The Hawg Manufacturing Shop produces motorcycle parts.Typically,20 pieces out of a job lot of 2,000 parts are normally spoiled.Costs are assigned at the inspection point,$100.00 per unit.Spoiled pieces may be disposed of for proceeds of $20.00 per unit.The spoiled goods must be inventoried appropriately when the normal spoilage is detected.The current job requires the production of 5,000 good parts.
Which of the following journal entries properly reflects the recording of spoiled goods?

Question

Quizplus · Accepted Answer

Option B reflects the proper recording of spoiled goods as per normal spoilage. The cost assigned at the inspection point is $100.00 per unit, and the proceeds from disposing of the spoiled goods are $20.00 per unit. As 20 pieces are spoiled out of 2,000 parts, the normal spoilage percentage is 1% (20/2000). Therefore, the total cost of spoiled goods is 20 * $100.00 = $2,000.00, and the proceeds from disposing of them are 20 * $20.00 = $400.00. Hence, the journal entry to record spoiled goods is:
Spoiled Goods A/c Dr.     $2,000.00
To Inventory A/c                 $2,000.00
(To record normal spoilage)
Cash A/c Dr.                  $400.00
To Spoiled Goods A/c    $400.00
(To record the sale of spoiled goods)

The Hawg Manufacturing Shop Produces Motorcycle Parts