Rustic Pty Ltd manufactures wooden chairs to customer order. In June 2018, Job #210 required the manufacture of 60 chairs for a customer to fit out a new restaurant. As the timber used in making chairs can have defects that are not immediately obvious on inspection the company has an allowance for normal spoilage of 5% (i.e., five units of spoilage is considered acceptable for every 100 good units manufactured). The chairs are inspected at the end of the manufacturing process for any defects, as product liability costs can be high if a chair fails. Manufacturing costs assigned to the job prior to the inspection point were $550 per unit (consisting of direct materials of $200, direct labour of $250 and allocated overhead of $100). The company uses a budgeted overhead rate of 40% of direct labour cost. This rate includes an allowance for normal spoilage, rework etc. common to all jobs On inspection, five units were found to be defective for Job #210 to produce the 60 good units required to fill the customer order Rustic is able to immediately dispose of any spoiled units for $100 each to the Men's Shed Organisation Required: (a) (i Determine the amounts of normal and abnormal spoilage for Job #210 based on the company's acceptable level of spoilage (2 marks) Use the information from (i) above to prepare the journal entry required to record all spoilage for Job# 210, if the normal spoilage is considered common to all jobs (ii) (4 marks) (b) Unrelated to the requirements above, prepare the journal entry to record all spoilage for Job#210 if the customer specifically requested the use of a different timber that is not typically used by Rustic for these chairs. This new (different) timber was found to be the cause of all of the spoilage. (3 marks) (c) Unrelated to the requirements above, prepare the journal entry to record all spoilage for Job#210 if the cause was a labourer using an incorrect material for the chair making it too weak for its purpose. It is all considered abnormal spoilage (3 marks) (d) Briefly explain the possible accounting treatments for any scrap (residue material) that result from the production process? (4 marks) Rustic Pty Ltd manufactures wooden chairs to customer order. In June 2018, Job #210 required the manufacture of 60 chairs for a customer to fit out a new restaurant. As the timber used in making chairs can have defects that are not immediately obvious on inspection the company has an allowance for normal spoilage of 5% (i.e., five units of spoilage is considered acceptable for every 100 good units manufactured). The chairs are inspected at the end of the manufacturing process for any defects, as product liability costs can be high if a chair fails. Manufacturing costs assigned to the job prior to the inspection point were $550 per unit (consisting of direct materials of $200, direct labour of $250 and allocated overhead of $100). The company uses a budgeted overhead rate of 40% of direct labour cost. This rate includes an allowance for normal spoilage, rework etc. common to all jobs On inspection, five units were found to be defective for Job #210 to produce the 60 good units required to fill the customer order Rustic is able to immediately dispose of any spoiled units for $100 each to the Men's Shed Organisation Required: (a) (i Determine the amounts of normal and abnormal spoilage for Job #210 based on the company's acceptable level of spoilage (2 marks) Use the information from (i) above to prepare the journal entry required to record all spoilage for Job# 210, if the normal spoilage is considered common to all jobs (ii) (4 marks) (b) Unrelated to the requirements above, prepare the journal entry to record all spoilage for Job#210 if the customer specifically requested the use of a different timber that is not typically used by Rustic for these chairs. This new (different) timber was found to be the cause of all of the spoilage. (3 marks) (c) Unrelated to the requirements above, prepare the journal entry to record all spoilage for Job#210 if the cause was a labourer using an incorrect material for the chair making it too weak for its purpose. It is all considered abnormal spoilage (3 marks) (d) Briefly explain the possible accounting treatments for any scrap (residue material) that result from the production process? (4 marks)
