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CMA Foundation · Fundamentals of Financial and Cost Accounting · Classification of Costs (CAS 1)

Sharma Plastics put 1,000 kg of raw material into a process. The normal loss is 5% of input. Actual output was 920 kg. The cost of the input was ₹50,000, and scrap sells at nil value. What is the quantity of abnormal loss, and how is its cost treated?

Abnormal loss is 30 kg: normal loss is 5% of 1,000 kg, or 50 kg, and the actual loss is 1,000 minus 920, or 80 kg. Abnormal loss is not a normal cost of production, so it is written off to the Costing Profit and Loss Account.

  1. A30 kg; charged to the Costing Profit and Loss AccountCorrect
  2. B30 kg; added to the cost of good output
  3. C50 kg; charged to the Costing Profit and Loss Account
  4. D80 kg; added to the cost of good output

Explanation

Normal loss = 5% of 1,000 = 50 kg. Total loss = 1,000 - 920 = 80 kg. Abnormal loss = 80 - 50 = 30 kg. Abnormal loss is not part of product cost, so it is written off to the Costing Profit and Loss Account. Adding it to the cost of good output is the key mistake.

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