91Ó°ÊÓ

The Russell Company has an extensive job-costing facility that uses a variety of metals. Consider each requirement independently. 1\. Job 372 uses a particular metal alloy that is not used for any other job. Assume that scrap is material in amount and sold for 480 dollars quickly after it is produced. Prepare the journal entry. 2\. The scrap from Job 372 consists of a metal used by many other jobs. No record is maintained of the scrap generated by individual jobs. Assume that scrap is accounted for at the time of its sale. Scrap totaling 4,500 dollars is sold. Prepare two alternative journal entries that could be used to account for the sale of scrap. 3\. Suppose the scrap generated in requirement 2 is returned to the storeroom for future use, and a journal entry is made to record the scrap. A month later, the scrap is reused as direct material on a subsequent job. Prepare the journal entries to record these transactions.

Step by step solution

01

Calculate the value of scrap and prepare the journal entry.

The scrap generated from Job 372 is worth 480 dollars. We can make the following journal entry to record the sale of scrap: Cash (Debit) \(480 \newline\) Scrap from Job 372 (Credit) \(480\) #Requirement 2#

02

Prepare the first alternative journal entry for the sale of scrap.

When the scrap is sold, we can directly credit the revenue account. Cash (Debit) \(4500 \newline\) Scrap Sales Revenue (Credit) \(4500\)

03

Prepare the second alternative journal entry for the sale of scrap.

Alternatively, we can credit the factory overhead account, reducing the overhead costs. Cash (Debit) \(4500 \newline\) Factory Overhead (Credit) \(4500\) #Requirement 3#

04

Record the return of scrap to the storeroom.

When the scrap is returned to the storeroom, we will debit the materials inventory account. Materials Inventory (Debit) \(Value \, of \, Scrap \newline\) Factory Overhead (Credit) \(Value \, of \, Scrap\)

05

Record the reuse of scrap as direct material on a subsequent job.

When the scrap is reused as direct material, we will debit the work in process account and credit the materials inventory account. Work in Process (Debit) \(Value \, of \, Scrap \newline\) Materials Inventory (Credit) \(Value \, of \, Scrap\)

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Job Costing

Job costing is a method used in cost accounting to track the costs associated with a specific job or batch of work. It plays a significant role in industries where work is tailored to individual orders, such as manufacturing or construction.

In job costing, direct materials, direct labor, and an allocated portion of overhead are assigned to each job to accurately reflect the production costs. The goal is to determine the profitability of each job and to help in pricing future work.

When looking at our example with Job 372, which uses a unique metal alloy, the value of any scrap produced would normally be attributed to the cost of that job. In this scenario, the scrap is sold and the proceeds are recorded with a journal entry, ultimately affecting the net cost of the job.

Journal Entries

Journal entries are the building blocks of financial accounting. They are used to record all transactions in a company's accounting system. Each entry typically consists of a debit and a credit, and total debits must equal total credits for the entry to be balanced.

For instance, when scrap from a job is sold, a debit to cash reflects an increase in assets, while a corresponding credit to a revenue or overhead account adjusts the income or overhead costs. Proper journal entries ensure accurate financial statements and provide a clear trail of all transactions, which is essential for both management and external reporting.

Scrap Accounting

Scrap accounting is a process that tracks the disposal or reuse of scrap materials. There are two common ways to account for scrap: recording it as revenue when sold, or allocating it to reduce costs when it's used elsewhere in production.

Regarding the two ways to approach scrap from Job 372 that is used in other jobs: if sold, the entry could credit a revenue or a factory overhead account. Yet, when scrap is stored for later use, it's entered as an increase in the materials inventory and a decrease in factory overhead. Later, when the scrap serves as direct material, its value shifts from materials inventory to work in process, highlighting the importance of meticulous scrap tracking for accurate job costing.