ABNORMAL SPOILAGE is spoilage that is not part of everyday operations. It occurs for reasons such as the following: out-of-control manufacturing processes, unusual machine breakdowns, and unexpected electrical outages that result in a number of spoiled units. Some abnormal spoilage is considered avoidable; that is, if managers monitor processes and maintain machinery appropriately, little spoilage will occur. To highlight these types of problems so that they can be monitored, abnormal spoilage is recorded in a Loss from Abnormal Spoilage Account in the general ledger and is not included in the job costing inventory accounts (work in process, finished goods, and cost of goods sold).
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS see ALLOWANCE FOR BAD DEBTS.
CONTRIBUTION MARGIN (CM) is the difference between sales and the variable costs of the product or service, also called marginal income. It is the amount of money available to cover fixed costs and generate profits.
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