ACC 122: Cost Accounting and Control

Student Activity Sheet Module # 4

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Lesson title: Job-order: Direct Materials, part 2 Materials:

Lesson Objectives: Textbook, SAS, & calculator
At the end of the module, I should be able to References:
1. Account for materials and relate materials accounting to the Hansen & Mowen; Cost Accounting &
general ledger. Control; 2019 Edition
Vanderbeck, Edward J.; Principles of
2. Account for scrap materials, spoiled goods, and defective Cost Accounting; 15th edition
work. Brewer, Garisson & Noreen;
Introduction to Managerial Accounting;
7th edition

Productivity Tip:
Take a deep breath... Positive vibes in, negative vibes out. ☺

A. LESSON PREVIEW/REVIEW

1) Activity 1 : Introduction/Review (10 mins)

Annyeonghaseyo! Hoping you are good and well. Another day, another time to be thankful for.
☺ By the way, can you still recall what you studied last time? No worries, let’s have a quick drill. From
number 1-6, fill in the blanks. Whereas from 7-10, choose if the statement is True or False. You can do it!

1. If Physical Control is to limited access, segregation of duties, and accuracy of recording, then
___________________ is to order point and economic order quantity.
2. If Returned Material Report describes the materials being returned to the storeroom and
the reason for the return, then, _______________________ is prepared by the authorized
factory personnel to withdraw materials from the storeroom.
3. If Flow of Materials is the order that materials are issued for use in the factory, then,
___________________ is the order in which unit costs are assigned to materials.
4. If the FIFO method assumes that materials used in production are costed at the prices
paid for the oldest materials, then, the ______________ assumes that materials used in
production are costed at the prices paid for the most recently purchased prices
5. If Purchase Requisition is to Storeroom keeper, then, Materials Requisition is to
____________________.
6. If Receiving Report is to receiving clerk, then, ___________________ is to Purchasing
Agent.
7. Economic Order Quantity is the point at which an item should be ordered.
True _____ False _____
8. Indirect materials are included in the manufacturing overhead.
True _____ False _____
9. Under the three cost flow method, FIFO method is the only method that will produce the
same result (cost of materials used and ending inventory) at all times under the periodic
and perpetual system.
True _____ False _____
10. The flow of materials does not dictate the flow of costs.
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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 4

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

True _____ False _____

Are you done? Check your answers under the Key to Correction part at the end of this module.
Write your score here ____________.

Now that you have recalled the previous topic, it’s time for you to journalize and account for
wasted materials. Ready, get set, go! /‫چٴ‬/'‫چٴ چٴ چٴ چٴ چٴ'چٴ‬

2) Activity 2 (LO1 & LO2): What I Know Chart, part 1 (5 mins)

Alright! Let’s see what you already know, answer the first column (What I know). Leave the third
column (What I Learned) blank at this time.

What I Know Questions What I Learned (Activity 5)

1. How are purchases recorded in
the general ledger?

2. What’s the importance of a job-

order cost sheet?

3. What’s the difference between

scrap materials, spoiled goods,
and defective work?

B. MAIN LESSON
1) Activity 3 (LO1 and LO2): Content Notes (45 mins)

Make sure to highlight or underline the important parts! Refer to chapter 5 of your book for a more
detailed discussion found on pages 218-236.
LO1: Account for materials and relate materials accounting to the general ledger.

Accounting Procedures of Materials

▪ The purpose of materials accounting is to provide a summary from the general ledger of the
total cost of materials purchased and used in manufacturing. For the purpose of this discussion,
all entries are recorded in general journal format.

▪ All materials issued during the month and materials returned to stock are recorded on a
summary of materials issued and returned form.

SUMMARY OF MATERIALS TRANSACTION

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 4

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Materials
Factory Overhead

To illustrate:
1. On January 1, ABC Company purchased P2,500 direct materials on account. This is recorded
as follows:
Materials 2,500
Accounts Payable 2,500

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 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 4

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

2. From January 2-19, the Production Supervisor of ABC Company used three requisition forms
for Job 101 with a total cost of 1,000. This is recorded as follows:
Work-in-Process Inventory 1,000
Accounts Payable 1,000

Job Cost Sheet

Ledger
Job Number 101
For Furnitures Date Ordered 01-Jan-20
Materials Item Description Wooden Chairs Date Started 02-Jan-20
(1) 2,500 (2) 1,000 Quantity Completed 5 Date Finished 30-Jan-20

Direct Material Direct Labor Manufacturing Overhead

Requisition
Amount Ticket Hours Amount Hours Rate Amount
Number
123 PHP 300.00
Work-in-Process Inventory 124 PHP 200.00
(2) 1,000 125 PHP 500.00
PHP 1,000.00

Cost Summary
Direct Materials PHP 1,000.00
Since each job is unique in terms of Direct Labor
the cost of materials and labor, costs Overhead
must be tracked separately by using a Total Cost
Unit Cost
Job-Order Cost Sheet.

LO2: Account for scrap materials, spoiled goods, and defective work.

Accounting for Scrap Materials, Spoiled Goods, and Defective Work

Scrap is an unexpected by-product of the production of the primary product. Spoiled or defective
goods are not by-products but imperfect units of the primary product.

Scrap Materials
▪ Scrap may be considered waste materials from the production process. These are
materials that can not be used in the production process.

• Journal entry if the value of scrap is relatively high and if both the quantity and the
market value of the scrap are known, the following journal entries are made to
record the inventory and the subsequent sale:

Scrap Materials xxx

Scrap Revenue xxx

Cash xxx
Scrap Materials xxx

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 4

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

• Journal entry if the value of scrap is of small value or the quantity and market
value is unknown.

Cash xxx
Scrap Revenue xxx

Spoiled Units
▪ Spoiled units have imperfections that cannot be economically corrected. They are sold as
items of inferior quality or ‘‘seconds.’’
▪ The loss can be treated as part of the cost of the job or charge to Factory Overhead.

Journal Entries

Case 1: If the spoilage will be charged to all jobs through the Factory Overhead account.
Spoiled Goods Inventory xxx
Factory Overhead xxx
Work in process (Job A) xxx
Notes:
1) Spoiled Goods Inventory was recognized based on the expected realizable value of the spoilage.
2) Loss on the spoilage was charged to Factory overhead
3) Work-in process for a job was reduced based on its manufacturing cost less the value of the spoilage if sold (direct labor, direct
materials, and factory overhead)

Case 2: If the spoilage will be charged to a specific job.

Spoiled Goods Inventory xxx
Work in process (Job A) xxx
Notes:
1) Spoiled Goods Inventory was recognized based on the expected realizable value of the spoilage.
2) Loss on the spoilage will not be removed from the manufacturing cost of the job. Only the net realizable value of the spoilage will
be removed by decreasing the Work-in process account of the specific job.

Defective Units
▪ Defective units have imperfections considered correctable because the increase in market
value by correcting the unit exceeds the cost to correct it.
▪ The extra costs are either charged to the job or Factory Overhead.

Journal Entries

Case 1: Rework cost of the defective products are applied to all jobs.
Factory Overhead xxx
Materials xxx
Payroll Xxx
Factory Overhead xxx

Case 2: Rework cost of the defective products are applied to a specific job.
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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 4

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Work-in process xxx

Materials xxx
Payroll Xxx
Factory Overhead xxx

The additional cost of direct materials, direct labor, and factory overhead of reworking the
product are recorded either by spreading over the cost all of the jobs (case 1) or to a specific job
(case 2)

2) Activity 4: Skill-building Activities (75 mins) SCORE: ________________

Let’s try to practice what you have learned! Check your answers against the Key to Corrections
found at the end of this SAS. Write your score on the space provided.

Problem 1 (LO1)
Milano’s Specialty Clothing, Inc., uses a job order cost system. A partial list of the accounts
being maintained by the company, with their balances as of November 1, follows:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P82,250
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,500
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,000
Accounts payable (credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000
Factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . none

The following transactions were completed during the month of November:

a. Materials purchases on account during the month, P74,000.
b. Materials requisitioned during the month:
1. Direct materials, P57,000.
2. Indirect materials, P11,000.
c. Direct materials returned by factory to storeroom during the month, P1,100.
d. Materials returned to vendors during the month prior to payment, P2,500.
e. Payments to vendors during the month, P68,500.

Required:
1. Prepare general journal entries for each of the transactions.
2. Post the general journal entries to T-accounts.
3. Balance the accounts and report the balances of November
30 for the following:
a. Cash
b. Materials
c. Accounts Payable

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 4

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

Problem 2 (LO2)
One of the tennis racquets that Set Point manufactures is a titanium model (Ace) that sells for
P149. The cost of each Ace consists of:
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P35
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P70

Job 100 produced 100 Aces, of which 6 racquets were spoiled and classified as seconds.
Seconds are sold to discount stores for P50 each.

Required:
1. Under the assumption that the loss from spoilage will be distributed to all jobs produced during the
current period, use general journal entries to (a) record the costs of production, (b) put spoiled goods
into inventory, and (c) record the cash sale of spoiled units.
2. Under the assumption that the loss due to spoilage will be charged to Job 100, use general journal
entries to (a) record the costs of production, (b) put spoiled goods into inventory, and (c) record the
cash sale of spoiled units.

Problem 3 (LO2)

Torre, Inc., manufactures electrical equipment from specifications received from customers. Job X10
was for 1,000 motors to be used in a specially designed electrical complex. The following costs were
determined for each motor:
Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P117
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P300

At final inspection, Torre discovered that 33 motors did not meet the exacting specifications established
by the customer. An examination indicated that 18 motors were beyond repair and should be sold as
spoiled goods for P75 each. The remaining 15 motors, though defective, could be reconditioned as
first-quality units by the addition of P1,650 for materials, P1,500 for labor, and P1,200 for factory
overhead.

Required:
Prepare the journal entries to record the following:
1. The scrapping of the 18 motors, with the income from spoiled goods treated as a reduction in the
manufacturing cost of the specific job.
2. The correction of the 15 defective motors, with the additional cost charged to the specific job.
3. The additional cost of replacing the 18 spoiled motors with new motors.
4. The sale of the spoiled motors for P75 each.

3) Activity 5: What I Know Chart, part 2 (5 mins)

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 4

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

It’s time to answer the questions in the “What I Know Chart” in Activity 2. Write your answers in
the “What I Learned” column. Let’s see your improvement!

4) Activity 6 (LO1 & LO2): Check for Understanding (55 mins)

To better test your knowledge on the topic, provide what is being asked. To check if you got it right,
your teacher will provide you the key answers. Be honest in checking. ☺

PROBLEM 1
The following accounts are maintained by the Sprague Manufacturing Company in its general ledger:
Materials, Work in Process, Factory Overhead, and Accounts Payable. The materials account had a
debit balance of P40,000 on November 1. A summary of material transactions for November shows:
(1) Materials acquired on account, P62,000
(2) Direct materials issued, P58,500
(3) Direct materials returned to storeroom, P1,200
(4) Indirect materials issued, P3,600
(5) Indirect materials returned to storeroom, P550
(6) Materials on hand were P200 less than the stores ledger balance

Requirements:
a. Prepare journal entries to record the materials transactions.
b. Post the journal entries to T-accounts.
c. What is the balance of the materials account on November 30?

PROBLEM 2
The Reardon Company manufactures novelty toys. In June, 400 of these toys were completed on Job
Order No. 2525. On final inspection, 20 toys were rejected and transferred to the spoiled goods inventory
to be sold at P2 each.

Costs recorded on Job Order No. 2525 follow:

Direct materials P1,600

Direct labor 1,400
Factory overhead 800

Prepare the journal entries to record the following:

a. Charges for materials, labor, and factory overhead for Job Order No. 2525
b. Cost of the spoiled work, the transfer of the cost of the good toys to Finished Goods, and the sale
of the imperfect toys, if the loss on spoilage is charged to all jobs worked on during the period
c. Cost of the spoiled work, the transfer of the cost of the good toys to Finished Goods, and the sale
of the imperfect toys, if the loss on spoilage is to be charged to Job Order No. 2525 only. (Round the
new unit cost to the nearest whole cent, and assume part b, above, has not occurred.)

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This document is the property of PHINMA EDUCATION.
 ACC 122: Cost Accounting and Control
Student Activity Sheet Module # 4

Name: ____________________________________________________________ Class number: _______

Section: ____________ Schedule: _____________________________________ Date: _______________

C. LESSON WRAP-UP

1) Activity 7: Thinking about Learning (5 mins)

1. Work Tracker
You are done with this session! Let’s track your progress. Shade the session number you just
completed.

2. Think about your Learning

From a rating of 1-10, determine if you have learned all the learning objectives. What is the reason of
your rating?
__________________________________________________________________________________
__________________________________________________________________________________

What part of the module gave you a hard time to comprehend?

__________________________________________________________________________________
__________________________________________________________________________________

Any other questions or concerns you want to raise?

__________________________________________________________________________________
__________________________________________________________________________________

2) Assignment
Answer problem 5.3 and 5.31 of chapter 5 in your book found on pages 252-253. Write your
answers with solution at the back of this module. Your teacher will provide you the key answer.

FAQs
1. Can I use Materials, Materials Inventory, Raw Materials, Raw Materials Inventory account titles in
journalizing?
Yes, you may pick one of the following account titles as long as it is consistent all throughout the
accounting process to avoid confusion to users.

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