Meaning Of Spoilage And Its Accounting Treatment

Meaning Of Spoilage
Badly damaged material in a manufacturing operation is spoilage. The spoil /damaged material during processing is called spoilage. Spoilage material is not possible to be rectified economically and put for further processing. Thus, such a spoilage material is taken out of the process and disposed off in the same form as it exists.
Two types of spoilage are normal and abnormal ones. Normal spoilage is estimated and is inherent. Abnormal spoilage is unexpected and does not occur always.

Accounting Treatment Of Spoilage
Material damaged or destroyed in the course of a manufacturing process is spoilage. Manufactured goods of a low or inferior quality produced are also called spoilage.
Normal spoilage is included in the cost of the output in a single product line. In a multi-product context, spoilage is charged to the production overhead to record out of all the products. This means production overhead is made larger to spread spoilage over all products since the production overhead rate becomes greater. The abnormal spoilage cost is charged to the Profit and Loss account.
The spoilage arising on account of improper workmanship or malfunctioning of equipment is absorbed by good production treating it as charged to production overhead.

Related Topics
Meaning, Types And Accounting Treatment Of Waste
Meaning Of Scrap And Its Accounting Treatment
Meaning Of Defective Unit And Its Control

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