CMA Intermediate · Cost Accounting · Batch Costing
In batch costing, a batch of 500 units is produced for a specific customer order. Spoilage that is normal and arises due to the nature of the process is best treated as follows:
Normal spoilage is absorbed by the good units of the batch, after deducting the scrap value of the spoiled units. It is an expected cost of production. Only abnormal spoilage, which is avoidable, is written off to the Costing Profit and Loss Account.
- ACharged to the Costing Profit and Loss Account as an abnormal loss
- BAbsorbed by the good units of the batch, net of any scrap value realisedCorrect
- CIgnored in costing and only the units sold are costed
- DCharged entirely to the next batch started after the spoilage
Explanation
Normal spoilage is an expected cost of producing the batch, so its cost less realisable value of the spoiled units is borne by the good output. Charging it to the Costing P&L is the treatment for abnormal spoilage, which is why that option is wrong.
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