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    Question

    A company manufactures goods with normal loss of 5%. In

    one batch, due to worker negligence, loss rose to 12%. At what level should inventory be valued?
    A Absorb all losses into inventory cost. Correct Answer Incorrect Answer
    B Charge excess abnormal loss to P&L, only normal loss to inventory. Correct Answer Incorrect Answer
    C Ignore losses since production is still viable. Correct Answer Incorrect Answer
    D Capitalize abnormal losses as deferred expense. Correct Answer Incorrect Answer
    E Value at replacement cost. Correct Answer Incorrect Answer

    Solution

    Normal loss is included in cost; abnormal loss is charged to P&L. Inventory is valued at lower of cost and NRV, excluding abnormal inefficiencies.

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