How to account for cost of reusable materials?

Question

How to treat the reusable materials used in designing exhibition booth/stage? Some of these materials such as wood, plastics, can be used and redesigned. The original cost of booth/stage is fully charged to clients. If the reusable parts is redesign for other project, what is the cost should be?.

Answer 1

Material Returnable:

(a) When separate cost is not charged

(b) When separate cost is charged

(a) When separate cost is not charged

In this case no separate cost is charged for the such material. Since materials are returnable, it is necessary to have a separate account for the materials held by the customers. Hence opening stock and closing stock of material is divided into two – one for the material kept in hand and the other in the hands of the customers.

In this case, the cost of material is merged with the selling price of the goods and accounted for along with the goods sold. That is, the customers are not charged out separately. However, they are expected to return the containers within a given period.

Normally such journal entries are passed(Replace word containers with material)

(b) When separate cost is charged

Under this method, returnable marterial are considered to be the special items for trading ac­count. As such, their cost is not included in the sale price of the goods sold . The price of the material is charged separately to customers. Generally the price charged to customers is above cost price and hence a profit is made on this account.

The price at which they are charged when sent to customers is known as the “charging out price”. The amount credited to a customer on the return of packages is called “returnable price”. The trader makes a profit on material sent out regardless of whether they are returned or not.