Spoilage refers to the deterioration of goods beyond rectification and are sold out without any further processing. The first is normal spoilage which occurs due to inherent nature of the manufacturing operations. Like normal wastage it is not recorded in the books what is black friday of cost accounts but its cost is spread over the remaining units. The production which is below the fixed standard and can be rectified by incurring additional expenditure is known as defective item. Proper control should be exercised over the defective goods.

Material Losses in Cost Accounting – With Accounting Treatment and Control

Since the resistivity of these metal alloys is low to minimize losses due to induced eddy currents, they are built in very thin laminated sheets. In order to obtain optimum efficiency, correct selection of engineering is necessary. A general classification of engineering materials is given in Fig. The engineering materials may be grouped in terms of metallurgical and physical properties. Metallurgical properties of the materials provide tensile, ductility, hardness, toughness, fatigue, and creep.

Material Losses

The total material loss, Mtot, is the material loss in the wear track zone after the selected sliding distance, l, at the selected anodic potential, E. It is usually found by optical or contact profilometry. A committee may be constituted which classifies the various types of scrap, calculates their value and quantity and also determine the method of use/disposal. Normal losses of material cannot be completely avoided but may be controlled to a limited extent. If the sales realization should give the firm an overall profit of 12.5% on cost, find the selling price per metric ton of both the categories of bars.

• Scrap is defined as the incidental residue from certain types of manufacture usually of small amount and low value recoverable without further processing.
• It is usually found by optical or contact profilometry.
• A great method to apply here is Root Cause Analysis (RCA).
• Examples include changeovers, tooling adjustments, cleaning, planned maintenance, quality inspection, rest breaks, meetings, toolbox talks, etc.
• (iii) Keeping up proper records of scrap in the form of Scrap Reports.
• (ii) If the defective production is not identified with a particular job or department, the cost of rectification is added to general factory overhead.

Accounting for Material Losses

Accounting treatment depends on whether the spoilage is normal or abnormal. Normal spoilage is borne by good units of output since it is inherent with production and it happens even under efficient conditions. Abnormal spoilage is avoidable under efficient conditions. The cost of abnormal spoilage is charged to profit and loss account. Losses in the form of waste, scraps, spoilage and defectives are inherent and inevitable with any manufacturing activity. These losses can be controlled through adequate reporting and responsibility accounting.

Examples of Material Losses in a sentence

Other losses are those that occur due to bending and coupling that, in turn, can be minimized by taking suitable care during installation [1, 2, 5, 7]. For SiO2 glass fiber, the minimum loss is found to be around 1.55 μm. Bars spending Rs 36, 00,000 towards materials and Rs 6, 20,000 towards rolling charges. Ten per cent of the output was found to be defective, which had to be sold at 10% less than the price for good production. Percentage of standard loss should be determined in advance and the actual quantity of waste should be compared with the standard quantity of waste.

Defectives are the products which are not according to the standards but they can rectify as a finished product by incurring rectification (rework) cost. In order to control waste in manufacturing industries, a waste report is prepared at regular intervals. The actual percentage of waste is compared with the standard percentage and remedial measures are taken to remove any abnormal waste.

If they are identical with a particular job then it is charged to that particular job. When defectives are not identifiable with particular job then it should be charged to production overheads. Abnormal Waste – It arises due to abnormal factors or causes not inherent in the production. These factors are avoidable or controllable e.g., fire, theft, careless in handling, etc. (iii) If the defective production is due to abnormal reasons, the rectification cost is transferred to Costing Profit and Loss Account.

Scrap is the incidental residue from certain types of manufacture, usually of small quantity and low value, recoverable without further processing. Scrap may arise on account of turnings, borings, trimmings etc. from metals on which certain machine operations are carried out. Abnormal wastage needs careful investigation to determine the causes so as to prevent recurrence. The costing rule is that the loss on account of normal wastage will be borne by the good units. Normal wastage is treated as a part of cost, i.e., the rate per unit is inflated to recover the loss.

This is a detailed method and is immensely helpful in identifying scrap values in case of every job, process or operation. (a) Normal spoilage – It is the spoilage which is the inherent result of the process and therefore uncontrollable in the short run. (iii) Scrap involves loss of materials only while spoilage involves besides loss of materials loss of labour and manufacturing overheads also. The additional cost which is incurred to rectify a defective product is known as Rectification cost.

Defectives are that portion of the process loss which can be converted into a finished product by incurring more material and labour expenses. The additional expenses are added to the cost of manufacture and the rectified units to total units. Imperfections may arise because of sub-standard materials, bad workmanship, inadequate inspection, lack of plans, etc. It should be ensured that the benefit resulting from rectification is more than the cost incurred on rectifications. Read this article to learn about the various material losses (waste, scrap, defectives and spoilages) and its control with calculation and journal entries. The sale value is credited to profit and loss account as other income.