Job costing, rework
Response to the following problem:
Solutions Corporation is a manufacturer of computer chips based in San Jose. It manufactures two types of computer chips, CS1 and CS2. The costs of manufacturing each CS1 chip, excluding rework costs, are direct materials, $60; direct manufacturing labor, $12; and manufacturing overhead, $38. Defective units are sent to a separate rework area. Rework costs per CS1 chip are direct materials, $12; direct manufacturing labor, $9; and manufacturing overhead, $15. In August 2008, Solutions manufactured 1,000 CS1 and 500 CS2 chips. Eighty of the CS1 chips and none of the CS2 chips required rework. Solutions classifies 50 of the CS1 chips reworked as normal rework caused by inherent problems in its production process that only coincidentally occurred during the production of CS1. Hence the rework costs for these 50 CS1 chips are normal rework costs not specifically attributable to the CS1 product. Solutions classifies the remaining 30 units of CS1 chips reworked as abnormal rework. Solutions allocates manufacturing overhead on the basis of machine-hours required to manufacture CS1 and CS2. Each CS1 or CS2 chip requires the same number of machine-hours.
1. Prepare journal entries to record the accounting for the cost of the spoiled chips and for rework.
2. What were the total rework costs of CS1 chips in August 2008?