How to approach it
- List each event and decide which control accounts it touches (stores, wages, overhead control, WIP – job, finished goods, P&L).
- Charge direct materials and direct labour to WIP for the specific job; absorb overhead at the predetermined rate on actual hours.
- Material moved between jobs: debit the receiving job, credit the giving job.
- On completion: total the job (opening WIP + all charges − transfers out), then split good units to finished goods and rejects to abnormal loss, net of scrap proceeds.
Key rules to apply
- Direct costs are debited to 'WIP – Job X', not to a raw material or expense account.
- Overhead incurred goes to overhead control; overhead absorbed is credited to it.
- Abnormal loss is valued at full job cost per unit, with scrap proceeds credited against it.
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Debiting 'raw material – Job X' instead of 'WIP – Job X', or omitting job numbers (examiners' point).
- Forgetting opening WIP or the transfer out when costing the completed job.
- Sending the whole job cost to finished goods without separating the rejected units.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q2 without copying it.
Original practice question
Completing a job with rejects
Job 501 (500 units) had opening WIP of Rs 1,200,000. This month: materials issued Rs 900,000; 3,000 direct labour hours at Rs 400; overhead absorbed at Rs 300 per hour. Unused materials of Rs 50,000 were returned to stores. On completion 20 units were rejected as abnormal loss and sold as scrap for Rs 6,000.
Required: Calculate the job cost and give the completion entries.
Worked solution
| Working | Rs |
|---|---|
| Opening WIP | 1,200,000 |
| Materials | 900,000 |
| Labour: 3,000 × 400 | 1,200,000 |
| Overhead: 3,000 × 300 | 900,000 |
| Materials returned | (50,000) |
| Total job cost | 4,150,000 |
| Cost per unit: ÷ 500 | 8,300 |
| Entry | Dr | Cr | Rs |
|---|---|---|---|
| Good units | Finished goods | WIP – Job 501 | 3,984,000 |
| Rejected units | Abnormal loss | WIP – Job 501 | 166,000 |
| Scrap sale | Cash | Abnormal loss | 6,000 |
| Write-off | Profit or loss | Abnormal loss | 160,000 |
Answer: Job cost Rs 4.15m; finished goods Rs 3.984m; net abnormal loss Rs 160,000.