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TREATMENT OF WASTE SCRAP  and 
SPOILAGE
IN COSTING
Page 2


TREATMENT OF WASTE SCRAP  and 
SPOILAGE
IN COSTING
TREATMENT IN COSTING
I. Waste
II. Scrap
III. Defectives
IV. Spoilage 
W A S T E
? “Discarded substances having no values”
? Inevitable in certain, Loss of material due to nature of process
Two types of wastes –
Normal and 
Abnormal Waste
? Normal waste is the unavoidable loss on account of the nature of material
? No value and the loss of material is recorded in quantitative terms only 
? Cost per unit is found out after deducting the quantity of waste
Page 3


TREATMENT OF WASTE SCRAP  and 
SPOILAGE
IN COSTING
TREATMENT IN COSTING
I. Waste
II. Scrap
III. Defectives
IV. Spoilage 
W A S T E
? “Discarded substances having no values”
? Inevitable in certain, Loss of material due to nature of process
Two types of wastes –
Normal and 
Abnormal Waste
? Normal waste is the unavoidable loss on account of the nature of material
? No value and the loss of material is recorded in quantitative terms only 
? Cost per unit is found out after deducting the quantity of waste
Eg:- Purchased 2000 units of material for Rs. 13300. 
Experience shows that 5% of material will be lost 
during the production process. Calculate per unit 
cost of material
Actual output 2000 units -100 units (2000x5%)
= 1900 units 
Per unit cost of materials = 13300/ 1900 = Rs. 7
The cost of waste is recovered from good output. 
According to costing principles all normal  
expenses should be included in the cost of 
production
Thus, if, there is normal waste, the materials are 
issued at inflated prices
Page 4


TREATMENT OF WASTE SCRAP  and 
SPOILAGE
IN COSTING
TREATMENT IN COSTING
I. Waste
II. Scrap
III. Defectives
IV. Spoilage 
W A S T E
? “Discarded substances having no values”
? Inevitable in certain, Loss of material due to nature of process
Two types of wastes –
Normal and 
Abnormal Waste
? Normal waste is the unavoidable loss on account of the nature of material
? No value and the loss of material is recorded in quantitative terms only 
? Cost per unit is found out after deducting the quantity of waste
Eg:- Purchased 2000 units of material for Rs. 13300. 
Experience shows that 5% of material will be lost 
during the production process. Calculate per unit 
cost of material
Actual output 2000 units -100 units (2000x5%)
= 1900 units 
Per unit cost of materials = 13300/ 1900 = Rs. 7
The cost of waste is recovered from good output. 
According to costing principles all normal  
expenses should be included in the cost of 
production
Thus, if, there is normal waste, the materials are 
issued at inflated prices
Abnormal Waste
“Any loss caused by unexpected or abnormal conditions such as sub-
standard materials, carelessness, accident etc” 
Or “loss in excess of the margin anticipated for normal process loss”
The value of abnormal waste is to be calculated and should be 
transferred to Costing Profit and Loss Account.  It does not form 
part of cost of Production
Value of abnormal waste =
In our above example, assume actual production was only 1850 units, 
in this case, there is an abnormal waste of 50 units its value will be
Actual production will be 1850 units and Total Cost of Production will 
be 13300-350 = 12950
Page 5


TREATMENT OF WASTE SCRAP  and 
SPOILAGE
IN COSTING
TREATMENT IN COSTING
I. Waste
II. Scrap
III. Defectives
IV. Spoilage 
W A S T E
? “Discarded substances having no values”
? Inevitable in certain, Loss of material due to nature of process
Two types of wastes –
Normal and 
Abnormal Waste
? Normal waste is the unavoidable loss on account of the nature of material
? No value and the loss of material is recorded in quantitative terms only 
? Cost per unit is found out after deducting the quantity of waste
Eg:- Purchased 2000 units of material for Rs. 13300. 
Experience shows that 5% of material will be lost 
during the production process. Calculate per unit 
cost of material
Actual output 2000 units -100 units (2000x5%)
= 1900 units 
Per unit cost of materials = 13300/ 1900 = Rs. 7
The cost of waste is recovered from good output. 
According to costing principles all normal  
expenses should be included in the cost of 
production
Thus, if, there is normal waste, the materials are 
issued at inflated prices
Abnormal Waste
“Any loss caused by unexpected or abnormal conditions such as sub-
standard materials, carelessness, accident etc” 
Or “loss in excess of the margin anticipated for normal process loss”
The value of abnormal waste is to be calculated and should be 
transferred to Costing Profit and Loss Account.  It does not form 
part of cost of Production
Value of abnormal waste =
In our above example, assume actual production was only 1850 units, 
in this case, there is an abnormal waste of 50 units its value will be
Actual production will be 1850 units and Total Cost of Production will 
be 13300-350 = 12950
II . SCRAP 
• Refers to discarded materials having some value.
• Represents fragments or remnants of material that are left 
from certain type of manufacture.
• A material loss but small value without further processing.
• Scrap is physically available unlike waste which may or may 
not be physically present in the form of residue, thus, it is 
always visible.  Further, may not have value also.
Types of Scrap
1. Legitimate scrap
2. Administrative scrap
3. Defective scrap
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106 videos|173 docs|18 tests

FAQs on PPT - Spoilage and Scrap - Cost Accounting - B Com

1. What is spoilage in the context of manufacturing?
Ans. Spoilage refers to the goods or products that are damaged, defective, or become unusable during the manufacturing process. These products cannot be sold to customers and are considered as waste. Spoilage can occur due to various reasons such as errors in production, equipment malfunction, or external factors.
2. How is spoilage cost calculated?
Ans. Spoilage cost is calculated by adding up the cost of the raw materials used in the spoiled goods, the cost of labor and overheads involved in the production process, and any additional costs incurred in disposing of or recycling the spoiled products. This cost is then divided by the total number of units produced to determine the cost per unit of spoilage.
3. What are the different types of spoilage?
Ans. There are two main types of spoilage in manufacturing: normal spoilage and abnormal spoilage. Normal spoilage is the expected and unavoidable loss of products that occurs during the production process. Abnormal spoilage, on the other hand, is unexpected and usually caused by factors beyond the control of the manufacturer, such as accidents or quality control issues.
4. How can spoilage be minimized or prevented?
Ans. Spoilage can be minimized or prevented through various strategies such as implementing quality control measures, conducting regular maintenance and inspections of equipment, providing proper training to employees, and optimizing production processes to reduce errors and defects. Additionally, using high-quality raw materials and ensuring proper storage conditions can also help prevent spoilage.
5. What is the difference between spoilage and scrap?
Ans. Spoilage refers to goods that are damaged or become unusable during the manufacturing process and cannot be sold to customers. On the other hand, scrap refers to the materials or components that are left over after the production process and have no further use. While both spoilage and scrap result in waste, spoilage occurs during the production process, while scrap is generated after the production is complete.
106 videos|173 docs|18 tests
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