In: Accounting
4. How do you differentiate ‘Normal Process Losses’ from ‘Abnormal process Losses’.
The loss that occurs in conversion of input raw material to finished goods is known as process loss. The difference between input quantity and output quantity is process loss
Process loss can be normal process loss or abnormal process loss
Normal process loss:
Loss expected or anticipated in advance prior to production is a normal process loss. This is standard loss. Some examples are like evaporation, rusting, weight loss due to nature of material. These types of losses may occur due to nature of raw material or type of production process or nature of finished goods.
Abnormal process loss:
The loss over and above the normal process loss is abnormal process loss. This is usually due to bad handling, reworks, bad working conditions, machine breakdown, machine repairs, etc. This is unexpected loss and will increase cost of production
Value of Abnormal units is calculated by = (Normal cost of Normal output/ Normal production) X Abnormal Quantity lost
Normal Process Loss |
Abnormal Process Loss |
|
Control over loss |
Usually Uncontrollable |
Can be Controlled through improved techniques |
Treatment of Cost |
Cost is absorbed by goods units |
Cost is calculated separately and charged to Costing P and L Account |
Type |
Usually anticipated in advance |
It is unanticipated loss |
Loss |
Usually Loss % is predetermined at beginning of the process |
Loss % can be accessed only during production |