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Accounting Course Help With Abnormal Loss

7.2.1 Abnormal Loss

Abnormal loss is the loss incurred above the normal loss. Abnormally lost units are costed fully. Good units are not overloaded with cost because of abnormal production loss. We may continue with the example given in para 7.2. In case process-II would actually produce 85,000 units instead 85,500 units, it suffer an abnormal loss of 500 units. However, costing of output will not change. Good units will be charged @ $ 27. the process cost structure would be shown in figure 7.3 :

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process diagram showing abnormal loss

cost transferred to process

Increase in final cost by $0.02 is because of under utilisation of capacity at process-III, which would process 85,500 units but only got 85,000 units. The proper approach should be eliminate the capacity cost to compute the cost of product at normal level of capacity utilisation.

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