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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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