Parmar Furnishings produces commercial office furnishings using specialized job orders from educational institutions, hospitals and offices. An order for 2,500 sections of wall units had the following costs:

Direct materials......................................... $300

Direct labour..............................................$200

Manufacturing overhead allocated........$100

....................................................................$600

1. Assume that a forklift driver dropped a crate of 200 finished wall unit sections, damaging them. This type of damage was not considered as normal. Suppose some of the wall units could be sold to a wholesale warehouse for $20,000. Prepare a journal entry to record this event. Calculate and briefly explain the unit cost of the remaining 2,300 wall units.

2. Refer to the original data. Inspectors at the company rejected 200 of the 2,500 wall units due to dents and scratches. The wall units were sold to a local contractor at a discount for $40,000. The contractor used the units to furnish a building. Assume this rejection rate is considered normal.

1. Prepare the journal entry and calculate the unit cost if the rejection is attributable to this particular job.

2. Prepare the journal entry and calculate the unit cost if the rejection is common to all jobs.

3. Refer to the original data. When moving the wall units to the finishing department 200 wall units were left outside in the rain. As a result, the finishing coating did not stick to the surface. The units were resent to the finishing department where they were recoated with the proper finish and sold at regular price. This operation cost $60,000.

In this scenario, consider the order was completed just before the close of the fiscal year. The units will be delivered early in the next accounting period.

The controller tells the management accountant that the rework costs for this job should be considered normal. The management accountant is confident that the oversight of leaving the units in the rain was not a normal occurrence. The management accountant feels the controller made these comments because he wants to show a higher operating income for the year.

1. Prepare the journal entry to account for the spoilage under the assumption the spoilage was abnormal. Then record the transfer of the job to finished goods.

2. Prepare the journal entry to account for the spoilage under the assumption the spoilage was normal. Then record the transfer of the job to finished goods.

3. If the wall units are not sold until the following year, what effect will recording the spoilage as normal instead as abnormal have on net income for the current year? What should the management accountant do in response to the controller’s comment.