Lieu Company is a specialty print shop. Usually, printing jobs are priced at standard cost plus 50 percent. Job 631 involved printing 400 wedding invitations with the following standard costs:
Direct materials... $240
Direct labor .... 60
Overhead ... 80
Total ....... $380
Normally, the invitations would be taken from the machine, the top one inspected for correct wording, spelling, and quality of print, and all of the invitations wrapped in plastic and stored on shelves designated for completed jobs. In this case, however, the technician decided to go to lunch before inspecting and wrapping the job. He stacked the unwrapped invitations beside the printing press and left. One hour later, he returned and found the invitations had fallen on the floor and been stepped on. It turned out that about 50 invitations were ruined and had to be discarded. An additional 50 invitations were then printed to complete the job.
Required:
1. Calculate the cost of the spoiled invitations. How should the spoilage cost be accounted for?
2. What is the price of Job 631?
3. Suppose that another job, 705, also required 400 wedding invitations. The standard costs are identical to those of Job 631. However, Job 705 required an unusual color of ink that could only be obtained in a formula that was difficult to use. Lieu printers know from experience that getting this ink color to print correctly requires trial and error. In the case of Job 705, the first 50 invitations had to be discarded due to inconsistencies in the color of ink. What is the cost of the spoilage, and how would it be treated?
4. What is the price of Job 705?