Job Costing and Rework

Learning Objective 6 Account for rework in job costing

Rework refers to units of production that are inspected, determined to be unacceptable, repaired, and sold as acceptable finished goods. We again distinguish (1) normal rework attributable to a specific job, (2) normal rework common to all jobs, and (3) abnormal rework.

Consider the Hull Machine Shop data in Example 3 in section Job Costing and Spoilage. Assume the five spoiled parts are reworked. The journal entry for the $10,000 of total costs (the details of these costs are assumed) assigned to the five spoiled units before considering rework costs is as follows:

<p>A table shows the journal entry for the 10,000 dollars of total costs assigned to the five spoiled units before considering rework costs</p>

The table depicts the journal entry for the 10,000 dollars of total costs assigned to the five spoiled units before considering rework costs. The details of the table are as follows:

  1. Work-in-process control, specific job: 10,000
  2. Materials control: 4,000
  3. Wages payable control: 4,000
  4. Manufacturing overhead allocated: 2,000

Assume the rework costs equal $3,800 ($800 in direct materials, $2,000 in direct manufacturing labor, and $1,000 in manufacturing overhead).

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:

<p>A table shows the journal entry for assigning rework costs to a specific job</p>

The table depicts the journal entry for assigning rework costs to a specific job. The details of the table are as follows:

  1. Work-in-process control, specific job: 3,800
  2. Materials control: 800
  3. Wages payable control: 2,000
  4. Manufacturing overhead allocated: 1,000

Normal Rework Common to All Jobs

The costs of 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.

<p>A table shows the journal entry for spreading rework costs over all jobs through overhead allocation</p>

The table depicts the journal entry for spreading rework costs over all jobs through overhead allocation. The details of the table are as follows:

  1. Manufacturing overhead control, rework costs: 3,800
  2. Materials control: 800
  3. Wages payable control: 2,000
  4. Manufacturing overhead allocated: 1,000

Abnormal Rework

If rework is abnormal, it is charged to a loss account.

<p>A table shows the journal entry for abnormal rework charged to a loss account</p>

The table depicts the journal entry for abnormal rework charged to a loss account. The details of the table are as follows:

  1. Loss from abnormal rework: 3,800
  2. Materials control: 800
  3. Wages payable control: 2,000
  4. Manufacturing overhead allocated: 1,000

Accounting for rework in a process-costing system also distinguishes abnormal rework from normal rework. Process costing accounts for abnormal rework in the same way as job costing. Accounting for normal rework follows the accounting described for normal rework common to all jobs (units) because masses of identical or similar units are being manufactured.

Costing rework focuses managers’ attention on the resources wasted on activities that would not have to be undertaken if the product had been made correctly. The cost of rework prompts managers to seek ways to reduce rework, for example, by redesigning products or processes, training workers, or investing in new machines. To eliminate rework and to simplify the accounting, some companies set a standard of zero rework. All rework is then treated as abnormal and written off as a cost of the current period.

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