BRF Company Operates a Machine Shop in Which It Mills

question 92

Essay

BRF Company operates a machine shop in which it mills custom parts out of titanium, steel, aluminum, and other metals. During the month of May it completed Job 356, consisting of titanium parts, for a total cost of $20,000. During May, the company accumulated titanium scrap worth $1,000 from all jobs. During June, the scrap was sold for $1,000. The company's accountant considers the value of titanium scrap to be material.
a)Assume that 50% of the scrap can be associated with Job 356, but that the rest of the scrap resulted from several other jobs and was not traced individually. Write out the scrap journal entry(ies)required for May and June if the company's policy is to record titanium scrap during the month of production.
b)Assume that none of the scrap is traced to individual jobs. Write out the scrap journal entry(ies)required for May and June if the company's policy is to record titanium scrap at the time of sale.
c)Describe one advantage and one disadvantage to BRF of recording scrap at the time of production.
d)Describe one advantage and one disadvantage to BRF of tracing the cost of titanium scrap to individual jobs.

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Definitions:

Administered Prices

Prices that are set by the company rather than determined by market demand and supply conditions; often found in less competitive markets.

Cartel

An association of independent businesses or countries agreeing to coordinate their production and pricing to monopolize a market or maximize profits.

Cutthroat Competition

Cutthroat competition describes an extremely competitive market situation where participants engage in aggressive price-cutting and other practices to gain market share.

Collusion

A secret or illegal cooperation or conspiracy, especially between parties to deceive or defraud others.