These factors are avoidable or controllable e.g., fire, theft, careless in handling, etc. (iii) If the defective production is due to abnormal reasons, the rectification cost is transferred to Costing Profit and Loss Account. The value of such type of wastage is not added to the cost of production but is transferred to Costing Profit and Loss Account so that a meaningful comparison of cost of production of different periods could be made.
Control of Wastage, Scrap, Defectives and Spoilage:
(a) Normal spoilage – It is the spoilage which is the inherent result of the process and therefore uncontrollable in the short run. (iii) Scrap involves loss of materials only while spoilage involves besides loss of materials loss of labour and manufacturing overheads also. The only difference is that spoilage can be rectified but defectives can be rectified by the help of additional material, labour and overheads.
- The main reason for this is the larger energy losses that are involved when converting biomass into liquid or gaseous forms.
- The Curie temperature of most ferromagnetic materials lies between a few hundred to a thousand degrees Celsius, with that of iron being 770°C [29].
- Material absorption arises due to the presence of several impurities inside the core medium.
Material Losses in Cost Accounting – With Specimens of Reports
The maximum energy products of NdFeB PMs have the highest value, followed by alnico, samarium cobalt (SmCo), and ferrites; these can also be obtained from Fig. Thus, the cost of normal waste is recovered from the good output because it is a principle of costing that all normal expenses which are necessarily to be incurred should be included in the cost of production. Wastage, scrap, defectives and spoilage should be standardised by following standard costing system.
Material Losses: Waste, Scrap, Defectives and Spoilage
As waste has practically no value, its treatment in costing is relatively simple. The normal process loss is recorded only in terms of quantity. Waste is defined as discarded substances having no values. Such waste may arise due to the inherent nature of materials, chemical reaction, evaporation, drying, sublimation of goods etc. Waste can also be in the form of smoke, gas, slag or dust which arises in the course of a manufacturing process. This quantification procedure requires a cost coefficient ρj to convert in economic terms the material losses recorded at each operation unit j.
More Definitions of Material Losses
Materials losses may arise in the form of waste, scrap, spoilage or defectives. Percentage of standard loss should be determined in advance and the actual quantity of waste should be compared with the standard quantity of waste. Excess wastage should be reported to the management by preparing a report on waste so that corrective action may be taken by the management. The sale value of scrap is credited to the job or process concerned from which the scrap has arisen. This method is followed when identification of scrap with specific jobs or processes is easy.
As in the case of other losses, defectives are controlled by accurate and periodical reports. If actuals are more than the standards remedial action is taken to control it. Spoilage is controlled through proper reporting about the extent of spoilage. Actual spoilage is compared with standard and variance is recorded. If the actual spoilage is more than the standard, suitable action is suggested to control it. Scrap is controlled by fixation of standards for scrap, fixation of department wise responsibilities for scrap, etc.
The method has an advantage of identifying scarp with each operation, process or job. Abnormal defectives arises due to the abnormal factors, they are transferred to costing P/L A/C. Abnormal Spoilage – It arises due to gross profit definition causes which are not inherent in production. So it is controllable though unexpected and it is charged to costing P/L A/C. The costing rule is that the loss on account of normal wastage will be borne by the good units.
This method is, however, not effective in controlling scrap arising in different processes, jobs or orders. Hence, it is necessary to make maximum utilisation of material, and keep wastage and scrap as low as possible. Although scrap may realise a nominal amount, the amount so realised will be much less than the cost of materials.