Page 265 - DCOM202_COST_ACCOUNTING_I

Unit 13: Normal Wastage, Abnormal Loss and Abnormal Gain

quantity of output. This percentage of normal wastage of a particular process is determined on Notes
the basis of the experience of previous years.
!

Caution In the case of normal wastage, all production expenses incurred are charged to
the good units of output. Thus, normal wastage becomes the part of cost of production
and increases the cost of output. If the normal wastage takes place at the beginning of
the process or during it, it is supposed that the lost units were never introduced in the
process and thus normal wastage is charged to the units completed as well as to the work
in process.

13.2 Abnormal Loss

Sometimes the percentage of wastage or loss may exceed the determined standard percentage
of normal wastage. Any wastage exceeding the normal percentage is termed abnormal loss or
wastage. Such loss or wastage is not a part of production. It is credited out of the concerned
process account as a loss to the costing profit and loss account. The value of abnormal wastage is
calculated with the help of the following formula:
Normalcos t
= × Unitsofabnormalloss
Normaloutput

13.3 Abnormal Gain or Abnormal Effectives

If the quantum of wastage is less than the predetermined percentage of normal wastage, the
difference is called as abnormal gain or effectives. This does not effect the cost of production.

Did u know? The value of the abnormal effectives is debited to the concerned process
account and credited to the abnormal effectives account.

This value is calculated at the rate at which the effective output would have been valued if normal
wastage had taken place according to expectation. This formula for calculation of the value of
abnormal gain or effectives is:

Normal cos tofnormalproduction

= × Unitsofabnormaleffectives
Unitsofnormalproduction

n

At the end of the accounting year, the abnormal effectives account is transferred to the credit side
of profit and loss account.
Example: The XYZ manufacturing company’s product passes through two distinct
processes I and II and then to finished stock. It is known from past experience that wastage occurs
in the processes as under:
In process I 5% of the units entering the process.
In process II 10% of the units entering the process.
The scrap value of the wastage in process I is ` 8 per 100 units and process II is ` 10 per 100
units.

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