Lost production time, scrap, and rework are examples of which type of cost in inventory accounting?

• A. Selling expenses
• B. Direct material costs
• C. Normal costs
• D. Abnormal costs

Answer: (D)

Verified step by step guidance

1. Understand the concept of abnormal costs: Abnormal costs in inventory accounting refer to costs that are not expected or typical in the production process. These include costs arising from inefficiencies such as lost production time, scrap, and rework.
2. Differentiate abnormal costs from normal costs: Normal costs are the expected costs incurred during production, such as direct materials, direct labor, and overhead. Abnormal costs, on the other hand, are unexpected and should not be included in the cost of inventory.
3. Recognize the impact of abnormal costs: Abnormal costs are typically treated as period costs and expensed in the income statement rather than being capitalized as part of inventory. This ensures that inventory reflects only the costs necessary to bring it to its current condition and location.
4. Review the other options: Selling expenses are costs related to marketing and selling the product, not production inefficiencies. Direct material costs are the costs of raw materials used in production, and normal costs are the expected costs of production. None of these align with the definition of abnormal costs.
5. Conclude that lost production time, scrap, and rework are examples of abnormal costs because they represent inefficiencies and unexpected costs in the production process.