Questionable is the controller for a company that uses a process costing system. Questionable is concerned with
Question:
Questionable is the controller for a company that uses a process costing system. Questionable is concerned with the spoilage costs that have been identified as abnormal and has asked the staff accountant to review the criteria for classifying spoilage as either normal or abnormal. The staff accountant wrote a brief report indicating that approximately 50% of the spoilage costs that require rework are attributable to equipment malfunctions and poor-quality materials from the suppliers.
a. Should the rework cost described in the accountant’s report be classified as normal or abnormal spoilage? Discuss.
b. Refer to the Institute of Management Accounting’s Standards of Ethical Professional Practice in Chapter 1. Which IMA Standards would the staff accountant be violating if he shifts the spoilage to normal costing so that lower expenses are reported?
c. What should the staff accountant do?
Step by Step Answer:
Managerial Accounting
ISBN: 9780137689453
1st Edition
Authors: Jennifer Cainas, Celina J. Jozsi, Kelly Richmond Pope