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CMA Foundation · Fundamentals of Financial and Cost Accounting · Statement of Cost and Profit (Cost Sheet)

Under CAS-based cost sheet treatment, the sale proceeds of normal scrap, where scrap is not separately costed, are generally treated as:

Realisation from normal scrap is deducted from the cost of production or from the related overheads, because normal scrap is an expected part of the process. It is not shown as sales revenue or added to prime cost.

  1. AA reduction from the cost of the related production or overheadsCorrect
  2. BAn addition to sales revenue as other income
  3. CAn addition to prime cost
  4. DA deduction from the profit only

Explanation

Normal scrap realisation is credited to the production cost or to overheads, reducing the cost of the good output. Treating it as sales income or adding it to prime cost would misstate cost. Showing it only against profit ignores that normal scrap is a part of the process cost.

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