Business, Legal & Accounting Glossary
Spoilage is the cost accounting concept of waste that is produced during a job. Spoilage is a normal occurrence in all manufacturing. Think of it like scrap. There will always be scrap metal or materials left over after a product is manufactured. In other words, spoilage is not only normal; it is unavoidable.
Abnormal spoilage, on the other hand, refers to waste that could have been avoided. When manufacturing processes go wrong or materials have defects, an abnormal about of waste or spoilage is produced. The abnormal spoilage could have been avoided if the job or process went according to plan.
The term “abnormal spoiling” refers to scrap generated by a manufacturing process in excess of the regular, expected level. Excess spoilage is charged to expenditure when it occurs. Abnormal spoiling can be attributed to a variety of factors, including insufficient operator training, wrong machine settings, and substandard material quality. A standard management function is to analyse and solve the causes of abnormal spoilage on a continuous basis, consequently lowering expenses and improving profits.
A production process is projected to have a spoilage rate of 5%. A production run of $1,000,000 is commenced, with a standard scrap cost of $50,000. The true scrap totals $58,000, implying that the abnormal scrap linked with the production run totals $8,000.
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This glossary post was last updated: 13th April, 2022 | 0 Views.