The below mentioned article provides a note on accounting and control of spoilage.
Meaning of Spoilage:
Spoilage is the production that fails to meet quality or dimensional requirements and these are so damaged in manufacturing operations that they are not capable of rectification economically and hence taken out of the process and disposed off without further processing. If spoilage is well within the limits, it is regarded as ‘normal spoilage’.
The limits of spoilage are laid down after thorough study of material, men, processes and operating conditions. If spoilage exceeds the limits of normal spoilage, it is referred to as abnormal spoilage requiring prompt quick action.
Accounting of Spoilage:
The accounting treatment of spoilage is as follows:
(a) 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.
(b) 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 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.
Control of Spoilage:
Control of spoilage can be achieved in the following ways:
(a) Control through predetermined standards.
(b) Control through fixation of individual responsibility.
(c) Prompt and systematic reporting of spoilage.