Treatment of Normal Loss Occur at the End of Process in Process Costing

Process Costing

Normal Loss Occur at the End of Process

In many industries, lost units are identified by quality inspectors at the end of manufacturing process when all production costs have been incurred by the department. In such cases cost of units lost is charged to completed units only and no portion of loss is absorbed by units in work in process ending inventory.

Treatment of Normal Loss at the End of Process

For this purpose, lost units are included in equivalent production and the adjustment for lost units is not required. In third section of cost of production report, cost of lost units is included in cost of units completed and transferred out or still in the department. This treatment increases unit cost of completed units only. Treatment of normal loss at the end of process is the same whether the loss occurs in first department or a department subsequent to the first.

Reasons of Charging Cost of Normal Loss at the End of Process to Completed Units

 Logic of charging cost of normal loss at the end of process only to completed units is that these units have gone through quality inspection, whereas, units still in process are yet to pass the inspection, of course, units still in process include spoiled units as well. Therefore, units in work in process ending inventory shall be charged with the cost of spoiled units included therein, only after these units will have gone through quality inspection. In many industries units being processed in a department are checked at a definite stage before the end of process, say at 75% or 90% stage of completion. In this case cost of normal loss is charged only to those units which have passed through the stage at which quality check is made. These units may be still in process or may have been completed and transferred out.

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