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    Spoiled Units/Loss Units OF Production

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    Claire Barba
    This document discusses accounting for spoiled units or losses in manufacturing. It defines normal and abnormal losses. Normal losses are inherent in production and absorbed by good units' costs. Abnormal losses result from unusual events and are treated as period costs. Losses can be continuous or discrete. Continuous losses can't be identified and use the method of neglect, while discrete losses are identified during inspections. Normal losses are allocated to units passing inspection points, while abnormal losses have costs removed from WIP and recognized as period costs.

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    Spoiled Units/Loss Units OF Production

    Uploaded by

    Claire Barba
    770 views15 pages
    This document discusses accounting for spoiled units or losses in manufacturing. It defines normal and abnormal losses. Normal losses are inherent in production and absorbed by good units' costs. Abnormal losses result from unusual events and are treated as period costs. Losses can be continuous or discrete. Continuous losses can't be identified and use the method of neglect, while discrete losses are identified during inspections. Normal losses are allocated to units passing inspection points, while abnormal losses have costs removed from WIP and recognized as period costs.

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    Spoiled-Units

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    This document discusses accounting for spoiled units or losses in manufacturing. It defines normal and abnormal losses. Normal losses are inherent in production and absorbed by good units' costs. Abnormal losses result from unusual events and are treated as period costs. Losses can be continuous or discrete. Continuous losses can't be identified and use the method of neglect, while discrete losses are identified during inspections. Normal losses are allocated to units passing inspection points, while abnormal losses have costs removed from WIP and recognized as period costs.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    770 views15 pages

    Spoiled Units/Loss Units OF Production

    Uploaded by

    Claire Barba
    This document discusses accounting for spoiled units or losses in manufacturing. It defines normal and abnormal losses. Normal losses are inherent in production and absorbed by good units' costs. Abnormal losses result from unusual events and are treated as period costs. Losses can be continuous or discrete. Continuous losses can't be identified and use the method of neglect, while discrete losses are identified during inspections. Normal losses are allocated to units passing inspection points, while abnormal losses have costs removed from WIP and recognized as period costs.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 15

    SPOILED UNITS/LOSS

    UNITS
    OF
    PRODUCTION
    Spoiled Units
    • Sometimes called loss units.
    • Units that have been damaged or improperly
    manufactured.
    • Cannot be completed as saleable product
    • Once discovered, they are taken out of the production
    and no further work is performed on them.

    2
    Normal Spoilage
    • Common occurrence that is inherent with the
    manufacturing process.
    • Unavoidable and cannot be eliminated
    • They are to be absorbed by the remaining good units
    as part of their product cost.

    3
    Abnormal Losses
    • Results from unusual and non-recurring factors, such
    as fire and accidents.
    • They are avoidable and controllable.
    • They are separated from the production and treated as
    a period cost.

    4
    Classification of Losses as to Discovery
    • Continuous loss – cannot be identified specifically
    within the production. Usually they are normal losses
    and uses the Method of Neglect.
    • Discrete loss – can be identified when the loss occur. It
    is usually determined during inspection point. It may
    be a normal loss or abnormal loss

    5
    Summary of Losses

    Continuous Discrete Disposition


    Normal loss YES YES Product cost
    Abnormal loss NO YES Period cost

    6
    Inspection Point
    • The stage of production cycle where products are
    inspected to determine spoiled units.
    • It usually occur at the end of production, however, it
    may also occur at various stages of production cycle.
    • The cost of the spoiled units will be computed up to
    the inspection point.

    7
    Accounting for Normal Losses
    • If the normal loss is a continuous loss, no cost is
    allocated. Method of neglect is used. It means nothing
    is done, just account for the remaining units. The total
    cost will be divided by the remaining units that will
    result to a higher cost per EUP.

    8
    Accounting for Normal Losses
    • If the normal loss is discrete, meaning it was
    discovered during an inspection point, the cost is to be
    computed up to the inspection point.

    • Who shall burden the cost of normal loss?

    9
    Accounting for Normal Losses
    AS A RULE, the normal loss shall be charged against
    the units who passed the inspection point.

    • If the inspection point is at the end of production


    process, the loss will be added to the cost of finished
    and transferred out.

    10
    Accounting for Normal Losses
    AS A RULE, the normal loss shall be charged against
    the units who passed the inspection point.

    • If the inspection point is at a specific point in the


    production process, the loss will be added to the units
    who passed the inspection point.

    11
    Accounting for Normal Losses
    • The units that passes the inspection point is referred to
    as “good units”.
    • If it happens that the completed units and ending WIP
    had passed the inspection point, the loss will be
    allocated prorated accordingly.

    12
    Accounting for Abnormal Losses
    • Since all abnormal losses are discrete, it is required to
    compute the cost of abnormal loss up to the point of
    inspection.
    • The loss will be removed from WIP and shall be
    recognized as a period cost either in FOH Control
    account or an Abnormal Loss account.

    13
    14
    15

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