Which of the following statements is FALSE about spoilage costs? a) For external

Question

Which of the following statements is FALSE about spoilage costs?

a) For external financial reporting purposes, normal spoilage costs should be reported as a separate expense item in the income statement.

b) Regardless of the accounting treatment and computation, it is usually desirable to internally report spoilage costs as a separate item for management purposes.

c) Normal spoilage is expected as a natural outcome of an imperfect process and added back to the cost of good units produced.

d) The % of completion for spoiled units depends on when the spoilage is detected and what portion of the work has been completed for those units.

Explanation / Answer

Answer is A. For external financial reporting purposes, normal spoilage cost should be reported as a separate expense item in the income statement.

Explanation: Normal spoilage is a term used for that spoilage which is bound to happen in the production process. Such type of spoilage is never reported as a separate expense rather it is adjusted in the cost of goods of other good units by inflating their cost.

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