systems design: job-order costing · systems design: job-order costing chapter3 ... job-order cost...
TRANSCRIPT
© McGraw-Hill Ryerson Limited., 2001
3-2
LEARNING OBJECTIVES
1. Distinguish between process costing and job-order costing and identify companies thatwould use each costing method.
2. Identify the documents used in a job-ordercosting system.
3. Compute predetermined overhead rates andexplain why estimated overhead costs areused in the costing process.
4. Prepare journal entries to record costs in ajob-order costing system.
After studying this chapter, you should be able to:
© McGraw-Hill Ryerson Limited., 2001
3-3
LEARNING OBJECTIVES
5. Apply overhead cost to Work in Process using apredetermined overhead rate.
6. Prepare T-accounts to show the flow of costs in ajob-order costing system and prepare schedulesof cost of goods manufactured and cost of goodssold.
7. Compute under- or overapplied overhead costand prepare the journal entry to close theManufacturing Overhead account.
After studying this chapter, you should be able to:
© McGraw-Hill Ryerson Limited., 2001
3-4
LEARNING OBJECTIVES
8. (Appendix 3A) Explain the implications of basingpredetermined overhead rates on activity atcapacity vs. estimated activity.
9. (Appendix 3B) Prepare journal entries to recordthe flow of costs in a just-in-time (JIT) inventorysystem.
10. (Appendix 3C) Account for scrap and rework ofunacceptable production.
After studying this chapter, you should be able to:
© McGraw-Hill Ryerson Limited., 2001
3-5
Types of Costing Systems Used toDetermine Product Costs
ProcessCosting
Job-orderCosting
! Many different products are produced each period.
! Products are manufactured to order.
! Cost are traced or allocated to jobs.
! Cost records must be maintained for each distinct product or job.
Chapter 4
© McGraw-Hill Ryerson Limited., 2001
3-6
Types of Costing Systems Used toDetermine Product Costs
ProcessCosting
Job-orderCosting
" Typical job order cost applications:! Special-order printing! Building construction
" Also used in the service industry! Hospitals! Law firms
© McGraw-Hill Ryerson Limited., 2001
3-7
Job-Order Costing
THE JOB
Directmaterial
Direct labour
Traced directly to each job
Traced directly
to each job
Manufacturingoverhead (OH)
Applied to eachjob using a
predeterminedrate
© McGraw-Hill Ryerson Limited., 2001
3-8
Sequence of Events in a Job-OrderCosting System
Receiveorders fromcustomers
Schedulejobs
Ordermaterials
Beginproduction
© McGraw-Hill Ryerson Limited., 2001
3-9
ManufacturingOverhead
ManufacturingOverhead
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3
Chargedirect
material anddirectlabour
costs toeach job as
work isperformed.
Chargedirect
material anddirectlabour
costs toeach job as
work isperformed.
Sequence of Events in a Job-OrderCosting System
Direct MaterialsDirect Materials
Direct labourDirect labour
© McGraw-Hill Ryerson Limited., 2001
3-10
Applyoverhead to
each jobusing a pre-determined
rate.
Applyoverhead to
each jobusing a pre-determined
rate.
Sequence of Events in a Job-OrderCosting System
Direct MaterialsDirect Materials
Direct labourDirect labour
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3ManufacturingOverhead
ManufacturingOverhead
© McGraw-Hill Ryerson Limited., 2001
3-11
Job-Order Cost Accounting
The primarydocument fortracking the
costs associatedwith a given jobis the job cost
sheet.
Let’s investigate
© McGraw-Hill Ryerson Limited., 2001
3-12
PearCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-01Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labour Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate Amount
Cost Summary Units ShippedDirect Materials Date Number BalanceDirect LabourManufacturing OverheadTotal CostUnit Cost
Job-Order Cost Accounting
© McGraw-Hill Ryerson Limited., 2001
3-13
PearCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-01Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labour Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate Amount
Cost Summary Units ShippedDirect Materials Date Number BalanceDirect LabourManufacturing OverheadTotal CostUnit Cost
Job-Order Cost Accounting
Let’s see one
A materials requisitionform is used to
authorize the use ofmaterials on a job.
© McGraw-Hill Ryerson Limited., 2001
3-14
Materials Requisition Form
PearCo Materials Requisition Form
Requisition No. X7 - 6890 Date 3-4-01Job No. A - 143Department B3
Description Quantity Unit Cost Tota l Cost2 x 4, 12 feet 12 3.00$ 36.00$ 1 x 6, 12 feet 20 4.00 80.00
116.00$
Authorized Signature W ill E. Delite
© McGraw-Hill Ryerson Limited., 2001
3-15
PearCo Materials Requisition Form
Requisition No. X7 - 6890 Date 3-4-01Job No. A - 143Department B3
Description Quantity Unit Cost Tota l Cost2 x 4, 12 feet 12 3.00$ 36.00$ 1 x 6, 12 feet 20 4.00 80.00
116.00$
Authorized Signature
Materials Requisition Form
W ill E. Delite
Type, quantity, andtotal cost of materialcharged to job A-143.
Cost of material ischarged to job A-143.
© McGraw-Hill Ryerson Limited., 2001
3-16
PearCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-01Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labour Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect LabourManufacturing OverheadTotal CostUnit Cost
Job-Order Cost Accounting
© McGraw-Hill Ryerson Limited., 2001
3-17
PearCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-01Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labour Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect LabourManufacturing OverheadTotal CostUnit Cost
Job-Order Cost Accounting
Workers usetime tickets torecord the timespent on each
job.
Let’s see one
© McGraw-Hill Ryerson Limited., 2001
3-18
Employee Time Ticket
PearCo Employee Time Ticket
Time Ticket No. 36 Date 3/5/01
Employee I. M. Skilled Station 42
Starting Ending Hours HourlyTime Time Completed Rate Amount Job No.0800 1600 8.00 11.00$ 88.00$ A-143
Totals 8.00 11.00$ 88.00$ A-143
Supervisor C. M . W orkman
© McGraw-Hill Ryerson Limited., 2001
3-19
PearCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-01Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labour Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$ 36 8 88$
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect Labour 88$ Manufacturing OverheadTotal CostUnit Cost
Job-Order Cost Accounting
© McGraw-Hill Ryerson Limited., 2001
3-20
Job-Order Cost Accounting
PearCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-01Date Completed 3-5-01
Department B3 Units Completed 2Item Wooden cargo crate
Direct Materials Direct Labour Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$ 36 8 88$ 8
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect Labour 88$ Manufacturing Overhead 32$ Total Cost 236$ Unit Cost 118$
Apply manufacturing overhead to jobs using a predetermined overhead rate of $4 per direct
labour hour (DLH).Let’s do it
© McGraw-Hill Ryerson Limited., 2001
3-21
PearCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-01Date Completed 3-5-01
Department B3 Units Completed 2Item Wooden cargo crate
Direct Materials Direct Labour Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$ 36 8 88$ 8 4$ 32$
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect Labour 88$ Manufacturing Overhead 32$ Total Cost 236$ Unit Cost 118$
Job-Order Cost Accounting
© McGraw-Hill Ryerson Limited., 2001
3-22
Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theallocation base for the coming period
POHR =
The predetermined overhead rate(POHR) used to apply overhead to jobsis determined before the period begins.
Application of ManufacturingOverhead
Ideally, the allocation base is acost driver that causes overhead.
© McGraw-Hill Ryerson Limited., 2001
3-23
Application of ManufacturingOverhead
Overhead applied = POHR × Actual activity
Actual amount of the cost driversuch as units produced, directlabour hours, or machine hours
incurred during the period.
Based on estimates, anddetermined before the
period begins.
© McGraw-Hill Ryerson Limited., 2001
3-24
Application of ManufacturingOverhead
PearCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-01Date Completed 3-5-01
Department B3 Units Completed 2Item Wooden cargo crate
Direct Materials Direct Labour Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$ 36 8 88$ 8 4$ 32$
Recall the wooden crate example where:
Overhead applied = $4 per DLH × 8 DLH = $32
Overhead applied = POHR × Actual activity
© McGraw-Hill Ryerson Limited., 2001
3-25
The Need for a PredeterminedManufacturing Overhead Rate
Using a predetermined rate makes itpossible to estimate total job costs sooner.
Actual overhead for the period is notknown until the end of the period.
$$
© McGraw-Hill Ryerson Limited., 2001
3-26
PearCo applies overhead based on directlabour hours. Total estimated overheadfor the year is $640,000. Total estimated
labour cost is $1,400,000 and totalestimated labour hours are 160,000.
What is PearCo’s predeterminedoverhead rate per hour?
Overhead Application Example
© McGraw-Hill Ryerson Limited., 2001
3-27
For each direct labour hour worked ona job, $4.00 of factory overhead will be
applied to the job.
Overhead Application Example
POHR = $4.00 per DLH
$640,000
160,000 direct labour hours (DLH)POHR =
Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theallocation base for the coming period
POHR =
© McGraw-Hill Ryerson Limited., 2001
3-28
PearCo Job Cost Sheet
Job Number X - 32 Date Initiated 3-9-01Date Completed 3-11-01
Department B3 Units Completed 6Item Wooden cargo crate
Direct Materials Direct Labour Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-7456 240$ 23 26 286$
Cost Summary Units ShippedDirect Materials 240$ Date Number BalanceDirect Labour 286$ Manufacturing OverheadTotal CostUnit Cost
Overhead Application Example
What amount of overhead willPearCo apply to Job X-32?
© McGraw-Hill Ryerson Limited., 2001
3-29
PearCo Job Cost Sheet
Job Number X - 32 Date Initiated 3-9-01Date Completed 3-11-01
Department B3 Units Completed 6Item Wooden cargo crate
Direct Materials Direct Labour Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-7456 240$ 23 26 286$ 26 4$ 104$
Cost Summary Units ShippedDirect Materials 240$ Date Number BalanceDirect Labour 286$ Manufacturing Overhead 104$ Total CostUnit Cost
Overhead Application Example
© McGraw-Hill Ryerson Limited., 2001
3-30
Let’s summarizethe documentflow we have
been discussingin a job-order
costing system.
Job-Order CostingDocument Flow Summary
© McGraw-Hill Ryerson Limited., 2001
3-31
Job-Order CostingDocument Flow Summary
Job CostSheets
MaterialsRequisition
Directmaterials
Indirectmaterials
ManufacturingOverheadAccount
Materials usedmay be either
direct orindirect.
© McGraw-Hill Ryerson Limited., 2001
3-32
Job-Order CostingDocument Flow Summary
Job CostSheets
Employee TimeTicket
ManufacturingOverheadAccount
Directlabour
Indirectlabour
An employee’stime may be eitherdirect or indirect.
© McGraw-Hill Ryerson Limited., 2001
3-33
Job-Order CostingDocument Flow Summary
EmployeeTime Ticket
Job CostSheets
MaterialsRequisition
OtherActual OHCharges
IndirectMaterial
Indirectlabour
AppliedOverhead
ManufacturingOverheadAccount
© McGraw-Hill Ryerson Limited., 2001
3-34
Let’s examine thecost flows in a
job-order costingsystem. We willuse T-accountsand start with
materials.
Job-Order System Cost Flows
© McGraw-Hill Ryerson Limited., 2001
3-35
Raw Materials"Material
"Purchases"Direct
Materials"Direct
Materials
Mfg. Overhead
"Indirect Materials
Job-Order System Cost FlowsWork in Process(Job Cost Sheet)
"Indirect Materials
Actual Applied
© McGraw-Hill Ryerson Limited., 2001
3-36
Next let’s addlabour costs and
appliedmanufacturingoverhead to thejob-order costflows. Are you
with me?
Job-Order System Cost Flows
© McGraw-Hill Ryerson Limited., 2001
3-37
Job-Order System Cost Flows
"Direct Labour
Mfg. Overhead
Salaries andWages Payable
Work in Process(Job Cost Sheet)"Direct
Materials
"OverheadApplied to
Work inProcess
"IndirectLabour
"Direct Labour
"Overhead Applied
"IndirectLabour
"Indirect Materials
Actual AppliedIf actual and applied
manufacturing overheadare not equal, a year-endadjustment is required.
If actual and appliedmanufacturing overheadare not equal, a year-endadjustment is required.
© McGraw-Hill Ryerson Limited., 2001
3-38
Now let’scomplete the
goods and sellthem. Still with
me?
Job-Order System Cost Flows
© McGraw-Hill Ryerson Limited., 2001
3-39
"Cost ofGoodsMfd.
Finished Goods
"Cost ofGoodsSold
"Cost ofGoodsMfd.
Cost of Goods Sold
"Cost ofGoodsSold
Job-Order System Cost FlowsWork in Process(Job Cost Sheet)"Direct
Materials"Direct Labour
"Overhead Applied
© McGraw-Hill Ryerson Limited., 2001
3-40
Let’s return toPearCo and see
what we will do ifactual and
applied overheadare not equal.
Job-Order System Cost Flows
© McGraw-Hill Ryerson Limited., 2001
3-41
Overhead Application Example
PearCo’s actual overhead for the year was $650,000for a total of 170,000 direct labour hours.
How much total overhead was applied to PearCo’sjobs during the year? Use PearCo’s predetermined
overhead rate of $4.00 per direct labour hour.
© McGraw-Hill Ryerson Limited., 2001
3-42
Overhead Application Example
SOLUTIONApplied Overhead = POHR × Actual Direct labour Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
PearCo’s actual overhead for the year was $650,000for a total of 170,000 direct labour hours.
How much total overhead was applied to PearCo’sjobs during the year? Use PearCo’s predetermined
overhead rate of $4.00 per direct labour hour.
© McGraw-Hill Ryerson Limited., 2001
3-43
SOLUTIONApplied Overhead = POHR × Actual Direct labour Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
PearCo’s actual overhead for the year was $650,000for a total of 170,000 direct labour hours.
How much total overhead was applied to PearCo’sjobs during the year? Use PearCo’s predetermined
overhead rate of $4.00 per direct labour hour,
Overhead Application Example
PearCo has overappliedoverhead for the yearby $30,000. What will
PearCo do?
© McGraw-Hill Ryerson Limited., 2001
3-44
Work inProcess
FinishedGoods
Cost of Goods Sold
$30,000may be allocated
to these accounts.
$30,000 may beclosed directly to
cost of goods sold.
Cost of Goods Sold
Overapplied and UnderappliedManufacturing Overhead
PearCo’s Method
OR
© McGraw-Hill Ryerson Limited., 2001
3-45
Overapplied and UnderappliedManufacturing Overhead
PearCo’sMfg. Overhead
Actualoverhead
costs
$650,000
$30,000 overapplied
PearCo’s Costof Goods Sold
UnadjustedBalance
$30,000
$30,000
AdjustedBalance
OverheadAppliedto jobs
$680,000
© McGraw-Hill Ryerson Limited., 2001
3-46
Overapplied and UnderappliedManufacturing Overhead - Summary
Alternative 1 Alternative 2If Manufacturing Close to Cost Overhead is . . . of Goods Sold Allocation
UNDERAPPLIED INCREASE INCREASECost of Goods Sold Work in Process
(Applied OH is less Finished Goodsthan actual OH) Cost of Goods Sold
OVERAPPLIED DECREASE DECREASECost of Goods Sold Work in Process
(Applied OH is greater Finished Goodsthan actual OH) Cost of Goods Sold
PearCo’sMethod
© McGraw-Hill Ryerson Limited., 2001
3-47
Tiger, Inc. had actual manufacturing overheadcosts of $1,210,000 and a predeterminedoverhead rate of $4.00 per machine hour. Tiger,Inc. worked 290,000 machine hours during theperiod. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
Tiger, Inc. had actual manufacturing overheadcosts of $1,210,000 and a predeterminedoverhead rate of $4.00 per machine hour. Tiger,Inc. worked 290,000 machine hours during theperiod. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
Overhead Application Question 1
© McGraw-Hill Ryerson Limited., 2001
3-48
Tiger, Inc. had actual manufacturing overheadcosts of $1,210,000 and a predeterminedoverhead rate of $4.00 per machine hour. Tiger,Inc. worked 290,000 machine hours during theperiod. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
Tiger, Inc. had actual manufacturing overheadcosts of $1,210,000 and a predeterminedoverhead rate of $4.00 per machine hour. Tiger,Inc. worked 290,000 machine hours during theperiod. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
Overhead Application Question 1
Overhead Applied $4.00 per hour × 290,000 hours = $1,160,000
Underapplied Overhead $1,210,000 - $1,160,000 = $50,000
© McGraw-Hill Ryerson Limited., 2001
3-49
Tiger’s overhead was $50,000 underapplied.This amount would result in an adjustment thatwould decrease cost of goods sold by $50,000.
a. True
b. False
Tiger’s overhead was $50,000 underapplied.This amount would result in an adjustment thatwould decrease cost of goods sold by $50,000.
a. True
b. False
Overhead Application Question 2
© McGraw-Hill Ryerson Limited., 2001
3-50
Tiger’s overhead was $50,000 underapplied.This amount would result in an adjustment thatwould decrease cost of goods sold by $50,000.
a. True
b. False
Tiger’s overhead was $50,000 underapplied.This amount would result in an adjustment thatwould decrease cost of goods sold by $50,000.
a. True
b. False
If overhead is underapplied, cost ofgoods sold is understated. Theadjustment will increase cost of
goods sold.
Overhead Application Question 2
© McGraw-Hill Ryerson Limited., 2001
3-51
Let’s look atsummary journalentries for a job-
order costingsystem. We’ll omit
the numbers so that we can focus
on accounts.
Job-Order Costing – TypicalAccounting Entries
© McGraw-Hill Ryerson Limited., 2001
3-52
Cost Flows – Material Purchases
Raw material purchases are recorded in aninventory account.
GENERAL JOURNAL Page 3
Date DescriptionPost. Ref. Debit Credit
Raw Materials XXXXX Accounts Payable XXXXX
© McGraw-Hill Ryerson Limited., 2001
3-53
Direct materials issued to a job increase Work inProcess and decrease Raw Materials. Indirectmaterials used are charged to ManufacturingOverhead and also decrease Raw Materials.
Cost Flows – Material Usage
GENERAL JOURNAL Page 3
Date DescriptionPost. Ref. Debit Credit
Work in Process XXXXXManufacturing Overhead XXXXX Raw Materials XXXXX
© McGraw-Hill Ryerson Limited., 2001
3-54
Cost Flows – Labour
The cost of direct labour incurred increases Workin Process and the cost of indirect labour
increases Manufacturing Overhead.
GENERAL JOURNAL Page 3
Date DescriptionPost. Ref. Debit Credit
Work in Process XXXXXManufacturing Overhead XXXXX Salaries and Wages Payable XXXXX
© McGraw-Hill Ryerson Limited., 2001
3-55
Cost Flows – Actual Overhead
GENERAL JOURNAL Page 3
Date DescriptionPost. Ref. Debit Credit
Manufacturing Overhead XXXXX Accounts Payable XXXXX Property Taxes Payable XXXXX Prepaid Insurance XXXXX Accumulated Depreciation XXXXX
In addition to indirect materials and indirect labour,other manufacturing overhead costs are chargedto the Manufacturing Overhead account as they
are incurred.
© McGraw-Hill Ryerson Limited., 2001
3-56
Cost Flows – Overhead Applied
Work in Process is increased when ManufacturingOverhead is applied to jobs.
GENERAL JOURNAL Page 3
Date DescriptionPost. Ref. Debit Credit
Work in Process XXXXX Manufacturing Overhead XXXXX
© McGraw-Hill Ryerson Limited., 2001
3-57
Cost Flows – Period Expenses
Non-manufacturing costs (period expenses) arecharged to expense as they are incurred.
GENERAL JOURNAL Page 3
Date DescriptionPost. Ref. Debit Credit
Salaries Expense XXXXX Salaries and Wages Payable XXXXX
Advertising Expense XXXXX Accounts Payable XXXXX
© McGraw-Hill Ryerson Limited., 2001
3-58
Cost Flows – Cost of GoodsManufactured
As jobs are completed, the cost of goodsmanufactured is transferred to Finished Goods
from Work in Process.
GENERAL JOURNAL Page 3
Date DescriptionPost. Ref. Debit Credit
Finished Goods XXXXX Work in Process XXXXX
© McGraw-Hill Ryerson Limited., 2001
3-59
Cost Flows – Sales
When finished goods are sold, two entries arerequired: (1) to record the sale; and (2) to recordCost of Goods Sold and reduce Finished Goods.
GENERAL JOURNAL Page 3
Date DescriptionPost. Ref. Debit Credit
Accounts Rece ivable XXXXX Sales XXXXX
Cost of Goods Sold XXXXX Finished Goods XXXXX
© McGraw-Hill Ryerson Limited., 2001
3-61
The Capacity Issue
When estimated activity is less than activity
at capacity, two problems arise:
1. Unit product costs will fluctuate depending on the budgeted level ofactivity for the period. As budget levels decrease, unit product costs willincrease.
2. Products will be charged for resourcesthey did not use.
© McGraw-Hill Ryerson Limited., 2001
3-63
JIT Inventory Method
Simplifies the cost flow process since rawmaterials and work in process arecombined into one new account “Rawand In-Process Inventory”.
This is because no raw materials arecarried in inventory because they arepurchased just in time to be used inproduction.
© McGraw-Hill Ryerson Limited., 2001
3-64
JIT Inventory
Traditional method JIT method
Raw MaterialsInventory
Work in ProcessInventory
Finished GoodsInventory
Raw and In-ProcessInventory
Finished GoodsInventory
© McGraw-Hill Ryerson Limited., 2001
3-66
Scrap and Rework
IncreasedQuality
IncreasedProfitability
Leads to
Improving quality reduces the costs associatedwith rework, delays in production, warranty costand poor customer relations.
© McGraw-Hill Ryerson Limited., 2001
3-67
No Recovery
Where there is no recovery from scrapunits, the total loss from scrap can be:
1. Allocated across all good units, or
2. Charged to overhead and in turn charged to all jobs.
© McGraw-Hill Ryerson Limited., 2001
3-68
With Recovery
1. When items are sold for scrap, the scraprecovery could be credited to:
(a) the job, or
(b) manufacturing overhead.
2. When some rework is undertaken, thematerials and labour involved in the reworkcould be charged to:
(a) the job, or
(b) manufacturing overhead and spread over all the jobs.