Recognition of loss from spoilage
Response to the following problem:
Arokia Electronics manufactures cell phone models in its Walnut Creek plant. Suppose the company provides you with the following information regarding operations for September 2011:
Total cell phones manufactured....................8,000
Phones rejected as spoiled units......................300
Total manufacturing cost........................$320,000
Assume the spoiled units have no disposal value.
Required:
1. What is the unit cost of making the 8,000 cell phones?
2. What is the total cost of the 300 spoiled units?
3. If the spoilage is considered normal, what is the increase in the unit cost of good phones manufactured as a result of the spoilage?
4. If the spoilage is considered abnormal, prepare the journal entries for the spoilage incurred.