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Rework and Scrap Case

Edra Furniture is one of the famous furniture store in the world. The company that produces
sofas, chairs, and armchairs as their main products becomes one of the
most targeted company for furniture collectors. The strength of Edra
lies in its design choices, the corporate philosophy aimed at overcoming the fashions and trends
for universal design, personal and timeless. A design free from any rule of the market, but
attentive to the new dictates of comfort and innovation. As the world class furniture company,
the quality of product is the priority for Edra Furniture. Therefore, any single mistakes should be
fixed for customer satisfaction.
Assumptions:
In this case, we assume that Edra Furniture has only three department, which are the
production department, the painting department and the finishing department. The production of
department are the department that process the wood become the armchairs. The painting
department will do the painting process. And, the finishing department will do packaging and
deliver it to customers. The total production cost of 1 unit armchairs is $500 with $300 as the
direct materials, $150 as the direct labor and $50 as the factory overhead (in this case, we dont
consider the transfer price for each department). The rework costs per unit is $30 for direct
material, $40 for direct labor and $30 for factory overhead.

Edra Furniture got an order from Mr. James for 3000 unit of armchairs that made from
the wood. Mr. James requested if the sofa is painted with the light brown color. Unfortunately,
the finishing department make the mistakes. 120 units of armchairs has been painted the dark
brown because of the negligence of the supervisor of finishing department. Therefore, the
finishing department has to rework the 120 unit of armchair.

Solutions:
Total Production Costs per unit = $ 500
Mr. James order 3000 units of armchair, so the total production cost:
3000 unit x $ 500/unit = $ 1.500.000
120 units of armchairs is rework. Total rework Cost:
Direct Material

= $ 30

Direct Labor

= $ 40

Factory Overhead

= $ 30

Total Rework Cost per unit

= $100

Total Rework Cost = $100 x 120 unit = $ 12.000


Assume, the rework is attributable entirely to job for 120 units of armchair. This is
categorized as the abnormal rework because the workers mistakes in painting the wrong color of
armchairs. So, the total and unit cost of the good units produced for Mr. James is as follows:
Manufacturing costs of job before rework:
3000 units ($500)
Add: Normal rework costs
Total cost of job
Unit cost of job (Total 3000 units)

$ 1.500.000
0
$1.500.000
$500

The total and unit costs are still the same. Because in this case, this is the abnormal rework and it
will charging abnormal rework to a loss account. In addition, it is written off as a cost of the
current period.

The Scheme for Rework

Edra
Furniture

Production
Department
Painting
Department

Rework (120
unit)
Detection
Point

Transfer 1880
unit to
Finishing
Department

Finishing
Department

The flow of the goods are from the production department, and then transferred to the
painting department. However, in the painting department, there is a mistakes that 120 units of
armchair have the wrong painting. Therefore, in the painting department there is a detection
point. Then, the painting department did rework for the 120 units of armchairs and transferred
the rest of chair to the finishing department. After all the rework product has finished repainting
then it will transfer also to the finishing department. Then, the finishing department will package
and deliver the good to the Mr. James (customers).
Scrap Case
Edra Furniture mostly used wood as their direct materials. After doing the production
process, the Edra Furniture has the much amount of wood waste (ampas kayu). This wood waste
has been sold to the one of International Restaurant in Italy as the substitute materials for
charcoal. Usually, for the traditional cooking, the company uses charcoal as the main material for
turning on the fire for cooking the food on hearth. Nowadays, instead of charcoal, the restaurant
that cooking using the hearts used the wood waste as the material for the turning the fire. In this
case, the company sold 1 kg of wood waste around $35. Usually, 10 units of armchair has 1 kg of
wood waste.

Assumptions: From the previous orders of Mr. James, how many kg of wood waste during this
production and how much the revenue they got?
Solutions: Mr. James order 3000 units of armchair.10 units of armchair has 1 kg of wood waste.
Then, 3000 units of armchair has 300 kg of wood waste. In this case, we assume that all the
wood waste are sold to the restaurant so the revenue that Edra Furniture got is:
300 kg of wood waste x $35 = $ 10.500.
From selling the scrap items, the Edra Furniture got $10.500 as their additional revenues.
The Scheme for Scrap

Edra
Furniture

Productio
n
Departm
ent
Painting
Departm
ent
Finishing
Departm
ent

Wood
Waste
The
Goods

Detection
Point
The flow of the goods are from the production department, and then transferred to the
painting department. However, in the production department, there will be the scrap items (wood
waste). Therefore, in the production department there is a detection point of the scrap items. The
scrap will be sold to the restaurant and the goods will transfer to the next department for further
process.