Question

6

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 $2,500 and direct labor of $900. 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 $1,000 and direct labor costing $700. 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. 7,020 2. Does a journal entry to the overhead control account need to be made? No 3. What if the additional rework required $1,400 of direct labor? What would be the effect on the cost of the Tramel job? 7,020 X to $ If the additional rework required $1,400 of direct labor rather than $700, then the total cost of the Tramel job would increase by $ 9,260 X

Answer 1

1. Calculate the cost of the Tramel Job.

Direct material	$2,500
Direct labor	$900
Applied Overhead ($900 * 120%)	$1,080
	$4,480
Additional Rework cost :
Direct material	$1,000
Direct labor	$700
Applied Overhead ($700 * 120%)	$840
Total cost of Tramel job	$7,020

2.

No journal entry need to be made to control the overhead.

3.

If the additional rework required $1,400 of direct labor.

Direct material	$2,500
Direct labor	$900
Applied Overhead ($900 * 120%)	$1,080
	$4,480
Additional Rework cost :
Direct material	$1,000
Direct labor	$1,400
Applied Overhead ($1,400 * 120%)	$1,680
Total cost of Tramel job	$8,560

If the additional rework required $1,400 of direct labor rather than $700, then the total cost of the Tramel job would increase by $7,020 to $8,560.