The accounting treatment of spoilage is as follows: • If the cost of spoilage is normal and inherent in the process or operation, then the cost of spoilage is absorbed by charging either to the specific production order or to product overheads.
Dear Friend > Accounting for spoilage Accounting for spoilage aims to determine the magnitude of spoilage costs and to distinguish between costs of normal and abnormal spoilage. To manage, control, and reduce spoilage costs, they should be highlighted, not simply folded into production costs. The Five-Step Procedure for Process Costing with Spoilage 1. Step 1: Summarize the flow of physical units of output —identify both normal and abnormal spoilage. 2. Step 2: Compute output in terms of equivalent units. Spoiled units are included in the computation of output units. 3. Step 3: Summarize total costs to account for . 4. Step 4: Compute cost per equivalent unit. 5. Step 5: Assign total costs to: -- Units completed -- Spoiled units -- Units in ending work-in-process Normal spoilage attributable to a specific job: when normal spoilage occurs because of the specifications of a particular job, that job bears the cost of the spoilage minus the disposal value of the spoilage. Normal spoilage common to all jobs: in some cases, spoilage may be considered a normal characteristic of the production process. The spoilage is costed as manufacturing overhead because it is common to all jobs. The budgeted manufacturing overhead rate includes a provision for normal spoilage. Abnormal spoilage: if the spoilage is abnormal, the net loss is charged to the loss from abnormal spoilage account. Abnormal spoilage costs are not included as a part of the cost of good units produced. Thanks
**ACCOUNTING OF SPOILAGE** The accounting treatment of spoilage is as follows: • If the cost of spoilage is normal and inherent in the process or operation, then the cost of spoilage is absorbed by charging either to the specific production order or to product overheads. • The cost of abnormal spoilage arise in the process is charged to costing profit and loss account. If spoilt units are reused as raw material as raw material in the same process, no separate accounting treatment is required and if, spoilage is used for any other process or job, a proper credit should be given to relevant process account or job account. Thanks