Distinguish between discrete and continuous production losses and the method of accounting for these losses
Discrete production losses occur at a specific point in the production process. Such a loss is detectable only when a quality check is performed. The cost of normal discrete losses should be assigned only to units that have passed the inspection point in ending inventory and transferred out on an EUP basis as a product cost. Abnormal discrete losses should be treated as a period cost and written off on an EUP basis.
Continuous production losses occur throughout the production process. Normal continuous production losses are handled through the method of neglect, which ignores the spoiled units in the EUP schedule. This results in a smaller EUP and a greater cost per equivalent unit. Abnormal discrete losses are treated as a period cost and written off on an EUP basis.
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