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costacctg13e_ppt_ch18 - CHAPTER 18 C HAPTER Basic...

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CHAPTER 18 CHAPTER 18 Spoilage, Rework, and Scrap Basic Terminology Spoilage – units of production, either fully or partially completed, that do not meet the specifications required by customers for good units and that are discarded or sold for reduced prices Basic Terminology Rework – units of production that do not meet the specifications required by customers but which are subsequently repaired and sold as good finished goods Scrap – residual material that results from manufacturing a product. Scrap has low total sales
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value compared with the total sales value of the product Accounting for Spoilage Accounting for spoilage aims to determine the magnitude of spoilage costs and to distinguish between costs of normal and abnormal spoilage To manage, control and reduce spoilage costs, they should be highlighted, not simply folded into production costs Types of Spoilage Normal Spoilage – is spoilage inherent in a particular production process that arises under efficient operating conditions Management determines the normal spoilage rate
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Costs of normal spoilage are typically included as a component of the costs of good units manufactured because good units cannot be made without also making some units that are spoiled Types of Spoilage Abnormal Spoilage – is spoilage that is not inherent in a particular production process and would not
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