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

Question

Quizplus · Accepted Answer

The cost of abnormal spoilage should be treated as a loss in the period incurred, rather than prorated between units transferred out and ending inventory or included in the cost of units transferred out. Abnormal spoilage is considered an abnormal or nonrecurring cost, and as such should not be included in the cost of normal production. Adding it to overhead can lead to distortion of the cost of normal production and mislead decisions based on those costs. Therefore, treating it as a loss in the period incurred is the best approach.

In a Process Costing System, the Cost of Abnormal Spoilage