LOJERO, PRINCESS GLAIDINE C.

COA BLK 1C
AE 103
CHAPTER 8
1. B
Direct Labor Hours Ᵽ1,600
Amount of Activity ÷100,000
Total Overhead Cost ×860,000
Overhead Product AB Ᵽ13,760

Direct Labor Hours Ᵽ200

Amount of Activity ÷100,000
Total Overhead Cost ×860,000
Overhead Product CD Ᵽ1,720
2. C
Direct Labor Hours 1,600
Amount of Activity ÷100,000
Amount in Pool ×Ᵽ520,000
Total Ᵽ8,320

Number of Batches 4
Amount of Activity ÷500
Amount in Pool ×Ᵽ280,000
Total Ᵽ2,240

Engineering Design Usage 2

Amount of Activity ÷120
Amount in Pool ×Ᵽ60,000
Total Ᵽ1,000

Direct Labor Hours Ᵽ8,320

Number of Batches 2,240
Engineering Design Usage 1,000
Overhead Product AB Ᵽ11,560

Direct Labor Hours 200

Amount of Activity ÷100,000
Amount in Pool ×Ᵽ520,000
Total Ᵽ1,040

Number of Batches 12
Amount of Activity ÷500
Amount in Pool ×Ᵽ280,000
Total Ᵽ6,720

Engineering Design Usage 24

Amount of Activity ÷120
Amount in Pool ×Ᵽ60,000
Total Ᵽ12,000

Direct Labor Hours Ᵽ1,040

Number of Batches 6,720
Engineering Design Usage 12,000
Overhead Product CD Ᵽ19,760
3. C
Total Hours per Batch
Direct Labor Hours 5,000
Volume ÷2,000
Batch Size ×100
Total 250 DLH

Setup Cost per Hour

Volume Ᵽ1,000
Direct Labor Hours ÷250
Total Ᵽ4

Setup Cost per Unit

Setup Cost per Hour Ᵽ4
Total Hours per Batch ×2.5
Total Ᵽ10

Activity-Based Costing
Setup Cost per Batch Ᵽ1,000
Batch Size ÷100
Total Ᵽ10

4. C
Traditional Costing System
Direct Materials Ᵽ55,500
Direct Labor 14,760
Applied Factory Overhead 44,280
Total Factory Cost Ᵽ114,540
Units ÷150
Unit Cost Ᵽ763.60
Activity-Based Costing
Direct Materials Ᵽ55,500
Direct Labor 14,760
Applied Factory Overhead:
Engineering Design Ᵽ9,900
Machine Setup 4,400
Machining 18,300
Assembly 11,600
Packaging and Shipping 2,280
Building Occupancy 4,392 50,872
Total Factory Cost Ᵽ121,132
Units ÷150
Unit Cost Ᵽ807.55
5. C
Traditional Costing
Direct Materials Ᵽ4.40
Direct Labor 0.75
Applied Overhead:
Machine Hours 80
Predetermined Overhead Rate ×Ᵽ60
Applied Overhead Ᵽ4,800
Batch Size ÷5,000 0.96
Unit Cost Ᵽ6.11
Activity-Based Costing
Direct Materials Ᵽ4.40
Direct Labor 0.75
Applied Overhead:
Materials Handling Ᵽ0.60
Setup Cost 0.168
Machining Cost 0.288
Quality Control 0.09 1.146
Unit Cost Ᵽ6.30
 6. B
Product A-1
Materials Ᵽ20
Labor 200
Applied Overhead:
Machine Setup Ᵽ4
Testing 8
Related to Labor 30 42
Unit Cost Ᵽ262

Product B-3
Materials Ᵽ45
Labor 400
Applied Overhead:
Machine Setup Ᵽ200
Testing 220
Related to Labor 60 480
Unit Cost Ᵽ925

7. A
Product RR
Price Cost Ᵽ800,000
Overhead 1,600,000
Total Factory Cost Ᵽ2,400,000
Quantity ÷400,000
Unit Cost Ᵽ6.00
Product SS
Price Cost Ᵽ150,000
Overhead 400,000
Total Factory Cost Ᵽ550,000
Quantity ÷100,000
Unit Cost Ᵽ5.50
8. B
Product RR
Prime Cost Ᵽ800,000
Overhead:
Cost of Operating Equipment Ᵽ400,000
Material Handling 566,667
 Setups 433,333 1, 400, 000
Factory Cost Ᵽ2,200,000
Quantity ÷400.000
Unit Cost Ᵽ5.50

Product SS
Prime Cost Ᵽ150,000
Overhead:
Cost of Operating Equipment Ᵽ100,000
Material Handling 283,333
Setups 216,667 600,000
Factory Cost Ᵽ750,000
Quantity ÷100,000
Unit Cost Ᵽ7.50

9. C
Direct Cost Ᵽ40,000
Overhead:
Utilities Ᵽ300,000
Setups 91,000
Material Handling 400,000 791,000
Factory Cost Ᵽ831,000
Units ÷20,000
Unit Cost Ᵽ41.55

10. A
Direct Cost Ᵽ40,000
Overhead 436,680
Total Factory Cost Ᵽ476,680
Unit Produced ÷10,000
Unit Cost Ᵽ47.67
×120%
Selling Price Ᵽ57.20

11. D
Activity Based Costing:
Material Inspection (Ᵽ11.50×12) Ᵽ138
In Process Inspection (Ᵽ0.14×17,500) 2,450
Product Certification (Ᵽ77×25) 1,925 Ᵽ4,513
Traditional Costing (Ᵽ27,500×14.5%) 3,987.50
Excess of ABC over Traditional Costing Ᵽ525.50

12. A
Product LL
Annual Revenues Ᵽ100,000
Annual Labor Cost (60,000)
Overhead Cost (46,500)
Income (Loss) (Ᵽ6,500)

Maintenance (Ᵽ75,000/25,000×5,000) Ᵽ15,000

Product Delivery (Ᵽ45,000/5,000×1,000) 9,000
Supervision (Ᵽ60,000/160,000×60,000) 22,500
Total Overhead Ᵽ46,500

Product MM
Annual Revenues Ᵽ300,000
Annual Labor Cost (100,000)
Overhead Cost (133,500)
Income (Loss) Ᵽ66,500

Maintenance (Ᵽ75,000/25,000×20,000) Ᵽ60,000

Product Delivery (Ᵽ45,000/5,000×4,000) 36,000
Supervision (Ᵽ60,000/160,000×100,000) 37,500
Total Overhead Ᵽ133,500

13. D
Vacuum Cleaners
Revenue Ᵽ6,500,000
Manufacturing Cost:
Direct Materials Ᵽ1,000,000
Direct Labor 600,000
Overhead 255,000 (1,855,000)
Gross Profit Ᵽ4,645,000
Divided by Units Sold ÷1,000
Gross Profit per Unit Ᵽ464.50

Floor Polishers
Revenue Ᵽ5,950,000
Manufacturing Cost:
Direct Materials Ᵽ900,000
Direct Labor 2,000,000
Overhead 850,000 (3,750,000)
Gross Profit Ᵽ2,200,000
Divided by Units Sold ÷1,000
Gross Profit per Unit Ᵽ2,200

14. B
Vacuum Cleaners
Revenue Ᵽ6,500,000
Manufacturing Cost:
Direct Materials Ᵽ1,000,000
Direct Labor 600,000
Overhead 150,000 (1,750,000)
Gross Profit Ᵽ4,750,000
Divided by Units Sold ÷10,000
Gross Profit per Unit Ᵽ475
Floor Polishers
Revenue Ᵽ5,950,000
Manufacturing Cost:
Direct Materials Ᵽ900,000
Direct Labor 2,000,000
Overhead 318,850 (3,218,850)
Gross Profit Ᵽ2,731,150,000
Divided by Units Sold ÷10,000
Gross Profit per Unit Ᵽ2,731.15

15. D
High school Chair
Direct Material Ᵽ600,000
Direct Labor 150,000
Overhead:
Material Handling Ᵽ25,000
Cutting 250,000
Assembly 187,500 462,500
Manufacturing Cost Ᵽ1,212,500
Units ÷5000
Unit Cost Ᵽ242.50
College Chair
Direct Material Ᵽ25,000
Direct Labor 10,000
Overhead:
Material Handling Ᵽ875
Cutting 8750
Assembly 12500 22,125
Manufacturing Cost Ᵽ57,125
Units ÷100
Unit Cost Ᵽ571.25

16.
Activity Based Costing
Direct Material Ᵽ150,000
Overhead:
Material Handling (Ᵽ20,000)
Machinery (Ᵽ40,800)
Assembly (Ᵽ56,250)
Inspection (Ᵽ20,800) 137,850 287,850
Traditional Costing
Direct Material 150,000
Factory Overhead 75,000 (225,000)
Excess of ABC over Traditional Costing (Ᵽ62,850)
17. D
Direct Materials Ᵽ4.40
Direct Labor 0.75
Applied Overhead:
Materials Handling Ᵽ0.60
Setup Cost 0.168
Machining Cost 0.288
Quality Control 0.09 1.146
Unit Cost Ᵽ6.30
18. D
Activity Based Costing:
Material Inspection (Ᵽ115×12) Ᵽ138
 In Process Inspection (Ᵽ1.40×17,500) 2,450
Product Certification (Ᵽ770×25) 1,925 Ᵽ45,130
Traditional Costing (Ᵽ275,000×14.5%) 39,875
Excess of ABC over Traditional Costing Ᵽ5255

19.
Total Hours per Batch
Direct Labor Hours 5,000
Volume ÷2,000
Batch Size ×100
Total 250 DLH

Setup Cost per Hour

Volume Ᵽ1,000
Direct Labor Hours ÷250
Total Ᵽ4

Setup Cost per Unit

Setup Cost per Hour Ᵽ4
Total Hours per Batch ×2.5
Total Ᵽ10

Activity-Based Costing
Setup Cost per Batch Ᵽ1,000
Batch Size ÷100
Total Ᵽ10

20. A
Direct Labor Cost Ᵽ60
Machine Setup ÷2,000
0.03
Direct Labor Hours ×200
Ratio Ᵽ6
21. C
Materials Handling (Ᵽ50,000÷100,000×10,000) Ᵽ5,000
Painting (Ᵽ200,000÷50,000×3,000) 12,000
Assembly (Ᵽ120,000÷4,000×300) 9000
Total Overhead Cost Ᵽ26,000
 22. B
Traditional Costing
Factory Overhead:
Budgeted Materials Handling Cost Ᵽ50,000
Divide by: Direct Labor Hours Total 400
×Total Unit Produced 50 20,000
Factory Overhead Ᵽ2.5
Units ×200
Material Handling Cost Ᵽ500
23. A
Factory Overhead:
Materials Handling Ᵽ50,000
Divide:
Direct Labor Hours 400
Unit ×25 10,000
Factory Overhead Ᵽ5
Unit ×200
Material Handling Cost Ᵽ1,000

24. A
Materials Costing Ᵽ56,000
Machine Usage (70hrs×Ᵽ250) 17,500
Setups (4×Ᵽ1750) 7,000
Cost of Job RST Ᵽ80,500

CHAPTER 9
1. A
Total Manufacturing Cost:
Direct Materials (Ᵽ20×2,200) Ᵽ44,000
Direct Labor (Ᵽ18×2,200) 39,600
Factory Overhead (Ᵽ18×2,200) 39,600 Ᵽ123,200
Cost of Spoiled Units
Direct Materials (Ᵽ20×200) Ᵽ4,000
Direct Labor (Ᵽ18×200) 3,600
Factory Overhead (Ᵽ18×200) 3,600 (11,200)
Cost of Good Units Ᵽ112,000
Unit Cost of Good Coats ÷2,000
Unit Cost Ᵽ56

Manufacturing Cost Ᵽ121,000

Scrap Value of Spoiled Units (6,000)
Cost of Good Units Ᵽ115,000
Unit Cost of Good Coats ÷2,000
Unit Cost Ᵽ57.50

2. D
Direct Materials Ᵽ660
Direct Labor 800
Manufacturing Overhead 1,200
Manufacturing Cost Ᵽ2,660
Rework Cost Unit ÷200
Unit Cost Ᵽ13.30

Manufacturing Cost Ᵽ2,660

Rework Cost:
Direct Materials Ᵽ100
Direct Labor 160
Overhead 240 500
Total Cost Ᵽ3,160
Rework Cost Unit ÷200
Unit Cost Ᵽ15.80

3. D
Spoiled Goods Inventory Ᵽ320
Manufacturing Overhead Control 768
Work In Process Ᵽ1,888

4. A
Spoiled Goods Inventory Ᵽ320
Work In Process Ᵽ320

5. C
Direct Materials Ᵽ40,000
Direct Labor 32,000
Manufacturing Overhead 24,000
Manufacturing Cost Ᵽ96,000
Scrap Value (4,200)
Manufacturing Cost of Net Value Ᵽ91,800
Good Units ÷7,400
Unit Cost Ᵽ12.41

Direct Materials Ᵽ40,000

Direct Labor 32,000
Manufacturing Overhead 28,000
Manufacturing Cost Ᵽ100,000
Cost of Spoiled Units (1500)
Manufacturing Cost of Good Units Ᵽ98,500
Good Units ÷7,400
Unit Cost Ᵽ12.50
6. B
Direct Materials Ᵽ7,000
Direct Labor 2,500
Overhead 3,500
Manufacturing Cost Ᵽ13,000
Rework Cost:
Direct Materials Ᵽ15
Direct Labor 25
Overhead 35 75
Total Manufacturing Cost Ᵽ13,075
Good Units ÷2,000
Unit Cost Ᵽ6.5375

Direct Materials Ᵽ7,000

Direct Labor 2,500
Overhead 3,750
Manufacturing Cost Ᵽ13,250
Good Units ÷2,000
Unit Cost Ᵽ6.6250

7. A
Spoiled Goods Inventory Ᵽ5,460
Manufacturing Overhead 12,600
Work In Process- Materials Ᵽ6,860
 Work In Process- Payroll 6,020
Work In Process- Applied Overhead 5,180
8. B
Spoiled Goods Inventory Ᵽ5,460
Work In Process- Materials Ᵽ2,114
Work In Process- Payroll 1,856
Work In Process- Applied Overhead 1,490
9. D
Direct Materials Ᵽ2,000
Direct Labor 4,850
Overhead 4,850
Manufacturing Cost Ᵽ11,700
Scrap Value (800)
Manufacturing Cost of 23 Units Ᵽ10,900
Good Units ÷23
Unit Cost Ᵽ473.91

10. B
Direct Materials Ᵽ26,951
Direct Labor 15,076
Overhead 7,538
Manufacturing Cost Ᵽ49,565
Cost of Spoilage (4,506)
Manufacturing Cost of 2,000 Units Ᵽ45,059
Good Units ÷2,000
Unit Cost Ᵽ22.53
11. B
Direct Materials Ᵽ23,750
Direct Labor 31,560
Overhead 10,520
Manufacturing Cost Ᵽ65,830
Cost of Spoilage (2,633)
Manufacturing Cost of 240 Units Ᵽ63,197
Good Units ÷240
Unit Cost Ᵽ263.32
12. D
Direct Materials Ᵽ30,000
Direct Labor 12,500
Overhead 7,500
Manufacturing Cost Ᵽ50,000
Rework Cost 300
Sales Value of Spoiled Units (4,000)
Manufacturing Cost of 9,000 Units Ᵽ46,300
Good Units ÷9,000
Unit Cost Ᵽ5.1444
13. D
Direct Materials Ᵽ660
Direct Labor 800
Manufacturing Overhead 1,200
Manufacturing Cost Ᵽ2,660
Rework Cost Unit ÷200
Unit Cost Ᵽ13.30
14. A
Direct Materials Ᵽ660
Direct Labor 800
Manufacturing Overhead 1,200
Manufacturing Cost Ᵽ2,660
Rework Cost:
Direct Materials Ᵽ100
Direct Labor 160
Overhead 240 500
Total Cost Ᵽ3,160
Rework Cost Unit ÷200
Unit Cost Ᵽ15.80
15. C
Total Manufacturing Cost:
Direct Materials (Ᵽ10×1,100) Ᵽ11,000
Direct Labor (Ᵽ8×1,100) 8,800
Factory Overhead (Ᵽ12×1,100) 13,200 Ᵽ33,000
Cost of Spoiled Units
Direct Materials (Ᵽ10×100) Ᵽ1,000
Direct Labor (Ᵽ8×100) 800
Factory Overhead (Ᵽ12×100) 1,200 3,000
Cost of Good Units Ᵽ30,000
Unit Cost of Good Units ÷1,000
Unit Cost Ᵽ30

16. C
17. A
Direct Materials Ᵽ276,000
Direct Labor 84,000
Overhead 180,000
Manufacturing Cost Ᵽ540,000
Cost of Spoilage (216,000)
Manufacturing Cost of 28,800 Units Ᵽ518,400
Good Units ÷28,800
Unit Cost Ᵽ18

18. A
Direct Material Ᵽ276,000
Direct labor Ᵽ84,000
Factory overhead Ᵽ180,000
Total Ᵽ540,000
Cost of Good Units ×140%
Manufacturing Cost Ᵽ756,000
Cost of Spoilage (1,200×Ᵽ15) 140% 25,200
Manufacturing Cost of 28,800 Units Ᵽ730,800
Units ÷28,800
Unit Cost Ᵽ25.375

19.
Charge to All Jobs
Direct Material (Ᵽ400×200) Ᵽ80,000
Direct Labor (Ᵽ175×200) Ᵽ35,000
Factory overhead (Ᵽ35,000×160%) Ᵽ56,000
Total Manufacturing Cost Ᵽ171,000
Units ÷200
Unit Cost Ᵽ855
20.
Charged to all job order
Direct Material (Ᵽ400×200) Ᵽ80,000
Direct Labor (Ᵽ175×200) Ᵽ35,000
Factory Overhead (Ᵽ35,000×160%) Ᵽ56,000
Manufacturing cost Ᵽ171,000
Rework Cost:
Direct Material (Ᵽ50×15) Ᵽ750
Direct Labor (Ᵽ80×15) Ᵽ1,200
 Factory Overhead (Ᵽ1,200×150%) Ᵽ1,800 Ᵽ3,750
Total Cost after Rework Cost Ᵽ174,750
Unit ÷ 200
Unit cost Ᵽ 873.75

COST ACCOUNTING
CONTROLLING AND COSTING MATERIALS INVENTORY
I. Costing of Materials Received
A. Freight-in
Example 1
a. Invoice price
X Ᵽ4,500/Ᵽ16,200=0.28%×4,050=1,134/900kgs=1.26+5= 6.26

Y Ᵽ5,400/Ᵽ16,200=0.33%×4,050=1,336.5/1,200kgs=1.11+4.50= 5.61

Z Ᵽ6,300/Ᵽ16,200=0.39%×4,050=1,579.5/1,500kgs=1.05+4.20= 5.25

b. Weight
X 900kgs/3,600kgs=0.25%×4,050=1,012.5/900=1.13+5= 6.13

Y 1,200kgs/3,600kgs=0.33%×4,050=1,336.5/1,200=1.11+4.5= 5.61

Z 1,500kgs/3,600kgs=0.42%×4,050=1,701/1,500=1.13+4.2= 5.33
Example 2
a. Charged directly to the stores account
Stores Ᵽ171, 550
Vouchers Payble Ᵽ171, 550

b. Charged to factory overhead

Factory overhead control Ᵽ175, 550
Vouchers payable Ᵽ175, 550

c. Added to work in process upon issuance of materials using an application rate

Freight in Ᵽ800
Vouchers payable Ᵽ800

Work in process Ᵽ40,000

Stores Ᵽ39,200
Applied freight in Ᵽ800

d. Added to purchases using an application rate.

Freight in Ᵽ3,400
Vouchers payable Ᵽ3,400

Stores Ᵽ170,000
Vouchers payable Ᵽ162,350
Applied freight in Ᵽ7,650
B. Purchase discounts
Example 3
(1) Purchase
Purchase Ᵽ100,000
Accounts Payable Ᵽ100,000

(2) Subsequent payment within the discount period

Accounts Payable Ᵽ100,000
Cash Ᵽ98,000
Purchase Discounts Ᵽ2,000

(3) Subsequent payment beyond the discount period.

Accounts Payable Ᵽ100,000
Cash Ᵽ100,000

C. Materials handling costs

Example 4
1. Charged to factory overhead
Factory overhead control XXX
Vouchers payable/Sundry credits XXX

2. Added to cost of purchases (using a single application rate)

Materials handling costs XXX
Vouchers payable/Sundry credits XXX

Stores (cost plus MHC) XXX

Vouchers payable XXX
Applied materials handling costs XXX

3. Added to cost of materials issued (using a single application rate)

Materials handling costs XXX
Vouchers payable/Sundry credits XXX

Work in process-mat. (cost + MHC) XXX

Stores XXX
Applied material handling costs XXX

II.Costing of Materials Issued

Example 5
Date Received Issued Balance A. First in,
Beginning - - 700×Ᵽ10= Ᵽ7000 first out
Balance 300×Ᵽ11= Ᵽ3300
August 3 1200×Ᵽ12= Ᵽ14400 - 700×Ᵽ10= Ᵽ7000
300×Ᵽ11= Ᵽ3300
1200×Ᵽ12= Ᵽ14400
August 14 - 700×Ᵽ10= Ᵽ7000 200×Ᵽ11= Ᵽ2200
100×Ᵽ11= Ᵽ1100 1200×Ᵽ12= Ᵽ14400
August 16 - 200×Ᵽ12= Ᵽ2400 200×Ᵽ11=Ᵽ2200
1400×Ᵽ12= Ᵽ16800
August 20 - 200×Ᵽ11=Ᵽ2200
400×Ᵽ12= Ᵽ4800 1000×Ᵽ12= Ᵽ12000
August 22 1000×Ᵽ14= Ᵽ14000 - 1000×Ᵽ12= Ᵽ12000
1000×Ᵽ14= Ᵽ14000
August 25 120×Ᵽ11= Ᵽ1320 - 120×Ᵽ11= Ᵽ1320
1000×Ᵽ12= Ᵽ12000
1000×Ᵽ14= Ᵽ14000
 B. Last in , first out
DATE PURCHASES ISSUED BALANCE
Beginning Balance 700×Ᵽ10= Ᵽ7000 - 700×Ᵽ10= Ᵽ7000
300×Ᵽ11= Ᵽ3300 300×Ᵽ11= Ᵽ3300
August 3 1200×Ᵽ12=Ᵽ14400 2200×Ᵽ11.23=24700
August 14 - 800×Ᵽ12=Ᵽ9600 1400×Ᵽ10.79=Ᵽ15100
August 16 - 200×Ᵽ12=Ᵽ2400 1600×Ᵽ10.94=Ᵽ17500
August 20 - 600×Ᵽ12=Ᵽ7200 1000×Ᵽ10.30=Ᵽ10300
August 22 1000×Ᵽ14=Ᵽ14000 - 2000×Ᵽ12.15=Ᵽ24300
August 25 120×Ᵽ12=Ᵽ1440 - 2120×Ᵽ12.14=Ᵽ25740

C. Moving average
DATE RECEIVED ISSUED BALANCE
Beginning Balance - - 700×Ᵽ10=Ᵽ7000
300×Ᵽ11=Ᵽ3300
August 3 1200×Ᵽ12=Ᵽ14400 - 2200×Ᵽ11.227=Ᵽ24699.40
August 14 - 800×Ᵽ11.227=Ᵽ8981.60 1400×Ᵽ11.227=Ᵽ15717.80
August 16 - 200×Ᵽ11.227=Ᵽ2245.40 1600×Ᵽ11.227=Ᵽ17963.20
August 20 - 600×Ᵽ11.227=Ᵽ6736.20 1000×Ᵽ11.227=Ᵽ11227.00
August 22 1000×Ᵽ14=Ᵽ14000 - 2000×Ᵽ12.6135=Ᵽ25227.00
August 25 120×Ᵽ11.227=Ᵽ1347.24 2120×Ᵽ12.535=Ᵽ26574.24

COST ACCOUNTING
INVENTORY VALUATION

Valuation at Cost or Net Realizable Value, Whichever is Lower (PAS No. 2)

Lower of Cost or Net Realizable Value by Item
Assume the following data of X Company:
Description Quantity Cost/unit NRV/unit Lower of cost
or NRV
Material A 50 100 95 5,000
Material B 30 110 120 3,600
Inventory valuation 8,600

Lower of total cost or total NRV

Description Quantity Cost/unit NRV/unit Total cost Total NRV

Material A 50 100 95 5,000 4,750

Material B 30 110 120 3,300 3,600
8,800 8,350
Inventory valuation 8,350

Sample problem:
Required: Record any adjustment for the inventory in each year.
Year 1:
Inventory @ Cost Ᵽ100,000 Loss on Inventory Write-down Ᵽ20,000
Inventory @ NRV (80,000) Allowance for Inventory Write-down Ᵽ20,000
Ᵽ20,000 *To record loss resulting from decline in NRV of inventory

Year 2:
Inventory @ Cost Ᵽ100,000 Loss on Inventory Write-down Ᵽ5,000
Inventory @ NRV (95,000) Allowance for Inventory Write-down Ᵽ5,000
Ᵽ5,000 *To record loss resulting from decline in NRV of inventory

Year 3:
Inventory @ Cost Ᵽ120,000 Loss on Inventory Write-down Ᵽ5,000
Inventory @ NRV (125,000) Allowance for Inventory Write-down Ᵽ5,000
Ᵽ5,000 *To record loss resulting from decline in NRV of inventory

Year 4:
Inventory @ Cost Ᵽ125,000 Loss on Inventory Write-down Ᵽ15,000
Inventory @ NRV (140,000) Allowance for Inventory Write-down Ᵽ15,000
Ᵽ15,000 * To record loss resulting from decline in NRV of inventory

Year 1 and Year 2:

Year 1 Ᵽ20,000 Allowance for Inventory Write-down Ᵽ15,000
Year 2 (5,000) Recovery for Inventory Write-down Ᵽ15,000
Ᵽ15,000 *To record recovery resulting from adjustment of allowance account

Year 2 and Year 3:

Year 2 Ᵽ5,000
Year 3 (5,000) No Entry
Ᵽ0

Year 3 and Year 4:

Year 3 Ᵽ5,000 Allowance for Inventory Write-down Ᵽ10,000
Year 24 (15,000) Recovery for Inventory Write-down Ᵽ10,000
Ᵽ(10,000) *To record recovery resulting from adjustment of allowance account

Adjustment of Inventory Shortage or Overage

Sample Problem:
Record the net shortage or overage for each year.
Year 1:
Inventory Based on General Ledger Ᵽ12,000
Inventory Based on Physical Count (10,000)
Ᵽ2,000
Materials Ᵽ2,000
Manufacturing Overhead Control Ᵽ2,000
*To record the net overage

Year 2:
Inventory Based on General Ledger Ᵽ11,000
Inventory Based on Physical Count (12,000)
Ᵽ(1,000)

Manufacturing Overhead Control Ᵽ1,000

Materials Ᵽ1,000
*To record the net shortage

Example 6
1. Entries if the loss is to be charged to Job No. 07
Spoiled Goods Inventory Ᵽ19,500
Work in Process – Materials Ᵽ10,725
Work in Process – Payroll Ᵽ5,850
Work in Process – Applied FOH Ᵽ2,925

2. Entries if the loss is to be charged to all production of the period.

Spoiled Goods Inventory Ᵽ19,500
Manufacturing Overhead Control Ᵽ12,000
Work in Process – Materials Ᵽ16,500
Work in Process – Payroll Ᵽ9,000
Work in Process – Applied FOH Ᵽ6,000
3. Entries if the loss is to be charged to Job No. 072 to the extent of only 1,250 pieces, the 250 pieces
being considered abnormal loss.
Loss from Abnormal Spoilage Ᵽ3,250
Work in Process – Materials Ᵽ1,787.5
Work in Process – Payroll Ᵽ975
Work in Process – Applied FOH Ᵽ487.5

Example 7
1. Entries if the loss is to be charged to Job No. 143.
Spoiled Goods Inventory Ᵽ6,900
Work in Process – Materials Ᵽ3.036
Work in Process – Payroll Ᵽ2,277
Work in Process – Applied FOH Ᵽ1,587

2. Entries if the loss is to be charged to all production of the period.

Spoiled Goods Inventory Ᵽ6,900
Manufacturing Overhead Ᵽ7,800
Work in Process – Materials Ᵽ6,300
Work in Process – Labor Ᵽ4,800
Work in Process – Factory Overhead Ᵽ3,600

3. Entries if the loss is to be charged to Job No. 143 to the extent of only 250 pieces, the 50 pieces
being considered abnormal loss.
Loss from Abnormal Spoilage Ᵽ1,150
Work in Process – Materials Ᵽ506
Work in Process – Payroll Ᵽ379.5
 Work in Process – Applied FOH Ᵽ264.5

Example 8
1. When the specific job is charged with the rework costs.
Work in Process Inventory Ᵽ6,420
Materials Ᵽ2,420
Factory Payroll Ᵽ1,320
Factory Overhead Applied Ᵽ2,750

2. When the cost of correcting defective units is applied to all jobs.

Factory Overhead Control Ᵽ6,820
Materials Ᵽ2,420
Factory payroll Ᵽ1,320
Applied Overhead Ᵽ3,080

3. When the specific job is charged with the cost of rework for 400 pincers, and the excess of 150
pincers being considered abnormal.
Work in Process Inventory Ᵽ4,720
Materials Ᵽ1,760
Factory Payroll Ᵽ960
Factory Overhead Applied Ᵽ2,000

Example 9
1. When the specific job is charged with the rework costs.
Work in Process Inventory Ᵽ1,656
Materials Ᵽ480
Factory Payroll Ᵽ600
Factory Overhead Applied Ᵽ576

2. When the cost of correcting defective units is applied to all jobs.

Factory Overhead Control Ᵽ1,800
Materials Ᵽ486
Factory payroll Ᵽ600
Applied Overhead Ᵽ720

3. When the specific job is charged with the cost of rework for 120 units, and the excess of 80 units
being considered abnormal.
Work in Process Inventory Ᵽ994
Materials Ᵽ288
Factory Payroll Ᵽ360
Factory Overhead Applied Ᵽ346