Cost and Management Accounting · Material Cost

Accounting for Material Losses: Waste, Scrap, Spoilage and Defectives

Updated 4 October 2026 · Fact-checked

Material losses are waste, scrap, spoilage and defectives. Normal losses are unavoidable, so their net cost is absorbed by good units or charged to the job or overheads. Abnormal losses are avoidable, so their net cost is written off to the Costing Profit and Loss Account, not to the product.

Understand Accounting for Material Losses: Waste, Scrap, Spoilage, Defectives

Every factory loses some material. Some loss is unavoidable in the process. Some is caused by poor work, bad machines or carelessness. Cost accounting separates the two because the treatment is different.

Waste is the portion of material that has no recovery value. Examples are evaporation, shrinkage, dust and smoke. Scrap is the discarded material that has some small recovery value without further processing, such as turnings, shavings and cuttings. It can be sold or reused.

Spoilage is production that does not meet quality standards and cannot be rectified economically. It is usually disposed of at some disposal value, for example as a lower grade item. Defectives are units that do not meet standards but can be reworked and made good by spending extra cost. The key difference is that spoilage cannot be economically corrected, while defectives can.

Now the normal and abnormal split. Normal loss arises under efficient conditions and is inherent in the process. It is a part of the cost of production. Abnormal loss is above the normal level and arises from avoidable causes. It is not part of the product cost.

Remember one idea: normal loss cost goes into good output, abnormal loss cost goes to the Costing Profit and Loss Account. The disposal or sale value of the lost units is credited against the cost of the loss. Scrap sale value may also be treated in other ways, as the question states.

Key rules to remember

Net cost of normal spoilage: Cost of spoiled units − Disposal value of spoiled units; Spread over good units (or charged to the specific job if caused by its special requirements). If it is general, charge to production overheads.
Net cost of abnormal spoilage: Cost of spoiled units − Disposal value of spoiled units; Write off to the Costing Profit and Loss Account. Do not load it on good units.
Cost per unit with normal loss: Total cost of input ÷ (Input units − Normal loss units); Use when normal loss has nil value. If it has scrap value, deduct that value from the total cost first.
Cost per unit with scrap value of normal loss: (Total cost − Scrap value of normal loss) ÷ (Input units − Normal loss units); Abnormal loss is valued at this same unit cost.
Normal loss of units: Normal loss % × Input units; Read carefully whether the percentage is on input or on output.
Defectives rectification: Rework cost charged to: (a) good units if normal and general, (b) the job if due to the job's special features, (c) Costing Profit and Loss Account if abnormal; Normal rework cost may also go to overheads and be absorbed.

How to solve Accounting for Material Losses: Waste, Scrap, Spoilage, Defectives questions

Use this method for any question on material losses. It keeps normal and abnormal items separate and protects your step marks.

1Identify each item: waste (no value), scrap (small value), spoilage (cannot be reworked), defectives (can be reworked).
2Decide normal or abnormal. Compare actual loss with the normal loss allowed in the question.
3Compute normal loss units, and the value of normal loss (disposal or scrap value, if any).
4Find the cost per good unit: (Total cost − value of normal loss) ÷ (Input − normal loss units).
5Value abnormal loss units at that cost per unit. Deduct their disposal value to get the net abnormal loss.
6Allocate: normal loss absorbed in good output or overheads, abnormal loss to Costing Profit and Loss Account, scrap sale value as per the stated treatment.
7Pass the journal entries or show the account, then state the final answer with a one-line comment.

Quickest way: Normal Absorbed, Abnormal Written Off

When to use it: Use for MCQs and for numerical questions where you must find cost per unit and the abnormal loss quickly.

For MCQs, first check the type: if it can be reworked it is defective, if not it is spoilage, if it has no value it is waste, if small value it is scrap.
Scan for the word normal or abnormal. Normal means cost goes to good units or overheads. Abnormal means Costing Profit and Loss Account.
Compute good units = input − normal loss. Divide net cost by good units. Do not divide by input.
Multiply abnormal units by the same per unit cost, then subtract their disposal value.
In written answers, show a small statement: Total cost, less normal loss value, net cost, good units, rate per unit. Each line earns marks.
Close with the treatment sentence, such as 'Net abnormal loss of ₹X is transferred to the Costing Profit and Loss Account.'

Common mistakes in Accounting for Material Losses: Waste, Scrap, Spoilage, Defectives

Treating spoilage and defectives as the same thing.
Both are below-standard units and the definitions sound alike.
Fix: Ask one question: can it be reworked economically? If yes, it is defective. If no, it is spoilage.
Dividing total cost by input units instead of good units.
Students forget that normal loss units produce nothing sellable as good output.
Fix: Always use input minus normal loss in the denominator. This is how normal loss cost gets absorbed.
Loading abnormal loss on good units.
Students apply the normal loss rule to all loss.
Fix: Abnormal loss is avoidable. Credit the process or job account and debit the Costing Profit and Loss Account.
Forgetting to deduct the scrap or disposal value.
Students stop after computing the cost of the lost units.
Fix: Net loss = cost of lost units − realisable value. Always deduct the sale value before transferring.
Taking normal loss percentage on the wrong base.
Questions say 'of input' or 'of output' and students skim.
Fix: Underline the base in the question. If the percentage is on output, work out units from the output figure.
Valuing abnormal loss at scrap value instead of at cost.
Students confuse the amount charged out with the amount recovered.
Fix: Abnormal loss account is debited at full cost per unit. Scrap value is credited when the units are sold or received.

Worked examples

Example 1

A job uses 1,000 kg of raw material costing ₹50,000 in total. Normal loss is 10% of input, and it has no value. Actual output is 850 kg of good product. Find the cost per kg of good output and the value of abnormal loss.

Show the solution

Normal loss = 10% × 1,000 = 100 kg.
Expected good output = 1,000 − 100 = 900 kg.
Cost per kg = ₹50,000 ÷ 900 = ₹55.56 approximately.
Actual good output is 850 kg, so abnormal loss = 900 − 850 = 50 kg.
Value of abnormal loss = 50 × ₹55.56 = ₹2,778 approximately (exactly ₹2,777.78).
Cost of good output = 850 × ₹55.56 = ₹47,222 approximately (exactly ₹47,222.22).
Check: ₹47,222.22 + ₹2,777.78 = ₹50,000.

Answer: Cost per kg of good output is about ₹55.56. Abnormal loss is 50 kg valued at about ₹2,778, which is written off to the Costing Profit and Loss Account.

Example 2

A firm manufactures 1,000 units of a product at a total cost of ₹1,00,000. Of these, 100 units are spoiled and can be sold at ₹30 each. Normal spoilage is 60 units. Find the net cost of normal spoilage and the net abnormal spoilage loss, and the cost per good unit.

Show the solution

Cost per unit produced = ₹1,00,000 ÷ 1,000 = ₹100. Here the total cost covers all 1,000 units produced, including the spoiled ones, so ₹100 is the cost of each unit produced. Spoiled units, normal and abnormal, are valued at this ₹100 per unit.
Normal spoilage = 60 units. Cost = 60 × ₹100 = ₹6,000. Disposal value = 60 × ₹30 = ₹1,800. Net normal loss = ₹4,200.
Abnormal spoilage = 100 − 60 = 40 units. Cost = 40 × ₹100 = ₹4,000. Disposal value = 40 × ₹30 = ₹1,200. Net abnormal loss = ₹2,800.
Good units = 1,000 − 100 = 900 units.
Cost of good units before normal loss absorption = 900 × ₹100 = ₹90,000.
Add net normal loss ₹4,200 to get ₹94,200. Cost per good unit = ₹94,200 ÷ 900 = ₹104.67 approximately.
Check: ₹94,200 + ₹2,800 + ₹3,000 (sale of 100 units at ₹30) = ₹1,00,000.

Answer: Net normal spoilage loss is ₹4,200, absorbed by good units, giving about ₹104.67 per good unit. Net abnormal spoilage loss is ₹2,800, written off to the Costing Profit and Loss Account.

Exam tips

Write the definition in one line first (for example, spoilage cannot be reworked), then do the numbers. Theory questions often ask for the difference between spoilage and defectives.
In numericals, always show normal loss units, good units and cost per unit as separate lines. Step marks come from these lines.
Read whether the loss percentage is on input or output, and whether normal loss has scrap value. These two details change the answer.
For theory, mention the three treatments of normal loss: absorbed by good units, charged to the job if caused by it, or moved to overheads if general.
In MCQs, any option that charges abnormal loss to the product cost is wrong. Eliminate it first.

Practice questions from Material Cost

Accounting for Material Losses: Waste, Scrap, Spoilage, Defectives in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateAccounting for Material Losses and Wastage

Accounting for Material Losses: Waste, Scrap, Spoilage, Defectives: frequently asked questions

What is the difference between spoilage and defectives?

Spoilage is production that fails quality standards and cannot be corrected economically, so it is disposed of, usually at some disposal value. Defectives fail standards too, but they can be reworked at extra cost and made good. Rework cost is the main extra item in defectives.

How is scrap treated in cost accounting?

Scrap has small recovery value. Its sale value can be credited to the Costing Profit and Loss Account, deducted from the material or job cost, or credited to overheads. The method depends on whether the scrap is normal, specific to a job, or small and general. Follow the treatment given in the question.

What is the difference between normal loss and abnormal loss?

Normal loss is unavoidable under efficient working and its net cost is absorbed in the cost of good output. Abnormal loss is above the normal level and comes from avoidable causes. Its net cost is written off to the Costing Profit and Loss Account.

How do I value abnormal loss units?

In process-loss questions, value them at the same cost per unit as good units, which is net cost divided by expected good output. If the question gives the total cost of all units produced, including spoiled ones, value them at that cost per unit produced. Then deduct any disposal value. The balance is the net abnormal loss to be written off.