In a process-costing system, the cost of abnormal spoilage should be A. Included in the cost of units transferred out. B. Prorated between units transferred out and ending inventory. C. Ignored. D. Treated as a loss in the period incurred.

Question

Dusty

Business

3 September, 13:55

In a process-costing system, the cost of abnormal spoilage should be A. Included in the cost of units transferred out. B. Prorated between units transferred out and ending inventory. C. Ignored. D. Treated as a loss in the period incurred.

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Monty · Answer 1

D. Treated as a loss in the period incurred.

Explanation:

The process-costing system is used by firms that produce goods that goes through a set of manufacturing departments i. e it's used when firms mass produce nearly identical or similar units through various processes.

Under process-costing system, direct costs of production are accumulated, summarized, and then assigned to all the units produced during the period.

Thus, a single product cost is calculated by dividing process cost in each manufacturing department by the respective units produced during the production period.

Some organizations that use the process-costing system are oil refineries, chemical processing companies, eraser manufacturing companies, and food production companies.

In a process-costing system, the cost of abnormal spoilage should be treated as a loss in the period incurred.

The abnormal spoilage refers to the cost exceeding normal level, associated with spoiled units of a manufacturing process. It should be treated as a loss in the period incurred because it cannot be recovered