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Sama Company is a contract manufacturer for a variety of pharmaceutical and over-the-counter products. It has a reputation for operational excellence and boasts a normal spoilage rate of 2% of normal input. Normal spoilage is recognized during the budgeting process and is classified as a component of manufacturing
The total costs for all 128,500 units of Job No. M102 follow. The job has been completed, but the costs are yet to be transferred to Finished Goods.
Direct materials |
$ 979,000 |
Direct manufacturing labor |
840,000 |
Manufacturing overhead |
1,650,500 |
Total |
$3,469,500 |
Required:
Prepare journal entries, similar to requirement 2, to account for Job No. M102 if all spoilage were considered normal. How will operating income be affected if all spoilage is considered normal?
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