Buckwold Corporation makes two different types of hubcaps for cars—HM3 and JB4. Circular pieces of metal are stamped out of steel sheets (leaving the edges as scrap), formed, and finished. The stamping operation is identical for both types of hubcaps. During May, Buckwold manufactured 20,000 units of HM3 and 10,000 units of JB4. In May, manufacturing costs per unit of HM3 and JB4 before accounting for the scrap are as follows:
HM3 JB4
Direct materials $12.00 $18.00
Direct manufacturing labor 3.60 4.80
Materials-related manufacturing overhead 2.40 3.60
Other manufacturing overhead 7.20 9.60
Unit manufacturing costs $25.20 $36.00
Materials-related manufacturing costs are allocated to products at 20% of direct materials costs. Other manufacturing overhead is allocated to products at 200% of direct manufacturing labor costs. Since the same metal sheets are used to make both types of hubcaps, Buckwold maintains no records of the scrap generated by the individual products. Scrap generated during manufacturing is accounted for at the time it is returned to the storeroom as an offset to materials-related manufacturing overhead. The value of scrap generated during May and returned to the storeroom was $8,400.
Required:
1. Prepare a journal entry to summarize the accounting for scrap during May.
2. Suppose the scrap generated in May was sold in June for $8,400. Prepare a journal entry to account for this transaction.
3. What adjustments, if any, would you make for scrap when calculating the manufacturing cost per unit for HM3 and JB4 in May? Explain.