COST Accounting - Accounting FOR Materials PDF

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QUESTIONS: 1. What different methods that can be used to account for the sales value of the scrap materials? The different methods used to account sales value of the scrap materials depend on if the scrap recovered can be traced to a specific job, if it is otherwise and if the scrap recovered are from factory supplies. In it can be traced to specific job, the entry to record the it is debit to scrap materials and credit to work in process. If it cannot be traced to specific job, the entry to record it is debit to scrap materials and credit to miscellaneous income. Lastly, if it is from factory supplies, the entry to record it is debit to scrap materials and credit to factory overhead control

2. What distinguishes a product as being spoiled or defective? Both of them are defined as units that do not meet the production standards. However, spoiled products can be sold for their salvage value or discarded. Moreover, spoiled units are taken out of production and they are not subject to further work. Whereas, defective products must undergo process in order to be salable as good units or as irregulars.

3. What are the different methods of accounting for spoiled units? There are two methods of accounting for spoiled units. It is either charged to the specific jobs or charged to all productions. Charged to the specific jobs are used if the reason is in the job itself which in turn will result to increase unit cost of the remaining finished goods. The entry to record it is to debit spoiled goods and credit the work in process. On the other hand, charged to all production is the method used if the reason for spoilage is considered normal in business operation and it does not exceed the limit set by company. Note that it will not increase the unit cost originally charged. The entry to record it is to debit spoiled goods (number of units spoiled multiplied by the estimated sales value per unit), debit to factory overhead control (loss) and credit to work in process (total costs incurred charge to spoiled units.

4. What are the different methods of accounting for defective units? There are two methods of accounting for defective units. Likewise, spoiled units, it depends whether it is charged to specific job or charged to all production. Charged to specific jobs are used if the reason of defect is due to job itself. The entry to record this is debit to work in process and credit to materials, payroll and factory overhead applied which means that additional costs will be charged to all units in the job. On the other hand, charged to all production is used if it is normal to the process and number of defective units do not exceed the normal limit. The entry to record it is to debit factory overhead control and credit to materials, payroll and factory overhead applied, the additional costs incurred will be then charged to all units being processed during the period.

Problem 1 The Bedrock Company is a manufacturer of golf clothing. During the month, the company cut and assembled 8,000 golf jackets. One hundred of the jackets did not meet specifications and were considered "seconds.’’ Seconds are sold for P80.00 per jacket, whereas first quality jackets sell for P399.50. During the month, Work in Process was charged for P360,000 of materials, P400,000 of labor, and factory overhead is applied at 120% of direct labor (including allowance of 20% of direct labor for spoiled units) Required: Entries required for each of the following conditions: a. Loss due to spoiled work is spread over all jobs

Work in Process Materials Labor Factory Overhead Applied

Spoiled Goods Factory Overhead Control Work in Process

Finished Goods Work in Process

1,240,000 360,000 400,000 480,000

8,000 7,500 15,500

1,224,500 1,224,500

b. Loss due to spoiled work is charged to this specific job. factory overhead is applied at 100% of direct labor cost

Work in Process Materials Payroll Factory Overhead Applied

1,160,000 360,000 400,000 400,000

Spoiled Goods Work in Process

8,000

Finished Goods Work in Process

1,152,000

8,000

1,152,000

Problem 2 Kyralei Co. manufacture golf carts and other recreational equipment. One order for RAGC Corporation for 2,000 carts showed the following costs per unit direct materials - P40: direct labor P20: and factory overhead applied at 140% of direct labor cost if defective work is charged to a specific job and 150% if defective work is charged to all jobs. Final inspection revealed that wheels were assembled with improper bearings. The wheels were disassembled and the proper bearings inserted. The cost of correcting each defective cart consists of P2 added cost for bearings. P4 for labor, and factory overhead at the predetermined rate. Required: Prepare journal entries to record correction of the defective units and transfer of the work in process to finished goods if: 1. The RAGC is to be charged with the cost of defective units. Work in Process Materials Labor Factory Overhead Applied

176,000

Work in Process Materials Labor Factory Overhead Applied

23,200

Finished Goods Work in Process

199,200

80,000 40,000 56,000

4,000 8,000 11,200

199,200

2. The cost of correcting the defective units is not charged to RAGC. Work in Process Materials Labor Factory Overhead Applied

180,000

Factory Overhead Control Materials Labor

24,000

80,000 40,000 60,000

4,000 8,000

Factory Overhead Applied

12,000

Finished Goods Work in Process

180,000 180,000

Compute the cost per unit of finished goods if: 1. The RAGC is to be charged with the cost of defective units

Original Amount Add: Cost of Defective Units Total Divided by number of units Cost per unit

P

P

176,000 23,200 199,200 2,000 99.60

2. The cost of correcting the defective units is not charged to RAGC Original Amount Divided by number of units Cost per unit

P P

180,000 2,000 90...