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Defective Units Cost Accounting Analysis

The document describes two job order costing problems. The first problem involves manufacturing 1,000 jacks where 100 units were found to be defective during inspection. The cost of correcting the defects can either be charged to the specific order or not. The second problem involves casting 5,000 custom housings where 200 units were defective. The customer agreed to accept 4,800 units and the defective units can be sold as seconds.

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Nick ivan Alvares
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2K views2 pages

Defective Units Cost Accounting Analysis

The document describes two job order costing problems. The first problem involves manufacturing 1,000 jacks where 100 units were found to be defective during inspection. The cost of correcting the defects can either be charged to the specific order or not. The second problem involves casting 5,000 custom housings where 200 units were defective. The customer agreed to accept 4,800 units and the defective units can be sold as seconds.

Uploaded by

Nick ivan Alvares
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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ACAE 22 Activity – Job Order with Spoilage/Defective Units

Problem 1
Fabricators manufacture jacks and other lifting equipment. One order from A Supply House for 1,000
jacks showed the following costs per unit: materials, P40.00; labor, P17.50; factory overhead applied at
160% of direct labor cost (150% in cases in which any defective unit costs are to be charged to a specific
order.)
Final inspection revealed that 100 of the units were improperly riveted. Correction of each defective unit
requires P2.00 for materials, P3.00 for labor and factory overhead at the appropriate rate.

Required:
1. Assume the cost of correcting the defective work is charged to the specific order prepare the
necessary journal entries in the books.

2. Assume the cost of correcting the defective work is not charged to the specific order prepare the
necessary journal entries in the books.

(1)
WIP Jacks 85,500
Materials (40 x 1,000) 40,000
Payroll (17.5 x 1,000) 17,500
FOH – Applied (17.5 x 1,000 x 160%) 28,000

WIP Jacks 950


Materials (2 x 100) 200
Payroll (3 x 100) 300
FOH – Applied (3 x 100 x 150%) 450

Finished 86,450
WIP Jacks 86,450

(2)
WIP Jacks 85,500
Materials (40 x 1,000) 40,000
Payroll (17.5 x 1,000) 17,500
FOH – Applied (17.5 x 1,000 x 160%) 28,000

FOH - Control 980


Materials (2 x 100) 200
Payroll (3 x 100) 300
FOH – Applied (3 x 100 x 160%) 480

Finished 85,500
WIP Jacks 85,500
Problem 2
P Foundry Inc. manufactures custom metal products that require casting, such as engine blocks, pistons,
and engine housing. During the current period, an order for 5,000 custom housing was begun on job
number 3387 for R Pump Company. After the job was completed, the housings were inspected and 200
units were determined to be defective. The customer has agreed to accept the order with only 4,800 units
instead of the quantity originally ordered. The spoiled units can be sold as seconds for P12 each. Spoiled
goods are kept in a inventory account separate from finished goods. Costs charged to job number 3387
are:
Materials P46,000
Labor (1,000 hours X P14 per hour) 14,000
Factory overhead (P30 per labor hour) 30,000
Required:
1. Assuming that the defective units are the result of an internal failure (that is, an employee error or a
machine failure). How much is the loss effect of the defective units.

2. Assuming that the defective units are the result of a change in design of specified by the customer
after the units completed. How much is the loss effect of the defective units.

(90,000/5,000) = 18
18 – 12 = 6 x 200 = 1,200

WIP Job 3387 90,000


Materials 46,000
Payroll 14,000
FOH – Applied 30,000

Finished Goods (4,800 x 18) 86,400


Spoiled Goods (200 x 12) 2,400
FOH – Control 1,200
WIP Job 3387 90,000

WIP Job 3387 90,000


Materials 46,000
Payroll 14,000
FOH – Applied 30,000

Finished Goods (4,800 x 18) 87,600


Spoiled Goods (200 x 12) 2,400
WIP Job 3387 90,000

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