Accounting treatment of spoilage costs, Cost Accounting

Assignment Help:

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.


Related Discussions:- Accounting treatment of spoilage costs

What is the breakeven unit variable cost, Early customers at Graffiti Week ...

Early customers at Graffiti Week balk at the price for Moondoggie Reserve. The marketing department at DFW, Jolene, conducts some research that suggests Stanislaus county residents

Advantages of standard costing, Advantages of Standard Costing 1. Man...

Advantages of Standard Costing 1. Management via Exception: the standard costing is an example for management via exception. By studying the variances, management's attentio

Prepare a cash budget, You have been asked to prepare a cash budget for Whi...

You have been asked to prepare a cash budget for Whitborrow plc for the next three months, October, November and December. The Managers are concerned that they may not have suffici

Behavioral classification of costs, Behavioral Classification of Costs ...

Behavioral Classification of Costs Definition Cost behavior refers to the change in costs as increase or may decrease like the output level changes that are like we risin

Absorption costing, Absorption Costing, Marginal Cost and Marginal Costing ...

Absorption Costing, Marginal Cost and Marginal Costing Absorption costing is most often utilized for routine profit reporting and must be utilized for financial accounting rea

Rvu methodology, Assume that a primary care physician practice performs onl...

Assume that a primary care physician practice performs only physical examinations.  However, there are three levels of examinations I, II, III - that vary in depth and complexity.

Relationship among variances, Relationship among variances We cannot o...

Relationship among variances We cannot over emphasize the central aim of variance analysis as outlined in the above paragraphs:  that is to assign responsibility for a particu

#title.Case Study., A retail dealer in garments is currently selling 24000 ...

A retail dealer in garments is currently selling 24000 shirts annually. He supplies the following details for the year ended 31st December,2007. Rs Selling Price per shirt

Cost accountign, Hi, i need the solution manual for cost accounting manager...

Hi, i need the solution manual for cost accounting managerial emphasis 12 edition

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd