Question

Tripoli Parts uses job order costing. The total cost of Job 4266 was $10,000. Of the 5,000 units produced, 200 of them were damaged beyond repair. The 200 parts could not be sold.

1. If the damage was due to specifications of the job:

a. What account should be credited for the cost of the damaged parts? MOH

b. What's the final cost per part on Job 4266?

2. If the damage was due to an equipment failure not related to the job

a. What account should be credited for the cost of the damaged parts?

b. What is the final cost per part on Job 4266?

Answer 1

Here the company Tripoli parts uses the job costing

Here they got a job 4266

The cost of job 4266 is $10000 and in that job they produced 5000 units but 200 of them are damaged, and those damaged goods cannot be sold.

The treatment of these damaged good under some situations are as follows.

1. If the damage is caused by the specifications of the job.

A. The damage is caused by the specification of the job then treat that damage as normal loss and apportion the cost of damage to the job 4266.

B. The treatment of normal is, mix the cost of normal loss into the cost of job 4266.

C. The account to be credited is normal loss account and adjust the amount in normal loss account with the cost of goods sold.

2. If the damage is caused by the equipment failure which is not related to the job

A. The loss incurred due to failure of equipment is to be treated as abnormal loss .

B. The abnormal loss is to be borne by the company itself because the damage is not related to the job and it should not apportioned to cost of the job.

C. The account to be credited is abnormal loss account. And this abnormal loss account to be transfer to profit and loss account at the year end as loss to the company .

These are all the discussion about the treatment of loss of good in different situations.

I hope, all the above mentioned points and explanations are useful and helpful to you.

Thank you.