Concept Of Process Loss, Normal Loss And Abnormal Loss

The loss that occurs in the course of converting an input raw material into finished products is known as process loss. Such a loss may occur because of the nature of the raw materials. This type of loss occurs in terms of the difference between the input quantity and the output quantity.
The difference between the input quantity and the output quantity arising on account of production operation is called process loss.

Process Loss = Normal process loss + Abnormal process loss

Normal process loss:
The loss expected or anticipated prior to production is a normal process loss. It is thus called a standard loss. A provision for such a loss is made before starting production. Weight losses, shrinkage, evaporation, rusting etc. are the examples of normal loss. Normal loss increases the cost of production of the usable goods realized.

Abnormal process loss
The loss realized over the normal loss is called an abnormal loss. Abnormal loss arises because of abnormal working conditions, bad working condition, carelessness, rough handling, lack of proper knowledge, low quality raw material, machine breakdown, accident etc. Therefore an abnormal loss is an unanticipated loss. Abnormal loss is a controllable loss and thus can be avoided if corrective measures are taken. Therefore, abnormal loss is also called an avoidable loss.
The value of an abnormal loss is assessed on the basis of the production cost with which the profit and loss account is charged.

Value of abnormal loss = (Normal cost of normal output/Normal output) X Abnormal loss qty.

Related Topics
Meaning Of Abnormal Gain And Its Determination
Meaning Of Inter-process Profit And Its Objectives

1 comment:

  1. very good explanation of normal and abnormal loss.

    keep it on please

    ReplyDelete