CA Intermediate · Cost and Management Accounting · Process & Operation Costing
In a process costing system, which of the following is the correct treatment of normal loss in a process?
Normal loss is an expected, unavoidable loss, so its cost is absorbed by the good units produced. Any realisable value of the scrap is credited to the process account, which lowers the cost per good unit. Only abnormal loss is written off to the Costing Profit and Loss Account.
- AIts cost is absorbed by the good units produced, and any scrap realisation is credited to the process accountCorrect
- BIts cost is charged to the Costing Profit and Loss Account
- CIts cost is transferred to the next process as a separate item
- DIt is ignored and the output is valued at cost per unit before loss
Explanation
Normal loss is unavoidable and expected, so its cost is borne by good units. The scrap value, if any, is credited to the process account, which reduces the cost of good output. Charging it to the Costing Profit and Loss Account applies to abnormal loss, not normal loss.
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