Using the same data (cost per expected kg £10.3333, 5,000 kg input, normal loss 500 kg, actual output 4,300 kg), how many kg of abnormal loss are there and what is its value?
Answer and explanation
Correct answer: C. 200 kg valued at £2,067
- Step 1: Actual loss = 5,000 − 4,300 = 700 kg; normal loss = 500 kg.
- Step 2: Abnormal loss = 700 − 500 = 200 kg.
- Step 3: Valued at the cost per expected unit: 200 × £10.3333 = £2,067.
Answer
200 kg valued at £2,067.
Why not the others: 700 kg valued at £7,233: This treats all of the 700 kg loss as abnormal, but 500 kg was normal. 200 kg valued at £400: This values the abnormal loss at scrap value, but abnormal loss is valued at the full cost per unit. 500 kg valued at £5,167: This uses the normal loss quantity, which has already been absorbed into the cost per unit.
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