Spoilage
Spoilage is output that fails quality standards and cannot be repaired economically. Normal spoilage is an expected production cost absorbed by good units; abnormal spoilage exceeds expectations and is expensed immediately.
FrameworkProcess costing
See it move
A bakery that routinely loses two per cent of production to over-baked loaves treats that as normal spoilage: an expected cost folded into the price of good units. If a machine fault ruins an extra batch beyond that usual rate, the additional loss is abnormal spoilage, written off directly to the income statement rather than spread across good output.
Check yourself
A metal pressing plant embeds a 3% normal spoilage rate in its standard cost per good unit. In June, actual spoilage reaches 8% of units started owing to a faulty batch of steel. How should the cost of the excess spoilage — the 5 percentage points above the expected rate — be treated?