The correct answer is D. both a and c.
Scrap is a byproduct of the manufacturing process that has no commercial value or is of very low value. It is important to account for scrap because it can have a significant impact on a company’s financial statements.
There are two main aspects of accounting for scrap: physical tracking and costing.
Physical tracking involves keeping track of the amount of scrap produced, its type, and its value. This information is used to calculate the cost of scrap, which is then recorded in the company’s financial statements.
Costing scrap can be done in two ways:
- Non-inventoriable costing: This method treats scrap as a cost of production and is used when the scrap has no commercial value.
- Inventory costing: This method treats scrap as an inventory item and is used when the scrap has some commercial value.
The cost of scrap is then included in the cost of goods sold or inventory, depending on the costing method used.
It is important to account for scrap accurately because it can have a significant impact on a company’s financial statements. If scrap is not accounted for properly, it can lead to inaccurate financial statements and incorrect tax reporting.