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.

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
• 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.
• 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.
• 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.
• If the normal loss has no scrap value it is given a nil value.
• 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.
• 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.
• Allocation is where overheads are allocated to cost centres. If a cost centre is responsible for the entire cost of an item of expenditure, the entire cost is charged directly to the cost centre.
• 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.