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Financial & Managerial Accounting
Found in: Page 259
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Why are incidental costs sometimes ignored in inventory costing? Under what accounting constraint is this permitted?

Incidental cost is ignored because it does not significantly influence business decisions.

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Step by Step Solution

Step 1: Definition of Incidental Cost

The small or minor costs incurred with the significant cost are known as incidental costs. These costs are ignored while determining the cost of inventory.

Step 2: Reason for Ignoring Incidental Costs and Which Accounting Constraint Permit this

Benefits generated from the increase in the accuracy of cost allocation are lower than the expenses incurred to track the incidental cost. Therefore, this cost is ignored. Such practice of ignoring the incidental cost is permitted by materiality constraint because such cost will not affect the decisions of the business entity.

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