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CMA Intermediate · Cost Accounting · Material Costs

Which statement about the classification of materials is correct?

Defectives are units that fall short of quality standards but can be rectified by incurring extra rework cost to make them acceptable. The other statements are wrong because scrap has recovery value while waste does not, and excess loss over the norm is abnormal loss, charged to the Costing Profit and Loss Account.

  1. AScrap is material with no recovery value, whereas waste has a recoverable sale value
  2. BSpoilage is material loss that is normal and inherent in the process and is always absorbed in good output
  3. CDefectives are units that can be rectified at extra cost to make them saleable as first-quality goodsCorrect
  4. DNormal loss is a loss in excess of the standard loss and is charged to the Costing Profit and Loss Account

Explanation

Defectives are products that do not meet quality standards but can be reworked at additional cost to meet them. Scrap has some recovery value while waste has none or negligible value, so the first option reverses them. Spoilage cannot be reworked, and abnormal, not normal, loss goes to the Costing Profit and Loss Account.

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