ACCA Applied Skills · Performance Management · Accounting for environmental and sustainability factors
Brandt Co's process has input materials costing $400,000. Of the material input by weight, 15% ends up as waste. Under material flow cost accounting, which treats waste as carrying the full cost of the materials, what is the cost of materials in waste, assuming that the waste has no resale value and only material cost is considered?
The material cost in waste is $60,000, being 15% of the $400,000 input cost. Material flow cost accounting values waste at the full cost of the materials, so the remaining $340,000 is attributed to good output.
- A$60,000Correct
- B$340,000
- C$15,000
- D$400,000
Explanation
Waste is 15% of the input weight, so material cost in waste = 15% x $400,000 = $60,000. Check: the good output carries 85% x $400,000 = $340,000, and $340,000 + $60,000 = $400,000. The $340,000 option is the cost of good output, not waste.
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