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CA Intermediate · Cost and Management Accounting · Process & Operation Costing

In a process costing system, the cost of units that are lost under abnormal conditions (abnormal loss) is dealt with in which of the following ways?

Abnormal loss is valued like good output, reduced by its scrap value, and the net cost is transferred to the Costing Profit and Loss Account. It is not loaded on good units because it arises from avoidable causes and should not inflate product cost.

  1. ACharged to the Costing Profit and Loss Account at the cost per unit of good output, net of any scrap valueCorrect
  2. BAdded to the cost of good units of the process
  3. CCredited to the Normal Loss Account
  4. DCarried forward as closing work-in-progress of the next process

Explanation

Abnormal loss is valued at the same cost per unit as good units, the scrap realisable value is credited, and the net amount is written off to the Costing Profit and Loss Account. Adding it to good units (option 2) is the treatment for normal loss, not abnormal loss.

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