1996 Volume 4 Issue 2 Pages 3-27
The measurement method of non-neglecting spoilage and shrinkage in process costing is sometimes recommended for the purposes of cost management and precise product costing. But there are some problems within the framework of the method: Firstly, as we will learn by thinking about actual manufacturing processes, in many cases, some ending work-in-process passes the spoilage or shrinkage point, while others do not. Although ending work-in-process is commonly regarded as having existed widely through a process, the condition of ending work-in-process is represented by a single value of completion stage. Secondly, the conception of the completion stage to stand for the points at which spoilage and shrinkage incur respectively is confused with that which stands for their equivalent whole units. Thirdly, the distinction between spoilage and shrinkage is conceptualy cleared, but it is ambiguity from the point of view of costing.
The paper clarifies the nature and defects of the framework of the traditional method, and proposes the new measurement method of non-neglecting spoilage and shrinkage, solving those problems, on the situation that each normal spoilage and normal shrinkage arises at a certain point on a manufacturing process under FIFO process costing.
