Meaning of Spoilage
Spoilage refers to that portion of production Ans which is so damaged in the course of manufacture that it cannot be rectification with further processing, and so, has to be disposed off as second or third quality goods without further processing.
It may be noted that spoilage can be used again as raw materials either in the same manufacturing process or in some other manufacturing process.
Type of Spoilage
Spoilage can be classified into two types:
1. normal spoilage
2. abnormal spoilage
Also Read- What is Difference Between Waste and Scrap
1. Meaning of Normal Spoilage
Normal spoilage refers to that portion of spoilage which occurs normally due to the inherent nature of the manufacturing process.
2. Meaning of Abnormal Spoilage
Abnormal spoilage refers to spoilage in excess of normal spoilage due to abnormal causes lied break down of machinery. inferior quality of materials, bad workmanship, etc.
Treatment of Spoilage
The cost of spoilage comprises that cost of material used. labor cost and overheads incurred on the spoiled goods up to the point of rejection.
However, as the spoilage has recovery value, the entire cost of spoilage can not be the loss on spoilage. The loss on spoilage is the difference between the cost of spoilage minus the recovery value of the spoilage.
The loss due to normal spoilage which is due to inherent nature of the manufacturing process, and hence can not be controlled or avoided, can be recovered from good units. This type of treatment is known as treatment by neglect.
The loss arising from abnormal spoilage, which is avoidable or controllable, should be excluded from cost and charged to closing Profit and Loss Account.
How to Control of Spoilage
Spoilage can be controlled or reduced through the following measures.
1. By setting up standard for the spoilage.
2. By reporting to the authority concerned.
3. By taking remedial action such as the causes responsible for the deviation should be analyzed and necessary corrective steps should be taken immediately.
The remedial measures may be the use of good quality materials. improved methods of manufacture, improved machinery, improved labor, etc.
Difference between Scrap and Spoilage
The main difference between these two are:
1. Scrap is in respect of material whereas spoilage is in respect of finished goods.
2. Scrap arises due to the inherent nature of manufacturing process or operation. On the other hand, spoilage arises either due to the defect in material or due to the defect in manufacturing process.
3. Scrap can be used only in some other manufacturing process. But spoilage can be used either in the same manufacturing process or in some other manufacturing process.
4. Scrap involves only material cost. But spoilage involves material cost, labor cost and overheads.
- Difference between Cost Accounting and Management Accounting
- What is Cost Concepts and Different Terms of Costs
- What is concept of Cost Audit | Objective and Scope of Cost Audit
- Advantages and Disadvantages of Cost Audit
- Meaning of Methods of Cost | Basic Methods of Costing
- What is meaning of Classification of Cost & elements of Cost | rules of Cost Accounting Standard
- What is Installation of a Costing System | Conditions and Factors
- What are the practical difficulties in installing cost accounting
- What is technique of Costing | Various techniques of Costing
- What is Material or Inventory Control | Techniques of Materials Control
- What is FIFO Method | advantages and disadvantages
- What is LIFO method | Advantages and Disadvantages
- What is Periodical or Annual Inventory Control System | Limitations
- Methods of Pricing Material Issues | Cost Methods
- What is Cost of Labour Turnover | Causes, Effects Classification
- What is meant by idle time | Definition, Causes, Control
- What is meaning of overtime work | Reason, Disadvantages
- HIFO method of inventory valuation |Advantages, Disadvantages
- What is two Bin System | Meaning of Bin Card and Specimen
- What is Meaning of NIFO Method | Advantages, Disadvantages
- What is Market Price Method or Replacement Price Method | Advantages, Disadvantages
- What is average cost method of Inventory valuation | Advantages and Disadvantages
- What is Meaning of Weighted Average Price Method | Advantages and Disadvantages
- Meaning of Material Losses | Types and Treatment
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