In some cases, a company might have to pay to dispose of losses in a process. The cost of disposal represents an additional cost to the process. To reflect this in the process account the normal loss is measured at zero but the expected costs of disposal are debited to the process account.

Related MCQs

• Which of the following procedure is incorrect for attributing overhead costs to cost units? I. Collecting production overhead costs by item II. Establishing cost centres III. Allocating and apportioning overhead costs to cost centres IV. Apportioning service cost centre costs to production cost centres V. Absorbing production cost centre costs into cost units
• The disposal cost of abnormal loss is included in the abnormal loss account and therefore in the transfer of the cost of abnormal loss to the statement of profit or loss.
• If normal loss has a scrap value the company is able to recover some of the input costs to the process. The scrap value reduces the cost of the process.
• Apportionment means sharing on a reasonable basis. Many overhead costs are costs that cannot be allocated directly to one cost centre, because they are shared by two or more cost centres. These costs are apportioned between the cost centres.
• The apportionment of production overhead costs might be in two stages: • sharing (or dividing) general costs between production centres and service centres; and • then sharing the costs of the service centres between the production centres.
• When actual loss is less than the expected (normal) loss there is:
• When the abnormal has a scrape value the net cost of abnormal loss (cost of abnormal loss minus its scrap value) is then transferred as a cost to the cost accounting income statement at the end of the accounting period.
• Indirect production costs are incurred in three main ways: • Production activities: costs arising in production departments such as fuel, depreciation, supervision • Service activities: the cost of operating non-producing departments such as materials handling, canteen • Establishment costs: general production overheads such as factory rent/rates, heating and lighting
• The difference between total actual loss and normal loss is abnormal loss.
• When there is opening work in progress there are two types of cost on the debit side of the account. These are the costs that were incurred last period and brought forward as work in progress and the costs that were incurred in the current period.