all spoilage as normal will

decrease

increase

Flight's

operating income by

$enter your response here.

Part 7

Requirement 3b. What should Suarez do in response to Chadwick's comment?

Reporting of spoilage as normal instead of abnormal with the goal of raising operating income is

unethical.

ethical.

legal.

Suarez should indicate to Chadwick that the classification of normal and abnormal spoilage established by

Flight

Company is

appropriate.

inappropriate.

incorrect.

If Chadwick still insists on modifying the spoilage classification for this job to report higher operating income figures, Suarez should raise the matter with

one of Chadwicks co-workers

one of Chadwicks superiors.

the Canadian Revenue Agency.

the police.

Suarez should consider

all of the spoiled units as normal spoilage

ignoring Chadwick's comments

resigning from the company

if there is continued pressure to overstate operating income.