De La Salle University

RVR College of Business

Accountancy Department

ACYCST1
Accounting for Materials Part3

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 Study Objectives

1. Discuss the three types of rework:

• Normal rework attributable to a specific job
• Normal rework common to all jobs
• Abnormal rework
2. Account for scrap in job order costing:
• Recognized scrap at the time of its sale
• Recognized scrap at the time of its production
 Job Costing and Rework
Three types of rework:
1. Normal rework attributable to a specific job—
the rework costs are charged to that job.
2. Normal rework common to all jobs—the costs
are charged to manufacturing overhead and
spread, through overhead allocation, over all
jobs.
3. Abnormal rework is charged to loss from
abnormal rework account that appears on the
income statement.

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Rework

a. Charged to a specific job

- same for spoiled units, if the reason for the
defect is the job itself, the additional cost
incurred (materials, labor and overhead) will be
charged to all units in the job

Entry: Work in Process xx

Materials xx
Salaries and Wages payable xx
Factory Overhead Applied xx

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Rework

b. Charged to all production

- if the reason is normal to the process and the
number of defective units do not exceed the
normal limit, then the additional cost incurred will
be charged to all unit being processed during the
period.

Entry: Factory Overhead control xx

Materials xx
Salaries and Wages payable xx
Factory Overhead applied xx
Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Rework
Example:

Work in Process 260,600

Materials 60,600 P260,600/20 =
S&W Payable 80,000 P13,030/motor
FOH Applied 120,000

P10,000 +
P10,600 +
(10,600 x 150%)
= P36,500/20
= P1,825

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Rework
Answer:
Charged to a particular job:
Work in Process 36,500
Materials 10,000
Salaries and Wages payable 10,600
Factory Overhead Applied 15,900
260,600 + [(10,000 + 10,600+ (10,600 x 150%) =P 297,100/20 motors = P14,855

Charged to all production:

Factory Overhead control 36,500
Materials 10,000
Salaries and Wages payable 10,600
Factory Overhead applied 15,900
P260,600/20 motors = P13,030

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Scrap
No distinction is made between normal and
abnormal scrap because no cost is assigned to
scrap.

To record the scrap these can be based on:

a. Recognized scrap at the time of its sale
b. Recognized scrap at the time of its
production

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Scrap: Time of its Sale
Immaterial:
Cash or Accounts Receivable XX
Scrap Revenue XX

Material:
a. Scrap attributable to specific job
Cash or Accounts Receivable XX
Work-in-Process XX
b. Scrap common to all jobs
Cash or Accounts Receivable XX
Manufacturing Overhead XX

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Scrap: Time of its Production
Scrap Returned to Storeroom:
a. Scrap attributable to specific job
Scrap Materials XX
Work-in-Process XX

b. Scrap common to all jobs

Scrap Materials XX
Manufacturing Overhead XX

Sale of Scrap:
Cash or Accounts receivable XX
Scrap Materials XX

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Scrap
Example:

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Scrap
Answer:
1. Journal entry to record scrap generated by a
specific job (material) and accounted for at the
time scrap is sold is:

Cash or Accounts Receivable 480

Work-in-Process 480

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Scrap
Example:

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Scrap
Answer:
2. Scrap common to various jobs and accounted for at the time of
its sale can be accounted for in two ways:

a. Regard scrap sales as a separate line item of revenues (the

method generally used when the amount of scrap is immaterial):
Cash or Accounts Receivable 4,500
Scrap Revenues 4,500

b. Regard scrap sales as offsets against manufacturing overhead

(the method generally used when the amount of scrap is
material):
Cash or Accounts Receivable 4,500
FOH Control 4,500

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Scrap
Example:

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Job Costing and Scrap
Answer:
3. Journal entry to record scrap common to various jobs at the
time scrap is returned to storeroom:

Scrap Materials 4,500

FOH Control 4,500

When the scrap is reused as direct material on a subsequent job,

the journal entry is as follows:

Work-in-Process Control 4,500

Scrap Materials 4,500

Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, (17th ed.). Global, Pearson Education, Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost Accounting and Control. GIC Enterprises & Co., Inc., Manila, Philippines.
 Accounting for Materials Part3
Reference and Thanks to:
Datar, S. & Rajan, M. (2021). Horngren’s Cost Accounting: A
Managerial Emphasis, (17th ed.). Global, Pearson Education,
Inc.
De Leon, Jr. G., De Leon, N. & De Leon E. (2022). Cost
Accounting and Control. GIC Enterprises & Co., Inc., Manila,
Philippines.