There are different types of treatment for spoilage, wastage, scrap and defective units; they are:
While manufacturing goods, it may be possible to defect, destroyed and damage.
In other words, badly damaged materials in manufacturing are spoilage.
It is not possible to repaired, reprocess or rectified.
There are two types of spoilage, normal spoilage and abnormal spoilage.
· Normal spoilage loss transfer to factory (production) overhead control account
· Abnormal spoilage loss transfer to profit and loss account
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3A
Nepal Polymers manufactures synthetic footwear.
While checking in Lot No. 12/2021, 50 pair’s slippers found inferior quality.
Regular sales price per pairs is $60.
The estimated sales price per pairs is $40.
Required: (a) Journal entry for spoilage; (b) Journal entries if sales realized $1,800;
(b) Journal entries if sales realized $2,300
SOLUTION:
Journal Entries
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
(a) |
Journal entries for spoilage |
|
|
|
|
|
Spoilage goods inventory account |
Dr |
|
2,000 |
|
|
Factory overhead control account |
Dr |
|
1,000 |
|
|
To Works Lot No. 12/2021 |
|
|
|
3,000 |
|
(Being: spoilage goods realized 50 pairs@ $60) |
|
|
|
|
|
|
|
|
|
|
(b) |
Journal entries if sales realized $1,800 |
|
|
|
|
|
Cash account |
Dr |
|
1,800 |
|
|
Factory overhead control account (loss) |
Dr |
|
200 |
|
|
To Spoilage goods inventory account |
|
|
|
2,000 |
|
(Being: spoilage goods realized $1,800 for 50 pairs and loss adjusted) |
|
|
|
|
|
|
|
|
|
|
(c) |
Journal entries if sales realized $2,300 |
|
|
|
|
|
Cash account |
Dr |
|
2,300 |
|
|
To Spoilage goods inventory account |
|
|
|
2,000 |
|
To Factory overhead control account (profit) |
|
|
|
300 |
|
(Being: spoilage goods realized $2,300 for 50 pairs and profit adjusted) |
|
|
|
|
|
|
|
|
|
|
######
Click on the link for YouTube videos |
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Accounting Equation |
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Journal Entries in Nepali |
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Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cashbook |
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Trial Balance and Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Financial Accounting and Analysis (All videos) |
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Accounting Process |
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Accounting for Long Lived Assets |
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Analysis of Financial Statement |
######
While manufacturing goods, it may be possible to loss in its quantity.
Wastage is loss in quantity.
Generally, it does not have monetary value.
Some wastage are shrinkage, smoked, weight loss, evaporation, dusting etc.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3B
EP Milk Process purchases milk from local community and send to city.
Following data available for one day:
Milk purchased 1,000 liter at average ₹/Rs/$40 per liter
Labour charge $1,000
Process and transport $800
Due to unskilled labour, 50 liter milk container dropped and milk became weight loss.
Required: (a) Cost per unit if no weight loss (water is added to make equal quantity); (b) Cost per unit if weight loss.
[Answer: (a) $44.50; (b) $46.84]
SOLUTION:
Given and working note:
Raw materials (milk 1,000 x $40) |
40,000 |
Net quantity |
Labour charge |
1,500 |
= 1,000 liter – 50 liter |
Process and transport |
+ 3,000 |
= 950 liter |
Total cost |
$44,500 |
|
Cost per unit if no weight loss (water is added to make equal quantity)
Cost per unit = Total cost ÷ Total quantity = $44,500 ÷ 1,000 liters = $44.50
Cost per unit if weight loss
Cost per unit = Total cost ÷ Net quantity = $44,500 ÷ 950 liters = $46.84
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Scrap is also called residue, leftover, remnant and remainder.
Scrap has monetary value.
There are two types of scrap; they are man-made and natural scrap.
Man-made scrap
It is due to low quality materials; wrong production method; abnormal machine operating etc.
Natural scrap
Some natural scraps are hair and outer shell of coconut; wood dust and firewood from wood log; metal scrap in iron casting etc.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3C
BL Metal Industry manufactures different kind of metal dais.
Industry has some scrapped materials. Estimated value is $4,000.
Required: (a) Journal entries for scrap record; (b) Journal entries if sales of scrap $4,000
(c) Journal entries if sales of scrap $3,500; (d) Journal entries if sales of scrap $4,200
SOLUTION:
Journal Entries
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Journal entries for scrap record |
|
|
|
|
|
Scrap inventory account |
Dr |
|
4,000 |
|
|
To Factory overhead control account |
|
|
|
4,000 |
|
(Being- scrap realized) |
|
|
|
|
|
|
|
|
|
|
|
Journal entries if sales realized $4,000 |
|
|
|
|
|
Cash account |
Dr |
|
4,000 |
|
|
To Scrap inventory account |
|
|
|
4,000 |
|
(Being- scrap sold at nominal value) |
|
|
|
|
|
|
|
|
|
|
|
Journal entries if sales realized $3,500 |
|
|
|
|
|
Cash account |
Dr |
|
3,500 |
|
|
Factory overhead control account (loss) |
Dr |
|
500 |
|
|
To Scrap inventory account |
|
|
|
4,000 |
|
(Being- scrap sold at loss) |
|
|
|
|
|
|
|
|
|
|
|
Journal entries if sales realized $4,200 |
|
|
|
|
|
Cash account |
Dr |
|
4,200 |
|
|
To Scrap inventory account |
|
|
|
4,000 |
|
To Factory overhead control account (profit) |
|
|
|
200 |
|
(Being- scrap sold at profit) |
|
|
|
|
|
|
|
|
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|
While manufacturing goods, it may be possible to defect in output.
Defects arise due to inferior materials, bad supervision, unskilled workers, inadequate equipment and careless inspection etc.
Defective units can be rectified into good product by reprocess.
But reprocess needs additional materials, labour and expenses.
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 3D
Magic Polymers (P) Ltd manufactures ‘Magic Brand’ slippers.
Extracted data are available for the cost for 500 pairs.
Direct materials $20,000
Direct labour $14,000
Other expenses $4,500
Required: (1) Cost per unit; (2) Cost per unit if 50 pairs are defective
(3) Cost per unit if 50 pairs are defective but reprocess cost $2,000 on materials, $1,000 on labour and $500 on other expenses.
[Answer: (1) CPU = $77; (2) CPU = $77; (3) CPU = $84]
SOLUTION:
Given and working note:
Direct materials + Direct labour + Other expenses
= 20,000 + 14,000 + 4,500
= $38,500
Cost per unit
= Total cost ÷ Total quantity
= $38,500 ÷ 500 pairs
= $77
Cost per unit if 50 pairs are defective
Net quantity = 500 – 50 pairs loss = 450 units
= Total cost ÷ Net quantity
= $38,500 ÷ 450 pairs
= $85.56
Cost per unit if 50 pairs are defective but reprocess cost $2,000 on materials, $1,000 on labour and $500 on other expenses.
Additional expenses:
= Materials + Labour + Other expenses
= 2,000 + 1,000 + 500
= $3,500
Cost per unit
= (Total cost + Additional cost) ÷ Total quantity
= ($38,500 + $3,500) ÷ 500 pairs
= $42,000 ÷ 500 pairs
= $84
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