Question

Frieling Company installs granite countertops in customers' homes. First, the customer chooses the particular granite slab, and then Frieling measures the countertop area at the customer's home, cuts the granite to that shape, and installs it. The Tramel job calls for direct materials of $2,800 and direct labor of $1,000. Overhead is applied at the rate of 120 percent of direct labor cost. Unfortunately, one small countertop breaks during installation and Frieling must cut another piece and install it to properly complete the job. The additional rework required direct materials costing $1,300 and direct labor costing $1,000.

Assume that the spoilage was due to the inherently fragile nature of the piece of stone picked out by the Tramels. Frieling had warned them that the chosen piece could require much more care and potentially additional work. As a result, Frieling considers this spoilage to be caused by the Tramels' job.

Required:

1. Calculate the cost of the Tramel job.
$

2. Does a journal entry to the overhead control account need to be made?

3. What if the additional rework required $2,000 of direct labor? What would be the effect on the cost of the Tramel job?

If the additional rework required $2,000 of direct labor rather than $1,000, then the total cost of the Tramel job

would _________ by $______ to $._________

Answer 1

SOLUTION

1.

Particulars	Amount ($)
Direct materials (2,800+1,300)	4,100
Direct labor (1,000 + 1,000)	2,000
Applied Manufacturing overhead (2,000*120%)	2,400
Cost of the Tramel Job	8,500

2. No entry required to the overhead control account

3.

Particulars	Amount ($)
Direct materials (2,800+1,300)	4,100
Direct labor (1,000 + 2,000)	3,000
Applied Manufacturing overhead (3,000*120%)	3,600
Cost of the Tramel Job	10,700

Increase in cost = $10,700 - $8,500 = 2,200

Total cost of the Tramel job would increase by $2,200 to $10,700