Meaning Of Defective Units
The faulty or substandard finished goods or spoilage are called defective units. Defective goods arise due to sub-standard materials, bad supervision, bad planning of production, poor workmanship, inadequate equipment, careless inspection etc.
Defective units can be rectified and turned out as good unit by re-processing. Such re-processing work may need the use of additional material, labor and expenses.
Following methods may be adopted for the treatment of this cost:
~If the defective production is identified with a specific job or department, the cost of rectification is charged to that specific job or department.
~If the defective production is not identified with a particular job or department, the cost of rectification is added to general factory overhead.
~If the defective production is due to abnormal reasons, the rectification cost is transferred to Costing Profit and Loss Account.