18 Questions
What type of spoilages are considered inherent, usual, and expected by the nature of operations?
Normal spoilages
Which of the following is a cause justifying the recognition of normal lost units?
Shrinkage - cloth
How is normal loss usually treated in accounting?
It is included as part of all units finished
What principle determines whether normal lost units' cost is absorbed by good units?
Principle of negligence
In the FIFO method, what happens to the cost per equivalent unit (EUP) if spoilage is ignored?
Increases
What is the consequence of ignoring spoilage in the weighted average method?
Raises the cost per equivalent unit (EUP)
What are the types of production losses in a job order cost system?
Material scrap, spoilage, and reworking defective units
How should a manufacturing firm aim to handle production losses in a job order cost system?
Reduce them to a minimum level
What is an appropriate accounting treatment for scrap with value in a job order cost system?
Collect it for sale to scrap dealers
How should scrap sales be accounted for in a manufacturing firm?
Closed directly to Income Summary under Scrap Sales or Other Income
How should a firm track quantities of scrap over time?
Analyze to determine if inefficiencies can be eliminated
What is the purpose of analyzing quantities of scrap in a manufacturing firm?
To identify inefficient use of materials
What is the main difference in assigning the cost of lost units between goods that have passed the inspection point and those that have not, under the weighted average method?
The cost of lost units is prorated between units in ending inventory and units transferred out.
What type of spoilages are considered abnormal?
Spoilages exceeding the normal limits, whether expected or not
How is the cost of lost units determined under FIFO method for goods that have passed the inspection point?
The cost of lost units is prorated between units in ending inventory and units transferred out.
Which of the following is a cause giving rise to abnormal lost units?
Use of defective material
In accounting treatment, how are abnormal losses typically treated?
They are treated as period costs or losses in the period they occurred.
Under what method would the cost of lost units be assigned only to the good production that was transferred if the ending inventory had not yet passed the inspection point?
Weighted average method
Learn about the concept of normal spoilages in cost accounting, which are inherent to operations and expected within tolerance limits. Understand the causes that justify the recognition of normal lost units in manufacturing processes.
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