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Job-Order Costing - Lost Units

The document outlines the accounting entries for a normal cost system and a job order cost system, detailing the handling of raw materials, work-in-process, finished goods, and spoilage losses. It includes specific examples of defective units and the necessary journal entries for internal failures and customer specifications. Additionally, it provides calculations for costs associated with manufacturing processes and spoilage, emphasizing the impact on inventory and financial reporting.

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0% found this document useful (0 votes)
15 views20 pages

Job-Order Costing - Lost Units

The document outlines the accounting entries for a normal cost system and a job order cost system, detailing the handling of raw materials, work-in-process, finished goods, and spoilage losses. It includes specific examples of defective units and the necessary journal entries for internal failures and customer specifications. Additionally, it provides calculations for costs associated with manufacturing processes and spoilage, emphasizing the impact on inventory and financial reporting.

Uploaded by

jp odiver
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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NORMAL COST SYSTEM

1. Raw materials inventory 10,000


Accounts payable 10,000

2. Work-in-process 7,000
Factory overhead 3,000
Raw materials inventory 10,000

3. Work-in-process 16,000
Factory overhead 4,000
Payroll 20,000

4. Work-in-process 18,000
Factory overhead 18,000

5. Finished goods inventory 41,000


Work-in-process 41,000

6. Accounts receivable 100,000


Sales 100,000

Cost of sales 41,000


Finished goods inventory 41,000

7. Factory overhead 10,000


Utilities payable 3,000
Accumulated depreciation 4,000
Prepaid insurance 2,000
Cash 1,000
JOB ORDER COST SYSTEM

Raw materials inventory 10,000


Accounts payable 10,000

Work-in-process - Job #143 7,000


Factory overhead 3,000
Raw materials inventory 10,000

Work-in-process - Job #143 16,000


Factory overhead 4,000
Payroll 20,000

Work-in-process - Job #143 18,000


Factory overhead 18,000

Finished goods inventory - Job #143 41,000


Work-in-process - Job #143 41,000

Accounts receivable 100,000


Sales 100,000

Cost of sales 41,000


Finished goods inventory - Job #143 41,000

Factory overhead 10,000


Utilities payable 3,000
Accumulated depreciation 4,000
Prepaid insurance 2,000
Cash 1,000
LOST UNITS
- imperfections/defective
1. Spoiled - sold as seconds

USP 50

DM 5.00
DL 3.00
FOH 2.00
UC 10.00
NRV 6.00
Spoilage loss 4.00
Internal - FOH
Customer specification - WIP

2. Rework - sold as regulars

DM 5.00
DL 3.00
FOH 2.00
Rework Costs 10.00
Internal - FOH
Customer specification - WIP
Spoilage loss

(Cash, AR, Spoiled goods inventory)


P Foundry Inc. manufactures custom metal products that require casting, such as engine
blocks, pistons, and engine housings. During the current period, an order for 5,000
custom housing was begun on job number 3387 for R pump Company. After the job was
completed, the housings were inspected and 200 units were determined to be defective.
The customer has agreed to accept the order with only 4,800 units instead of the
quantity originally ordered. The spoiled units can be sold a seconds for P15 each.
Spoiled goods are kept in an inventory account separate from Finished Goods. Total
costs charged to job number 3387 are:

Materials P 46,000
Labor (1,000 hours X P14 per hour) 14,000
Factory overhead (P30 per labor hour) 30,000
Total cost charged to job number 3387 P 90,000

Required:

1. Assuming that the defective units are the result of an internal failure (that is, an
employee error or a machine failure), prepare the appropriate general journal entry to
record the transfer of the defective units to Spoiled Goods Inventory and the shipment
of Job Number 3387 to the customer.

2. Assuming that the defective units are the result of a change in design specified by
the customer after the units are completed, prepare the appropriate general journal
entry to record the transfer of the defective units to Spoiled Goods Inventory and the
shipment of Job Number 3387 to the customer.
Internal Failure
that require casting, such as engine
DM 9.20
rent period, an order for 5,000
R pump Company. After the job was DL 2.80 1. WIP - Materials
its were determined to be defective. FOH 6.00 WIP - Labor
nly 4,800 units instead of the Unit Cost 18.00 WIP - FOH
sold a seconds for P15 each.
rate from Finished Goods. Total NRV 15.00 Raw materials inventory
Spoilage loss 3.00 Payroll
Factory overhead

2. Spoiled goods inventory


Factory overhead
WIP - Materials
WIP - Labor
WIP - FOH

3. Finished goods inventory


of an internal failure (that is, an WIP - Materials
ppropriate general journal entry to
Goods Inventory and the shipment WIP - Labor
WIP - FOH

of a change in design specified by


the appropriate general journal
Spoiled Goods Inventory and the UC= Total Cost
Total Good Units

= 86,400
4800

= 18
nal Failure Customer Specification

46,000 1. WIP - Materials 46,000


14,000 WIP - Labor 14,000
30,000 WIP - FOH 30,000
46,000 Raw materials inventory 46,000
14,000 Payroll 14,000
30,000 Factory overhead 30,000

3,000 2. Spoiled goods inventory 3,000


600 Work in process 600
1,840 WIP - Materials 1,840
560 WIP - Labor 560
1,200 WIP - FOH 1,200

86,400 OR
44,160
13,440 Spoiled goods inventory 3,000
28,800 WIP - Materials 1,533
WIP - Labor 467
WIP - FOH 1,000

3. Finished goods inventory 87,000


WIP - Materials 44,467
WIP - Labor 13,533
WIP - FOH 29,000

= Total Cost
Total Good Units

= 87,000
4800

= 18.125

Unit cost before spoilage 18.000


Spoilage (600/4800) 0.125
Unit cost after spoilage 18.125
Troy Cabinet Co. manufactures custom cabinets for modular and prefabricated housing
companies. During the current period, an order for 1,000 custom cabinets was begun on
job number 89621 for Baggy Housing Corp. custom jobs are marked up 150 percent of
cost. Total costs charged to job number 89621 are:

Materials P 92,000
Labor (3,000 hours X P12 per hour) 36,000
Factory overhead (P24 per labor hour) 72,000

On inspection, 100 of the cabinets were found to have defects. Materials costing P4 and
½ hour of labor are required to correct each defective unit. Factory overhead is charged
to production on the basis of direct labor hours.

Required:

Prepare the appropriated general journal entries assuming that spoilage were cause by
(a) internal failure, (b) change in the specification made by the customer.
modular and prefabricated housing Original Rework costs Int
,000 custom cabinets was begun on
obs are marked up 150 percent of DM 92.00 4.00
DL 36.00 6.00 1.
FOH 72.00 12.00
Unit Cost 200.00 22.00

2.
ve defects. Materials costing P4 and
e unit. Factory overhead is charged

3.
uming that spoilage were cause by
ade by the customer.

=
UC

=
Internal Failure Customer Specification

WIP - Materials 92,000 1. WIP - Materials


WIP - Labor 36,000 WIP - Labor
WIP - FOH 72,000 WIP - FOH
Raw materials inventory 92,000 Raw materials inventory
Payroll 36,000 Payroll
Factory overhead 72,000 Factory overhead

Factory overhead 2,200 2. WIP - Materials


Raw materials inventory 400 WIP - Labor
Payroll 600 WIP - FOH
Factory overhead 1,200 Raw materials inventory
Payroll
Finished goods inventory 200,000 Factory overhead
WIP - Materials 92,000
WIP - Labor 36,000
WIP - FOH 72,000 3. Finished goods inventory
WIP - Materials
WIP - Labor
Total Cost WIP - FOH
Total Good Units

200000 = Total Cost


1000 Total Good Units

200 = 202200
1000

= 202.20

Unit cost before rework


Rework Cost(2,200/1,000)
Unit cost after rework
mer Specification

92,000
36,000
72,000
92,000
36,000
72,000

400
600
1,200
400
600
1,200

202,200
92,400
36,600
73,200

200.000
2.200
202.200
F. Company had a production run of 8,000 pairs of slacks during the last week of June,
at the following costs per pair:

Materials P 50
Labor 40
Factory overhead (includes P7.00 allowance for spoiled work) 30

Final inspection revealed 600 pairs not meeting quality standards, salable as seconds
at P40.00 per paid.

Required:
1. Prepare the journal entries assuming the loss is charged to the production run.
2. Prepare the journal entries assuming the loss is to be charged to all production run.
Internal Failure
DM 50.00
DL 40.00 1. WIP - Materials 400,000
FOH 30.00 WIP - Labor 320,000
Unit Cost 120.00 WIP - FOH 240,000
NRV 40.00 Raw materials inventory 400,000
Spoilage loss 80.00 Payroll 320,000
Factory overhead 240,000

2. Spoiled goods inventory 24,000


Factory overhead 48,000
WIP - Materials 30,000
WIP - Labor 24,000
WIP - FOH 18,000

3. Finished goods inventory 888,000


WIP - Materials 370,000
WIP - Labor 296,000
WIP - FOH 222,000

UC = Total Cost
Total Good Units

= 888000
7400

= 120.00
Customer Specification

1. WIP - Materials 400,000


WIP - Labor 320,000
WIP - FOH 184,000
Raw materials inventory 400,000
Payroll 320,000
Factory overhead 184,000

2. Spoiled goods inventory 24,000


Work in process 48,000
WIP - Materials 30,000
WIP - Labor 24,000
WIP - FOH 18,000

OR

Spoiled goods inventory 24,000


WIP - Materials 10,619
WIP - Labor 8,496
WIP - FOH 4,885

3. Finished goods inventory 880,000


WIP - Materials 389,381
WIP - Labor 311,504
WIP - FOH 179,115

= Total Cost
Total Good Units

= 880000
7400

= 118.92

Unit cost before spoilage 120.00


Allowance (8000/7400) (1.08)
Unit cost after spoilage 118.92
Fabricators manufactures jacks and other lifting equipment. One order from A Supply
House for 1,000 jack s showed the following costs per unit: materials, P40; labor, P17.50;
factory overhead applied at 160% of direct labor cost (150%) in cases in which any
defective units costs are to be charged to a specific order.)

Final inspection revealed that 75 of the units were improperly riveted. Correction of each
defective unit requires P2.00 for materials, P3.00 for labor, and factory overhead at the
appropriate rate.

Required:
1. Assume the order is charged with the cost of defective work, prepare the necessary
journal entries in the books.

2. Assume the cost of correcting the defective work is not charged to the specific order,
prepare the necessary journal entries in the books.
r from A Supply Internal Failure Internal Failure
P40; labor, P17.50;
in which any
Original Rework costs 1.
DM 40.00 2.00
DL 17.50 3.00
Correction of each
y overhead at the FOH 28.00 4.80
Unit Cost 85.50 9.80

pare the necessary 2.

o the specific order, Customer Specification

Original Rework costs


DM 40.00 2.00 3.
DL 17.50 3.00
FOH 26.25 4.50
Unit Cost 83.75 9.50

=
UC

=
Internal Failure Customer Specification

WIP - Materials 40,000 1. WIP - Materials


WIP - Labor 17,500 WIP - Labor
WIP - FOH 28,000 WIP - FOH
Raw materials inventory 40,000 Raw materials inventory
Payroll 17,500 Payroll
Factory overhead 28,000 Factory overhead

Factory overhead 735 2. WIP - Materials


Raw materials inventory 150 WIP - Labor
Payroll 225 WIP - FOH
Factory overhead 360 Raw materials inventory
Payroll
Finished goods inventory 85,500 Factory overhead
WIP - Materials 40,000
WIP - Labor 17,500
WIP - FOH 28,000 3. Finished goods inventory
WIP - Materials
WIP - Labor
Total Cost WIP - FOH
Total Good Units

85500 = Total Cost


1000 Total Good Units

85.50 = 84462.50
1000

= 84.4625
1,037.50
Unit cost before rework
Allowance (1037.50/1,000)
Unit cost after rework
mer Specification

40,000
17,500
26,250
40,000
17,500
26,250

150.00
225.00
337.50
150.00
225.00
337.50

84,462.50
40,150.00
17,725.00
26,587.50

85.500
(1.038)
84.4625

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