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    Spoiled Goods Are Goods That Have Been Damaged Through Imperfect Machining or Illustration

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    Buff Falo
    The document discusses the accounting treatment for spoiled and defective goods. Spoiled goods cannot be corrected or salvaged, while defective goods can be reworked. For spoiled goods, the estimated salvage value is deducted from work in process inventory if caused by a specific job, or charged to manufacturing overhead if common to all jobs. For defective goods that are reworked, additional rework costs are charged directly to the specific job or to manufacturing overhead control depending on the accounting method used.

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    Spoiled Goods Are Goods That Have Been Damaged Through Imperfect Machining or Illustration

    Uploaded by

    Buff Falo
    15 views3 pages
    The document discusses the accounting treatment for spoiled and defective goods. Spoiled goods cannot be corrected or salvaged, while defective goods can be reworked. For spoiled goods, the estimated salvage value is deducted from work in process inventory if caused by a specific job, or charged to manufacturing overhead if common to all jobs. For defective goods that are reworked, additional rework costs are charged directly to the specific job or to manufacturing overhead control depending on the accounting method used.

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    Accounting

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    The document discusses the accounting treatment for spoiled and defective goods. Spoiled goods cannot be corrected or salvaged, while defective goods can be reworked. For spoiled goods, the estimated salvage value is deducted from work in process inventory if caused by a specific job, or charged to manufacturing overhead if common to all jobs. For defective goods that are reworked, additional rework costs are charged directly to the specific job or to manufacturing overhead control depending on the accounting method used.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    15 views3 pages

    Spoiled Goods Are Goods That Have Been Damaged Through Imperfect Machining or Illustration

    Uploaded by

    Buff Falo
    The document discusses the accounting treatment for spoiled and defective goods. Spoiled goods cannot be corrected or salvaged, while defective goods can be reworked. For spoiled goods, the estimated salvage value is deducted from work in process inventory if caused by a specific job, or charged to manufacturing overhead if common to all jobs. For defective goods that are reworked, additional rework costs are charged directly to the specific job or to manufacturing overhead control depending on the accounting method used.

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    © All Rights Reserved
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    of 3

     ACCOUNTING FOR SPOILED GOODS

    Spoiled goods are goods that have been damaged through imperfect machining or
    processing. Spoiled goods cannot be corrected because it is not technically possible or
    economical to correct them.
    Illustration:
    Assume that Job 911 calls for the production of 200 painted office tables. These tables
    were put into production and costs accumulated to date are as follows:

    Materials P 456,000
    Direct labor 240,000
    Applied overhead (150% of DL cost) 360,000
    Total cost charged to Job 911 P1,056,000

    Unit cost (P1,056,000/200) P 5,280.00

    Suppose that the ten tables are spoiled because the lumber used was improperly cured.
    These spoiled tables may be sold as seconds at its net disposal value of P3,000 each.

     Spoilage Attributable to a Specific Job ( Due to Customer Specifications)

    1) To removed estimated disposal value of spoiled goods from Work in Process:


    Spoiled Goods Inventory 30,000
    Work in Process Inventory 30,000

    2) To record the cost of the completed inventory.


    Finished Goods Inventory 1.026,000
    Work in Process Inventory 1,026,000

     Spoilage Common to All Jobs (Due to Internal Failure)


    1) To record estimated sales value of spoiled goods and charged loss to MOH
    control:
    Spoiled Goods Inventory 30,000
    Manufacturing Overhead Control 22,800
    Work in Process Inventory 52,800

    2) To record the cost of the completed good inventory. Finished Goods


    Inventory 1.003,200
    Work in Process Inventory 1,003,200

     Comparison of the Accounting Treatment:


    Spoiled Cost Charged to
    Particular Job All Production
    Total Cost of 200 tables P 1,056,000 P 1,056,000
    Less: Scrap Value of Job 911 30,000 -
    All Production _____-____ 52,800
    Cost of Good Tables 1,026,000 1,003,200
    Divided by Good Tables 190 190
    Unit Cost of good tables P 5,400 P 5,280

     ACCOUNTING FOR DEFECTIVE GOODS (Rework Costs)


    Defective goods are units of production that fail to meet production standards but that
    can be brought up to standard by adding more materials, labor and overhead.
    Rework costs are the additional costs required to bring defective goods to standard.

    Illustration:
    Assume the ten spoiled tables from the previous illustration are reworked. The journal
    entry to record the total costs of the ten spoiled goods before considering rework costs is:

    Work in Process Inventory 52,800


    Materials 22,800
    Payroll 12,000
    Applied Mfg. Overhead 18,000

    Assume that the ten spoiled tables are reworked. The additional costs of reworking the
    tables equal P9,500 of which P2,000 direct materials, P3,000 direct labor and P4,500
    manufacturing overhead.

     Rework Cost charged to Specific Job 1) To record


    rework costs of 10 tables:
    Work in Process Inventory 9,500
    Materials 2,000
    Payroll 3,000
    Applied Mfg. Overhead 4,500

    2) To record cost of ten tables transferred to Finished goods after reworked is done.
    Finished Goods Inventory 62,300
    Work in Process Inventory 62,300

     Rework Cost Charged to All Jobs


    Manufacturing Overhead Control 9,500
    Materials 2,000
    Payroll 3,000
    Applied Mfg. Overhead 4,500

     Comparison of the Accounting Treatment


    Reworked CostCharged to All
    Specific Job Jobs
    Total Cost of 200 tables P 1,056,000 P 1,056,000
    Add: Rework Costs _____9,500 _________
    Cost of Good Tables P 1,065,500 P1,056,000
    Divided by Good Tables _______200 ______200
    Unit Cost of good tables P 5,327.50 P 5,280

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