Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Hartland Corporation manufactures glassware for several big-box retailers. Hartland ordinarily experiences normal spoilage at a rate of 3% of normal input. The company recognizes

The Hartland Corporation manufactures glassware for several big-box retailers. Hartland ordinarily experiences normal spoilage at a rate of 3% of normal input. The company recognizes normal spoilage during the budgeting process and classifies its cost as manufacturing overhead when determining the overhead rate. Recently, Hartland completed an order from one of its customers. A total of 153,500 units were started and 8,000 units were spoiled, yielding 145,500 quality units. The spoiled units were sold at $3 per unit.

Given the higher-than-expected spoilage, the production manager argues that all of the spoiled units should be considered normal for this order. Costs were as follows for the 153,500 units started:

Direct Materials $1,134,000
Direct Labor $850,000
Manufacturing Overhead $1,700,000

In the initial post:

  1. Calculate the units attributable to normal and to abnormal spoilage.
  2. Compute the effect on gross profit for this order if all spoiled units are to be considered normal as opposed to accounting for normal and abnormal units separately. Which method results in a higher gross profit?
  3. Brainstorm at least two potential reasons that resulted in higher spoilage for this order.
  4. Assume you are Hartland's controller and describe the ethical considerations of reporting spoilage correctly to the production manager. Refer to the Standards of Ethical Conduct for Management Accountants from the Institute of Management Accountants to justify your response.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting Plus

Authors: Robert Libby, Patricia Libby, Daniel Short

8th Edition

1259116832, 9781259116834

More Books

Students also viewed these Accounting questions