Job Order Costing-Defects, Spoilage and Scrap

JOB ORDER COST SYSTEM (Accounting for Defective, Spoiled Goods and Scrap)

Learning Objectives:

1. Review of Cost Accounting Cycle 2. Accounting for Defective Goods 3. Accounting for Spoiled Goods 4. Accounting for Scrap

Learning Objective # 1 - Cost Accounting Cycle

Cost Accumulation Method:

- Product or Manufacturing Cost

o Actual Cost System

o Normal Cost System

▪ Physical Output = Cost per unit ▪ Direct Material Cost = Percentage of Material Cost ▪ Direct Labor Cost = Percentage of Labor Cost ▪ Direct Labor Hours = Cost per Labor Hour ▪ Machine Hours = Cost per Machine Hour

o Standard Cost System (Special Topic)

Note: Under Normal cost system problem arises on disposition on overhead variances: - Normally, it is closed to “COGS” if immaterial otherwise, it should be allocated to WIP, FG and COGS.

Transactions to Remember:

1. Recording the Purchase of Raw Materials – Direct 2. Recording the Purchase of Raw Materials – Indirect 3. Recording the Issuance of Raw Materials – Direct 4. Recording the Issuance of Raw Materials – Indirect 5. Recording of Incurred Labor – Direct 6. Recording of Incurred Labor – Indirect 7. Recording of Other Indirect Expenses 8. Recording of Overhead as Applied to Production 9. To record completion of goods put into process (Finished Goods) 10. To record COGS (under perpetual method) 11. Adjustment of Actual vs. Applied Overhead (Over/Under applied Overhead)

12. Recording the return of excess materials already issued to production 13. Recording the return of Raw Materials to supplier 14. To record Sales of Goods on Account

Learning Objective #