Part 7 (Defects and Spoilage, Scraps and Wastes) Flashcards
are those that can be corrected by reprocessing.
Defective units
are partially or fully completed units that are not correctable either because it is not possible to correct them or because it is not economical to correct
them.
spoiled goods
Defective units are deemed to be _______ and thus would entail _______________,
reworked
additional reprocessing costs
while spoiled units are either
(3 ways you do with spoiled units)
simply disposed
inventoried at nominal value
immediately sold as seconds
spoiled units are handled wherein __________________ occur.
unrecovered costs
The main issue is how to charge
(1) the additional costs incurred in defective units and
(2) the unrecovered costs resulting from spoilages.
What are we talking about in 1 and 2? Where are they from?
They are from:
1. Defective units (when reworking)
2. Spoiled goods
it is when the imperfection occurs because of actions taken by the customer or because of the order’s exacting specifications
the losses are charged to the specific job (debited to Work in Process) and shared by all manufactured units under the job order
it is when defects and spoilages occur from internal failure, such as an error by a worker or defective materials or equipment
the losses are charged as actual overhead. They are debited to Factory Overhead Control, and shared by all manufactured units during the period.
If it is the customer’s fault the entry for the additional costs from reworking defective units would be:
Dr: WIP
Cr: DM, DL, FOHapplied
If it is the company’s fault (internal failure) the entry for the additional costs from reworking defective units would be:
Dr: FOHC
Cr: DM, DL, FOHapplied
If it is the company’s fault (internal failure) the entry for spoiled goods would be:
Dr: Spoiled goods, FOH-C
Cr: WIP
If it is the customer’s fault, the entry for spoiled goods would be:
Dr: Spoiled goods
Cr: WIP
If it is the customer’s fault, the entry for sale of spoiled goods as seconds would be:
Dr: Cash / AR
Cr: WIP
If it is the company’s fault (internal failure) the entry for the sale of spoiled goods as seconds would be:
Dr: Cash/AR, FOH-C
Cr: WIP
How to compute the increase in unit cost to the customer when it is the party liable ibecause of the reworking cost and the spoilage loss
Customer is at fault
less: Company held liable
= Increase in unit cost
are left over from the production process that cannot be put back to production for the same purpose, but may be usable for a different purpose or which may be sold to outsiders for a ________ amount.
SCRAPS
nominal
Scrap materials are commonly accounted for in either of the following ways:
Scrap is traceable to a specific job
Dr: Scrap materials (cash/ar when sold)
Cr: WIP
Scrap not traceable to a specific job
Dr: Scrap materials (cash/ar when sold)
Cr: Miscellaneous income
If the scrap recovered are from factory supplies, the credit is to
Factory Overhead Control account.
are left over from the production process that has no further use or resale value and may require cost for their disposal.
WASTES
Entry for Disposal Cost Allocated to all jobs
Dr: Factory overhead control
Cr: Accounts payable
Entry for Disposal Cost Allocated to Specific Job
Dr: Work-in-Process - Job
Cr: Accounts payable
