Accounting treatment of spoilage costs, Cost Accounting

Accounting Treatment of Spoilage Costs

1) Normal Spoilage Costs: These costs are assigned to the good output utilizing two approaches as:

(i) Omission Approach:  Under this approach, the generally spoilt units are not involved in the calculation of equivalent units.This means that the cost of the generally spoilt units will automatically be distributed to the good output. Via excluding the common spoilage in the computation to the good output, a lower figure will be derived.  The weaknesses of this method are as:

(a) The cost of common spoilage is spread equally/evenly into the finished goods and the ending W.I.P regardless of whether the ending W.I.P. has passed the inspection stage or not. 

(b) It does not permit the manager to see the costs of spoilage since these costs are not computed.

(ii) Re-Assignment and Recognition Approach

In this approach, the common spoilage is involved in the equivalent unit's computation; additionally, the commonly spoilt units will be assigned costs just like any other unit.  The spoilage costs will then be reallocated to these good units such have passed the inspection point.  The steps to follow beneath this method are as:

(a) Compute equivalent units involving common spoilage. 

(b) Assign costs to all units involving common spoilage. 

(c) Reassign common spoilage costs to good output.

2) Abnormal Spoilage Costs - These costs do not add any production profit to the company and are treated as accounting losses. The costs are written off directly as losses for the period whether they happen.

Posted Date: 2/7/2013 2:56:33 AM | Location : United States







Related Discussions:- Accounting treatment of spoilage costs, Assignment Help, Ask Question on Accounting treatment of spoilage costs, Get Answer, Expert's Help, Accounting treatment of spoilage costs Discussions

Write discussion on Accounting treatment of spoilage costs
Your posts are moderated
Related Questions
Relationship between Cost Accounting and Business Enterprise Cost accounting, like will be mentioned later to adopts a cost center approach to accounting for costs. A cost cen

G. Mills was appointed a local agent for the High Power Mobile Workshop Bolt (HPMW-B) on 1 April 2009. The HPMW-B is manufactured by Mobile Equipment Ltd (MEL). The company charges

In a given period production and cost data were as follows:     Total Costs   Materials   Rs. 5,115                      Labour          3,952                     Overheads

Materials Transaction i. Purchase of Materials on Credit ii. Return of Materials to Suppliers iii. Purchase of Materials in Cash. The above transactions affect both t

Determine Cost per Unit By Using Marginal and Absorption Costing The given information was extracted from the book of a company for the year ended on date 31/12/2001. Outpu

BUDGET A BUDGET is a quantitative expression of a business plan for a particular future period, generally a year. BUDGET is the planned future course of action. BUDGET



Reconciliation of Profits Reconciliation of profits disclosed by Financial Accounts and Costing Accounts in an interlocking system, While interlocking cost accounting system

Amanda Deal, president of XYZ, had recently finished an arduous round of meetings with her financial staff". Those meetings dealt with the details necessary to produce an accurate