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CMA Intermediate · Cost Accounting · Material Costs

In a manufacturing process, normal loss of materials arising from inherent nature of the operation (such as evaporation in chemical mixing) is treated in cost accounts as follows:

Normal loss is an expected, unavoidable loss in operations. Its cost is absorbed by the good units produced, increasing their per-unit cost, whereas abnormal loss is separately charged to the Costing Profit and Loss Account.

  1. ACharged to the Costing Profit and Loss Account as an abnormal item
  2. BAbsorbed in the cost of good units producedCorrect
  3. CIgnored completely and not recorded in cost
  4. DDebited to a separate reserve and written off at year end

Explanation

Normal loss is unavoidable and expected under efficient operating conditions. Its cost is therefore spread over the good output, raising the unit cost. Writing it off to the Costing Profit and Loss Account is the treatment for abnormal loss, not normal loss.

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