Spoilage definition
/What is Spoilage?
Spoilage is waste or scrap arising from the production process. It may also be caused by improper materials handling and storage, which render goods unusable. The term is most commonly applied to raw materials that have a short life span, such as food used in the restaurant industry.
Normal Spoilage vs. Abnormal Spoilage
Normal spoilage is the standard amount of waste or scrap that is caused by production, and which is difficult to avoid. Abnormal spoilage exceeds the normal or expected rate of spoilage. It may be caused by low-quality raw materials, poorly-trained employees, or perhaps machinery that has not been properly set up. For example, an overcooked meal cannot be served to a customer, and so is classified as abnormal spoilage.
Example of Spoilage
Stamping parts out of a sheet of metal will inevitably result in some of the metal being rendered unusable. The amount of spoilage can be reduced by altering the methodology used to position parts to be stamped from the sheet of metal. Another example of spoilage is when vegetables are kept in storage past their normal usage date; once this date arrives, the vegetables must be thrown out, since there is no alternative use for them.
Accounting for Spoilage
In accounting, normal spoilage is included in the standard cost of goods, while abnormal spoilage is charged to expense as incurred. This means that the cost of normal spoilage may initially be recorded as an asset and then charged to expense in a later period.