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Sanchez Company manufactures and distributes children games. Sometimes its orders have to be reworked. The average cost of the reworked orders is $16.50: $7.50 for
Sanchez Company manufactures and distributes children games. Sometimes its orders have to be reworked. The average cost of the reworked orders is $16.50: $7.50 for labor, $6.00 for more materials, and $3.00 for overhead. This ratio of costs holds for the average original order. On a recent day, the shop reworked 100 orders. The original cost of the 100 orders totaled $2,400. Required: Prepare the necessary journal entry to record the rework assuming it is charged to overhead. Also, prepare the journal entry to transfer the reworked items to finished goods inventory. When a unit has to be reworked, the rework may be classified in three ways. What are those ways, and how does the accounting for each differ? (Briefly explain in words.)
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