CA Intermediate · Cost and Management Accounting · Material Cost
Which of the following is the correct treatment of normal loss of material arising during storage and handling in cost accounting?
Normal loss in storage and handling is unavoidable, so its cost is absorbed by the good output or remaining stock, raising the cost per unit. Only abnormal loss is written off to the Costing Profit and Loss Account.
- ACharged to Costing Profit and Loss Account as an abnormal item
- BAbsorbed by the good units, increasing the cost per unit of material issuedCorrect
- CCredited to the material account at market price
- DIgnored completely in cost records
Explanation
Normal loss is inherent and unavoidable, so its cost is spread over the good units, raising the per-unit cost. Abnormal losses, not normal ones, go to Costing Profit and Loss Account.
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