Question

A company manufactures a single product. During the manufacturing process, a small number of units do not pass final inspection and are destroyed. What is the appropriate accounting treatment for the cost of these units

Answer 1

Answer:

Added to the cost of good units produced

Explanation:

If the goods that do not pass the final tests are destroyed, it means they do not have any residue value. The items are, therefore a production loss to the company.

For accounting purposes, the cost of the defective will be the same as the cost of quality products. They use the same raw materials, labor and production process.  To the account, the difference is that the good product is sold, but the other is destroyed. The total costs of damaged items should be added to the cost of production and spread to all quality produced units.