END OF TOPIC EXERCISES – SET 3

Problem 3-1 Panda Company, a manufacturer of ball point pens, has decided to enter into the
production of pens as corporate giveaways on a job order basis. The pens will be sold for P5 each and
the cost per pen is as follows:
Direct materials P2.00
Direct labor 1.30
Estimated factory overhead 0.50
P3.80
CASE I. Normal Spoilage
Situation A. Charged to all Jobs
Spoilage is expected to occur during the production process, thus an allowance for normal
spoilage of P0.20 should be added to the estimated MOH cost per unit. Normal spoilage is expected to
be 5% of total units placed in production. Spoiled units may be sold for P0.45 each.
For Job A, 21,000 units were placed into production and 1,000 units were spoiled.

Situation A. Charged to Specific Job

Spoilage is due to the differing specifications of each job thus, spoilage is charged to specific
jobs. All spoilage is considered normal and may be sold for P0.45 each. Two jobs are started:
Units Started Units Spoiled
Job B 10,000 0
Job C 15,000 750

CASE II. Normal & Abnormal Spoilage

Situation A. Spoilage is 1,250 units.
Situation B. No spoilage was anticipated.

Requirement for each situation:

1. Prepare the necessary journal entries.
2. Compute the unit cost per job.

Problem 3-2 Arimi Shirt Company manufactures men’s shirts that normally sell for P4,000. During June
2013, the company produced 14,800 good shirts and 200 defective ones. Total costs other than rework
were P12,000,000. Rework costs were P300 per shirt. All rework costs are assumed to be direct labor
related. What are the journal entries to record defective units and the cost per shirt under the following
assumptions:

1. Rework is normal; cost is charged to specific job; reworked units sold at normal selling price.
2. Rework is normal; predetermined overhead rate is used (rework is estimated); reworked units sold
at normal selling price.
3. Rework is abnormal; reworked units sold at normal selling price.
4. Reworked units are irregular and may be sold for P500 assuming:
a. defects are normal
b. defects are abnormal
Problem 3-3 The S. Loppy Manufacturing Company produces items made to order and uses a job order
cost system to record and distribute costs. The following information applies to Job 105 for 30,000
units:

Cost of normal spoilage (500 units) P20,000

Cost of abnormal spoilage P 4,000
Salvage value of spoiled units P 10 per unit
Cost of reworking defective units
(labor costs only) P 5 per unit
Normal defective units 140
Abnormal defective units 20
Cash received from sale of defective units P 6,400
Cash received from sale of scraps P 300
Cost of disposing waste materials P 40

Normal spoilage was anticipated on all jobs and included in the manufacturing overhead application
rate while rework on defective units, scraps and wastes were ignored. Scrap sales are highlighted in
the income statement.

Required:
Prepare the journal entries necessary to record the above information.