Heyer Appliances assembles di shwashers at its plant in Tuscaloosa, Alabama. In
ID: 2473719 • Letter: H
Question
Heyer Appliances assembles di
shwashers at its plant in Tuscaloosa, Alabama. In February 2014, 60
circulation motors that cost $110 each (from a new supplier who subsequently went bankrupt) were
defective and had to be disposed of at zero net disposal value. Heyer Appliances was able t
o rework all 60
dishwashers by substituting new circulation motors purchased from one of its existing suppliers. Each
replacement motor cost $125.
Answer the following questions:
1.
What alternative approaches are there to account for the materials cost of reworked units?
2.
Should Heyer Appliances use the $110 circulation motor or the $125 motor to calculate the cost of
materials reworked? Explain.
Explanation / Answer
The two alternative approaches to account for the materials costs of reworked units are as follows:
a. To charge the costs of rework to the current period as a separate expense item as abnormal rework. This approach would highlight to Heyer Appliances the costs of the supplier problem.
b. To charge the costs of the rework to manufacturing overhead as normal rework
They should use the $125 cost. The initial motors never used and should be disposed off at zero disposal value. It should not be used in rework cost.