... makes custom wood tables and utilizes a job-order costing system. The following standard cost information is available with respect to the production of one type X office desk and shelf combination:

Direct Materials 3 yards $10 per yard

Direct Labor 5 hours $20 per hour

Overhead (all fixed)

applied at rate of $10 per direct labor hour

JOB 123, from a specialty furniture retailer, called for the production of 10 Type X office desk systems. JOB 678 from a different retailer called for the production of 12 of these same desks.

REQUIRED:

Okay lets avoid going into UNECESSARY levels of detail. Lets say we are doing JOB123 and some wood snaps. We have to take new wood, and use more labor . Or . We make the chair and it fails inspection and we need to go back and fix it this is called REWORK. When we do the rework, we incur more costs for the additional materials and labor AND overhead, if its applied on the basis of labor hours. So .. lets say all of this is $50 in costs.

• If this happens normally a certain amount of time, and could happen to ANY job, what happens with this cost?
• What if we could sell the stuff for $10. How much is the actual spoilage. Right way to handle it?
• How do you think we should deal with these costs if they are caused by the specifications of the job as specified by the customer?
• NOW ASSUME that the extra materials and time noted above were caused by a totally unexpected event one that we have not anticipated at all. Zerosay lightning struck the building while JOB123 was in process. Now what do we do?
• What if this stuff could be sold for $10. Now what should we do?