Abnormal Spoilage Definition
In any business, if the amount of wastage or scrap recorded is more than what is expected in a normal business, it is an abnormal spoilage. An Abnormal spoilage refers to the excess amount of waste or destruction of an inventory beyond the expected level. If damages to the goods that a company has in stock is considerably higher than the normal level, it is abnormal spoilage.
In some cases, abnormal spoilage can be prevented but when spoilage occurs and is unexpectedly high, it is called abnormal spoilage. Losses for abnormal spoilage can be mitigated but only to an extent, insurance policies can cover some and not all of the spoilage.
A Little More on What is Abnormal Spoilage
Spoilage in inventory cannot be absolutely avoided, this means that there are some cases where spoilage occur to goods and materials that a company has in stock. Many factors are responsible for destruction or damage of inventory, there is a required level for spoilage. Any spoilage that exceeds the normal level is called an abnormal spoilage.
Material spoilage can occur in different levels of a business, a normal spoilage refers to the expected level of damage that can happen to goods held by a business. Also, a damage beyond the historical damage of goods in a business can also be called an abnormal spoilage.
Illustrations of Abnormal Spoilage
The illustration below is crucial to the understanding of the occurrence of an abnormal spoilage in a business or company. Assuming a business that is into the production of hamburgers for a large group of people during their lunch break produces 500 pieces hamburgers. These hamburgers are meant to be preserved using six heat lamps at 140 degrees, if two of the heat lamps fail and the hamburgers coll below a 120 degrees by lunchtime, a major loss has occurred. 500 piece of hamburgers are spoilt, this is an abnormal spoilage.
Reference for “Abnormal Spoilage”
Academic Research on Abnormal Spoilage
Enabling the management accountant to become a business partner: Organizational and verbal analysis toolkit, Kennedy, F. A., & Sorensen, J. E. (2006). Journal of accounting education , 24 (2-3), 149-171. This paper describes the organizational techniques that allow teams to function effectively. It presents a framework for problem-solving that is commonly used in organizations that can be adapted for classroom use and then describes the verbal analysis tools and an illustration of how each one contributes to organizational decision making within the problem-solving framework.
Spoilage, the fourth factor of cost, Kilduff, F. W. (1918). Journal of Accountancy (pre-1986) , 25 (000003), 191. This article examines one of the many results arising from the present war, and it is how numerous firms and corporations are attempting to produce a product which they little or no knowledge about. This lack of knowledge is portrayed in the many profit and loss statements by the small profits or fictitiously large profits where the accounting was incorrect.
Spoilage with a Production Function, Filimon, R., Morton, S., & Soliman, S. (1987). Accounting and Business Research , 17 (68), 337-348. This paper presents an economic analysis to model the determinants of spoilage in the production process and to show normal spoilage can be chosen in a cost minimization program. It also generates an expanded variance analysis of spoilage that provides guidance in the investigation and interpretation of abnormal spoilage.
[PDF] Cos t Competitiveness—the Sustainable Business Strategy, Mukhopadhyay, D. (2013). Management Accountant , 395. This article argues that even though it is an emerging issue, it not correctly understood. It also states that since the subject is prioritized by business, governments and the civil society, key issues arise on the need to clarify how to do it, how to measure and report on it and how to assure sustainability information.
Stocks and work in progress—excluding long-term Contracts, Dodge, R. (1991). In The Concise Guide to Accounting Standards (pp. 43-48). Springer, Boston, MA. This paper deals with separately with the notes for specific matters associated with long-term contracts. It provides information generally related to stocks and work in progress. It also states that a majority of the changes made to SSAP 9 in 1988 were associated with long-term contracts, not short term ones.