Cost Accounting Show Scrap/Spoilage/Defective Notes on Scrap: Scrap includes: 1. the filings or excessive trimmings of materials after the manufacturing operations. 2. defective materials that cannot be returned to vendor or not suitable for manufacturing operations, and 3. broken parts as a result of an employee error or machine breakdowns that causes the product in a poor quality condition. Furthermore, scrap should be treated as: 1. If the scrap has a salvage value, it should be collected and placed in the storage and available for sale to scrap dealers or anybody who are willing to buy. 2. If the scrap is the result if filings, excessive trimmings or materials residue, and the costs of scrap cannot be determinable then, the scrap, notwithstanding that they cannot be eliminated in the production, a record of quality of scrap should be maintained. The purpose is to keep track and periodically analyze to determine if some of the waste is due to inefficient use of materials and if not eliminated, at least minimize. Waste as distinguish to scrap materials refers to any amount of raw materials left-over from a production process or production cycle for which there is no further use. Waste is not usually salable at any price and must be discarded. I – Accounting for Scrap The KCO Metal Fabricators, Inc. accumulates a fairly large quantities of metal shavings and trimmings from the products their produce. At least, once a month, the scrap metal is sold to a local jobber for further processing. This month’s scrap sales on account total P10,000. Required: Give the appropriate entry to record the sale of the scrap for each of the following alternatives: 1. The scrap sales are viewed as additional revenue. 2. The scrap sales are viewed as a reduction of the cost of goods sold during the month. 3. The scrap sales are viewed as a reduction of factory overhead control. 4. The scrap sales are traceable to individual jobs and are recorded as a reduction of cost of the materials on the jobs. Notes on Spoiled Goods/Spoilage in Job-Order Costing: Spoiled goods or spoilage differ from scrap, in the manner that they are either partially or fully completed unit. For reason of being spoilage, they cannot be corrected either because it is not technically possible to correct them or it is not economical to correct them. For instance, a glass molded with different design cannot be correctable since it will not be technically feasible because by changing it would distort the original form or by changing the design to its original form would cost more than the benefit to be derived. II – Accounting for Spoilage Goods in Job Order ROM Company had a production run of 8,000 pairs of shoes during the last week of June, at the following costs per pair: Materials P 500 Labor 400 Factory overhead (includes P70 allowance for spoiled ___300 work) Total P1,200 Final inspection revealed that 600 pairs not meeting quality standards, can be sold as seconds at P400 a pair. Required: 1. If the spoilage loss is the result of an internal failure (charged to factory overhead) a. Prepare journal entries to record the above transaction. b. Determine the cost for each pair of shoes. 2. If the spoilage loss is the result of a change in design imposed by the customer or due to exacting specifications (charged to production run). a. Prepare journal entries to record the above transaction. b. Determine the cost for each pair of shoes. page 2 Notes on Rework in Job Order Costing (Process of Reworking): Rework is the process of correcting defective goods in order to bring them into a salable condition. A defective unit normally arises when the product itself lacks materials, labor and factory overhead. III – Accounting for Rework Units in Job Order Grace Company manufactures picture frames of all sizes and shapes and uses a job-order costing system. There is always some spoilage in each production run. The following costs relate to the current run: Estimated overhead (exclusive of spoilage) P160,000 Spoilage (estimated) P 25,000 Sales value of spoiled frames P 11,500 Labor hours 100,000 The actual cost of a spoiled picture frame is P7.00. During the year 170 frames are considered spoiled. Each spoiled frame can be sold for P4. The spoilage is considered a part of all jobs (factory overhead). a. Labor hours are used to determine the predetermined overhead rate. What is the predetermined overhead rate per direct labor hour? b. Prepare the journal entry needed to record the spoilage (factory overhead or to all production. c. Prepare the journal entry if the spoilage relates only to Job #12 (particular job or exacting specifications) rather than being a part of all production runs. Answers: a. Budgeted overhead………………………………………………………………………………………………………P 160,000 Budgeted labor……………………………………………………………………………………………………………… 25,000 Sales value of spoiled frames………………………………………………………………………( 11,500) Budgeted costs………………………………………………………………………………………………………………P 173,500 Divided by: Budgeted labor hours……………………………………………………………… 100,000 Predetermined/Budgeted Direct Labor rate…………………………………………P 1.735/DLH b. Spoiled Goods Inventory (P4 x 170)……………………………………………… 680 Factory Overhead Control (unrecoverable amount)…………… 510 Work-in-Process Inventory (P7 x 170)………………… 1,190 c. Spoiled Goods Inventory (P4 x 170)……………………………………………… 680 Work-in-Process Inventory……………………………………………… 680 Notes on Rework in Job Order Costing (Process of Reworking): Rework is the process of correcting defective goods in order to bring them into a salable condition. A defective unit normally arises when the product itself lacks materials, labor and factory overhead. IV – Accounting for Defective Goods (Rework) During March, Loryvi Company incurred the following costs on Job 109 for the manufacture of 200 motors: Original cost accumulation: Direct materials………………………………………………………………………P 660 Direct labor………………………………………………………………………………… 800 Factory overhead (150% of direct labor)………… 1,200 Total costs……………………………………………………………………………………P 2,660 Direct costs of reworking 10 motors: Direct materials………………………………………………………………………P 100 Direct labor………………………………………………………………………………… 160 Total costs……………………………………………………………………………………P 260 1. The rework costs were attributable to internal failure (to all production) or charged to factory overhead, what is the cost per finished unit of Job 109? A. P15.80 P14.60 C. P14.00 D. P13.30 2. The rework costs were attributable to the exacting specifications of Job 109 (or production run) and the full rework costs were charged to this specific job. What is the cost per finished unit of Job 109? A. P15.80 C. P14.00 B. P14.60 n D. P13.30 How is scrap treated in cost accounting?There are 3 ways to treat scrap: (a) Sale Value of Scrap Credited to Profit and Loss A/c: ✓ The sale value is credited to profit and loss account as other income. ✓ The cost of output is inclusive of scrap cost.
What is the treatment of sale of scrap in cost sheet?The sale value of scrap is credited to profit and loss account as other income. The unit cost of production is, therefore, inclusive of cost of scrap. This method fails to secure effective control over scrap as detailed records are not kept and scraps are not identified to jobs or processes.
How do you account for scrap inventory?Accounting for Scrap Inventory
If the scrap value is huge, we have to exclude it from the COGS and record it in the scrap material account (sub-account of inventory). When they are sold, they should be reclassed to other costs of goods sold which are separated from normal COGS.
What is scrap and spoilage?Spoilage is the same concept as scrap or waste, but spoilage is different to a by-product) or a joint product. Whereas by-products can be further processed and sold on, spoilage usually has no market value, and is disposed of rather than sold.
|
Scrap is treated as a reduction in Factory overhead if it is traceable to a particular job
Urheberrechte © © 2024 de.ketajaman Inc.
