CA Intermediate · Cost and Management Accounting · Job Costing
Mehta Tools charges a job with a cost of Rs 80,000 and finds that 5% of the units made are defective due to the specific requirements of that job, and are rejected. How should the cost of such rejected units normally be treated in job costing?
When rejections arise from the specific requirements of a particular job, the cost of the defective work is charged to that job itself. Spreading it over all jobs applies only when defectives are due to general factory conditions, not job specifications.
- ACharged to the specific job as it arises from the job's specificationsCorrect
- BCharged to the general factory overheads for all jobs
- CWritten off to the costing profit and loss account as abnormal loss
- DCredited to the job as scrap income at full cost
Explanation
Where defectives arise due to the specific requirements of a job, their cost is charged to that job (good units bear it). If they arise from general inefficiency, they are spread over all jobs as overhead. Abnormal causes are written off to the costing profit and loss account.
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