Wastage, spoilage and defectives are the loss of business. Before
explaining their accounting treatment, we should explain the meaning of
wastage, spoilage and defectives.
Meaning of Spoilage
Spoilage is of two types. First is normal spoilage and second is abnormal spoilage.
Normal Spoilage
Normal spoilage is that wastage which is must during the production. For example, we will make the wooden tables or chairs, there will be the loss of some wood in the form of scobs. We can not stop it because it is necessary and it must happen during the cutting of suitable woods. Like this, all type of production needs some of wastage. All are normal spoilage.
Abnormal Spoilage
Any wastage which is more than normal spoilage will be abnormal spoilage. It happens due to doing the production work by unskilled person. It is also loss of business.
Meaning of Wastage
Wastage may happen during the time of production. For example, when we have made wooden 1000 tables, it is normal some wood will be the part of wastage because we can not make new tables with them.
Meaning of Defectives
When we buy large quantity of raw material for production, there is the chance of some raw material may be in defectives form which can not be returned or sometime, due to the defects in the machine, defective goods will produce. Both will be the loss of business in the form of defectives. For example, you have bought the wood of $ 30,000, out of them 10% defective which could not be returned. So, $ 3000 is defective loss.
Accounting Treatment of Wastage, Spoilage and Defectives
Normal wastage, spoilage and defective will be the part of cost of production. No, need to open separate account for them. When we will calculate per unit cost, it will increase with normal wastage, spoilage and defectives.
For example, cost of production is $ 10,000, normal wastage, spoilage and defectives are $ 1000. Now, cost of production will be $ 11,000
Now, we need only to open the accounts of abnormal wastage, Abnormal spoilage and Abnormal Defectives which is more than normal. This loss can be transfer to costing profit and loss account. When it will in the account, we can take good steps to control it.
First we pass the journal entries, then, we tell the tips to control them.
Costing Profit and Loss Account Debit
Abnormal Spoilage Account Credit
Abnormal Wastage Account Credit
Controlling Tips
1. Appoint more supervisors who will supervise the production center.
2. Repair machines on the time.
3. Appoint skilled laborers who manage to give them training.
4. Give good reward to those laborers who do best.
Meaning of Spoilage
Spoilage is of two types. First is normal spoilage and second is abnormal spoilage.
Normal Spoilage
Normal spoilage is that wastage which is must during the production. For example, we will make the wooden tables or chairs, there will be the loss of some wood in the form of scobs. We can not stop it because it is necessary and it must happen during the cutting of suitable woods. Like this, all type of production needs some of wastage. All are normal spoilage.
Abnormal Spoilage
Any wastage which is more than normal spoilage will be abnormal spoilage. It happens due to doing the production work by unskilled person. It is also loss of business.
Meaning of Wastage
Wastage may happen during the time of production. For example, when we have made wooden 1000 tables, it is normal some wood will be the part of wastage because we can not make new tables with them.
Meaning of Defectives
When we buy large quantity of raw material for production, there is the chance of some raw material may be in defectives form which can not be returned or sometime, due to the defects in the machine, defective goods will produce. Both will be the loss of business in the form of defectives. For example, you have bought the wood of $ 30,000, out of them 10% defective which could not be returned. So, $ 3000 is defective loss.
Accounting Treatment of Wastage, Spoilage and Defectives
Normal wastage, spoilage and defective will be the part of cost of production. No, need to open separate account for them. When we will calculate per unit cost, it will increase with normal wastage, spoilage and defectives.
For example, cost of production is $ 10,000, normal wastage, spoilage and defectives are $ 1000. Now, cost of production will be $ 11,000
Now, we need only to open the accounts of abnormal wastage, Abnormal spoilage and Abnormal Defectives which is more than normal. This loss can be transfer to costing profit and loss account. When it will in the account, we can take good steps to control it.
First we pass the journal entries, then, we tell the tips to control them.
Costing Profit and Loss Account Debit
Abnormal Spoilage Account Credit
Abnormal Wastage Account Credit
Controlling Tips
1. Appoint more supervisors who will supervise the production center.
2. Repair machines on the time.
3. Appoint skilled laborers who manage to give them training.
4. Give good reward to those laborers who do best.
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