Abnormal spoilage definition
/What is Abnormal Spoilage?
Abnormal spoilage is that amount of scrap generated by a production process that exceeds the normal, expected level. The cost of this excess spoilage is charged to expense as incurred. It is never capitalized into inventory. A standard management function is to continually investigate and remediate the causes of abnormal spoilage, thereby reducing costs and increasing profits.
Causes of Abnormal Spoilage
Abnormal spoilage has many causes, including the following:
Equipment failure. Malfunctioning machinery can produce defective products.
Human error. There are several types of human error that can cause abnormal spoilage, including improper inventory handling, lack of production training, and measurement miscalculations.
Substandard materials. The use of low-quality or defective raw materials can cause abnormal spoilage, as can the improper storage of raw materials.
Inefficient processes. Inefficient or poorly designed production methods can lead to excess waste.
External factors. Natural disasters or environmental conditions can cause abnormal spoilage, as can power outages.
Poor inventory management. Over-ordering can lead to the spoilage of perishable goods. In addition, improper storage conditions can cause spoilage.
Quality control issues. Inadequate quality checks may allow defects to go unnoticed until later stages of production.
Operational negligence. Failing to follow safety or operational protocols can cause abnormal spoilage.
Engineering defects. Faulty product designs can make products prone to damage.
Transportation and handling issues. Damage during shipping or delivery due to improper packaging or handling can cause abnormal spoilage, as can mishandling during internal transfers within a facility.
Identifying and addressing the root causes of abnormal spoilage can improve efficiency, reduce waste, and lower costs for businesses.
Example of Abnormal Spoilage
As an example of abnormal spoilage, a production process has an expected spoilage rate of 5%. A production run valued at $1,000,000 is initiated, for which the standard scrap cost is expected to be $50,000. The actual scrap amount turns out to be $58,000, so the abnormal scrap associated with the production run is $8,000 (calculated as $58,000 actual scrap minus $50,000 standard scrap).