The road of life twists and turns and

no two directions are the same. Yet,

our lessons come from the journey,
not the destination.
- Don Williams

Learning Objectives
To account for:
1., Spoiled Materials
- Charging to
specific job
-charge to all
production.
2. Defective Materials
- Charge to specific
job
- charge to all
production

3. Scrap materials
- traced from
specific job
- not traceable to
specific job
-recovered from
factory supplies
4. Waste Materials
- allocation to all
jobs
- allocation to
specific job

Accounting
Accounting for
for Spoiled
Spoiled
Materials
Materials
What are
SPOILED
MATERIALS?

How to account
for spoiled
materials?

Spoiled units are units that do not

meet the production standards and are
either sold on their salvage value or
discarded.

If charged to specific job

Used if the reason of the spoilage is the
job itself. It increases the unit cost of the
remaining perfect finished articles in the
job.

Entry to be
used:

Spoiled Goods
xxx in process
Work
xxx

If charged to all production

Used if the reason for the spoilage is
considered normal to the production
process and the number does not exceed
the limit set by the company.

Entry to be
used:

Spoiled Goods
xxx Overhead Control
Factory
xxxWork in process
xxx

Illustrative Example:
Job 3044 was called for making 4000 with these unit costs:
Direct Materials
Direct Labor
Factory Overhead
(includes P1.00 allowance for spoiled works)

P 15.00
P 13.00
P 12.00
P 40.00

When the order was completed, 200, rejected units, a

normal number for P18.00 each.

Accounting
Accounting for
for defective
defective
materials
materials
What are defective materials?
These are units that do not meet the production
standards and must be processed further in order to be
salable as good units or irregulars.

If charged to a specific job

If the reason for the defect is the job itself,
the additional cots incurred will be charged
to all units in the job.

Entry to be used:

Work in Process
xxxMaterials
Payroll

xxx
xxx

Factory Overhead Applied

xxx

If charged to all production

If the reason is normal to the process, and the
number of defective units does not exceed the
normal limit, then the additional costs incurred
will be charged to all units being processed
during the period.

Entry to be used:

Factory Overhead Control

xxx
Materials
xxx
Payroll

xxx

Factory Overhead Applied

xxx

Illustrative Example:
Job 3044 was called for making 4000 with these unit costs:
Direct Materials
Direct Labor
Factory Overhead
(includes P1.00 allowance for defective units)

P 15.00
P 13.00
P 12.00
P 40.00

During the processing, 300 units were found to be defective

and required the additional costs: materials P2,000
labor P4,000 and overhead P 2,000

Accounting
Accounting for
for scrap
scrap materials
materials
What are scrap materials?
Leftovers from the production process that cannot
anymore become part in the production for the same
purpose, but can be used for other purposes which may
be sold to outsiders for a nominal amount.
Ex. Sawdust in sawmill, metal shavings, cloth remnants.

Entries to be used:

If recovered from a specific job:

Scrap Materials
xxx
Work in process xxx
if not traceable for a specific job:
Scrap Materials
xxx
Miscellaneous Income xxx
if recovered from factory supplies:
Scrap Materials
xxx
Factory Overhead Control xxx

Accounting
Accounting for
for waste
waste materials
materials
What are waste materials?
Leftovers from the production process that has no further
use for the production and has no resale value but
requires costs for their disposal.
Waste is not usually salable at any price and must be
discarded.

Entries to be used:

If costs of the waste materials is allocated to

a specific job:
Work in process
xxx
Accounts Payable
xxx
if allocated to all the production :
Factory Overhead Control
xxx
Accounts Payable xxx

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Sample problems:
The Rock company is a manufacturer of golf clothing. During the
month, the company cut and assembled 8,000 golf jackets. One
hundred of the jackets did not meet the specifications and were
considered seconds. Seconds are sold for P80.00 per jacket
whereas first quality jackets sell for P399.50.
During the month, work in process was charged for P360,000 of
materials, P400,000 of labor, and factory overhead applied at
120% of direct labor (including allowance of 20% of direct labor
spoiled units.)

Hemoots Corporation manufactures electrical equipment from specifications

received from customers. Job 101 was for 1,000 motors used in a specially
designed electrical complex. The following costs are determined for each
motor:
Materials
P117.00
Labor
P100.00
Factory Overhead Control

P83.00

It was discovered at final inspection that 33 motors did not meet the
specifications established by the customer. An examination indicated that 15
motors were beyond repair and should be sold as seconds for P55.00 each,
and the remaining 18 motors, although defective could be reconditioned as
first quality units by the addition of P1,650 materials, P1,500 for labor, and
P1200 for factory overhead.