Spoilage, Rework, and Scrap Job Order Costing

A. Definition

Spoilage : units of production—whether fully or partially completed—that do not meet the specifications required by customers for good units and are discarded or sold at reduced prices. Some examples of spoilage are defective shirts, jeans, shoes, and carpeting sold as “seconds” and defective aluminum cans sold to aluminum manufacturers for remelting to produce other aluminum products.

Rework : units of production that do not meet the specifications required by customers but that are subsequently repaired and sold as good finished units. For example, defective units of products (such as smartphones, tablets, and laptops) detected during or after the production process but before the units are shipped to customers can sometimes be reworked and sold as good products.

Scrap : residual material that results from manufacturing a product. Examples are short lengths from woodworking operations, edges from plastic molding operations, and frayed cloth and end cuts from suit-making operations. Scrap can sometimes be sold for relatively small amounts. In that sense, scrap is similar to byproducts. The difference is that scrap arises as a residual from the manufacturing process and is not a product targeted for manufacture or sale by the firm.

Singkatnya,

spoilage : unacceptable units of production
rework : unacceptable units of production subsequently repaired
scrap : leftover material

B. Two Types of Spoilage

1. Normal Spoilage

Normal Spoilage is spoilage inherent in an efficient production process.

Cost dari Normal Spoilage dimasukkan ke komponen cost of good units completed.

Normal spoilage rates are computed by dividing the units of normal spoilage by total good units completed, not total actual units started in production.

Normal spoilage berbanding lurus dengan jumlah good units completed.

2. Abnormal Spoilage

Abnormal Spoilage is spoilage that would not arise under efficient operation.

Cost dari Abnormal Spoilage dimasukkan ke dalam Loss from Abnormal Spoilage pada Income Statement.

C. Job Costing and Spoilage

1. Normal Spoilage Attributable to a Specific Job

The journal entry to recognize the disposal value is as follows (items in parentheses indicate subsidiary ledger postings):
Materials Control (spoiled goods at current net disposal value)
     Work-in-Process Control (specific job)

2. Normal Spoilage Common to All Jobs

In some cases, spoilage may be considered a normal characteristic of the production process. The spoilage inherent in production will, of course, occur when a specific job is being worked on. However, the spoilage is not attributable to, and hence is not charged directly to, the specific job. Instead, the spoilage is allocated indirectly to the job as manufacturing overhead because the spoilage is common to all jobs. The journal entry is as follows:
Materials Control (spoiled goods at current disposal value)

Manufacturing Overhead Control (normal spoilage)

     Work-in-Process Control (specific job)

3. Abnormal Spoilage

If the spoilage is abnormal, the net loss is charged to the Loss from Abnormal Spoilage account. Unlike normal spoilage costs, abnormal spoilage costs are not included as a part of the cost of good units produced.
Jurnalnya :
Material
Loss from abnormal spoilage
     WIP (specific job)

D. Job Costing and Rework

1. Normal Rework Attributable to a Specific Job

If the rework is normal but occurs because of the requirements of a specific job, the rework costs are charged to that job. The journal entry is as follows:
Work-in-Process Control (specific job)
     Materials Control
     Wages Payable Control
     Manufacturing Overhead Allocated

2. Normal Rework Common to All Jobs

The costs of the rework when it is normal and not attributable to a specific job are charged to manufacturing overhead and are spread, through overhead allocation, over all jobs.
Manufacturing Overhead Control (rework costs)
     Materials Control
     Wages Payable Control
     Manufacturing Overhead Allocated

3. Abnormal Rework

If the rework is abnormal, it is charged to a loss account.
Loss from Abnormal Rework
     Materials Control
     Wages Payable Control
     Manufacturing Overhead Allocated

E. Accounting for Scrap

Kalau nilainya immaterial, jurnalnya :
Cash or Accounts Receivable
     Scrap Revenue
Kalau nilainya material:

1. Scrap Attributable to a Specific Job

Scrap returned to storeroom : No journal entry. [Notation of quantity received and related job   entered in the inventory record]

Sale of scrap : Cash or Accounts Receivable
                             Work-in-Process Control (Posting made to specific job cost record.)

Unlike spoilage and rework, there is no cost assigned to the scrap, so no distinction is made between normal and abnormal scrap. All scrap revenues, whatever the amount, are credited to the specific job. Scrap revenues reduce the costs of the job.

2. Scrap Common to All Jobs

Scrap returned to storeroom : No journal entry. [Notation of quantity received and related job   entered in the inventory record]

Sale of scrap : Cash or Accounts Receivable
                             Manufacturing Overhead Control