Spoilage, Wastage, Scrap and Defective Units | Joint Product & By-Product

 

 

 

Spoilage, Wastage, Scrap and Defective Units in Joint Product & By-Product

There are different types of treatment for spoilage, wastage, scrap and defective units; they are:

Spoilage

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)

 

 

 

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Wastage

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

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)

 

 

Defective units

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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