Question

Spoilage is the unacceptable units of production that are discarded or sold for disposal value. Accountants should be able to distinguish between normal and abnormal spoilage.
Differentiate the two types of spoilage as aforesaid.

Answer 1

Normal process loss:

The loss expected or anticipated prior to production is a normal process loss. It is thus called a standard loss. A provision for such a loss is made before starting production. Weight losses, shrinkage, evaporation, rusting etc. are the examples of normal loss. Normal loss increases the cost of production of the usable goods realized.

Abnormal process loss

The loss realized over the normal loss is called an abnormal loss. Abnormal loss arises because of abnormal working conditions, bad working condition, carelessness, rough handling, lack of proper knowledge, low quality raw material, machine breakdown, accident etc. Therefore an abnormal loss is an unanticipated loss. Abnormal loss is a controllable loss and thus can be avoided if corrective measures are taken. Therefore, abnormal loss is also called an avoidable loss.

The value of an abnormal loss is assessed on the basis of the production cost with which the profit and loss account is charged.

Value of abnormal loss = (Normal cost of normal output/Normal output) X Abnormal loss qty.