Question

Cost of Normal Spoilage Caused by Nature of Job Frieling Company installs granite countertops in customers' homes. First, the customer chooses the particular granite slab, and then Frieling measures the countertop area at the customer's home, cuts the granite to that shape, and installs it. The Tramel job calls for direct materials of $1,900 and direct labor of $600. Overhead is applied at the rate of 120 percent of direct labor cost. Unfortunately, one small countertop breaks during installation and Frieling must cut another piece and install it to properly complete the job. The additional rework required direct materials costing $400 and direct labor costing $100. Assume that the spoilage was due to the inherently fragile nature of the piece of stone picked out by the Tramels. Frieling had warned them that the chosen piece could require much more care and potentially additional work. As a result, Frieling considers this spoilage to be caused by the Tramels' job. Required: 1. Calculate the cost of the Tramel job. $ 2. Does a journal entry to the overhead control account need to be made? 3. What if the additional rework required $200 of direct labor? What would be the effect on the cost of the Tramel job? If the additional rework required $200 of direct labor rather than $100, then the total cost of the Tramel job would by $ to $

Answer 1

Answer is given below with explanation

$1,900 1 Cost of the Tramel job Direct Material Direct Labor Overhead applied Total Cost $600 $720 (120% of $600) $3,220 Note: Cost of normal spoilage is absorbed in overhead applied above Credit 2 Journal entry General Journal Overhead Control Account To Direct Material To Direct Labor Debit $500 $100 3 The cost of Tramel job would not be affected since the rework cost was not included in the cost of Tramel job Hence total cost would remain as same as before