Normal Wastage (Loss)
This means the usual percentage of wastage arising in its natural course in a process or operation. Such wastage is not avoidable as it occurs in its natural course. The normal wastage and loss due to it should be charged to the good units arising out of the process. In this way, the cost of spoiled and lost units is absorbed as an additional post of the good produced by a given process.
The main points to be considered while accounting for normal wastage
The following points must be considered in this connection while accounting for a normal wastage:
- In some cases, the defective goods carry some value. The amount, if realized, should be credited to the process concerned.
- In a case where the scrap is of very small value; it will be better to credit the total sale proceeds of such scraps to works Overheads Account. However, if there is any loss the Process Account must be debited,
- In a few cases, the output might be re-worked either in the same process or an earlier one. Such an output may be of little worth. In such a case the relevant process should bé charged to the process to which such material is relegated.
Abnormal Wastage (Loss)
Abnormal wastage is a wastage which does not occur in the natural course and is usefully in excess of the normal process wastage or loss. This occurs because of carelessness on the part of the worker or the management, defective scheduling or designing, sabotage etc.
Treatment of Abnormal Wastage
Abnormal wastage should be treated in the following manner:
- Compute the normal loss, first.
- Compute the cost of production per unit of the relevant process, after taking into account the normal loss but assuming that there is no abnormal loss.
- The cost of production per unit so computed should then be multiplied with the lost abnormal units. This will give you the Total Abnormal Wastage.
- Abnormal Wastage Account then is debited and the relevant Process Account is credited with the amount and the quantity of abnormal wastage.
- The balance standing in the Process Account will indicate the cost of good units produced by the process concerned.
- Abnormal Wastage Account will then be closed by transferring the balance standing to the Costing profit and Loss Account.
Sometimes the actual production may exceed the expected or estimate production. This excess is known as abnormål effectives. In normal circumstances, this does not affect the cost of production of good units. Their valuation is done at the rate which good units are being valued. The amount is debited to the relevant Process Account and credited to Abnormal Effectives Account which at the end is closed by transferring the balance to the Costing Profit and Loss Account.