Cost and Management Accounting · Process & Operation Costing

Process Loss, Wastage, Scrap and Abnormal Items

Updated 4 October 2026 · Fact-checked

Process loss is the loss of units during a process. Normal loss is expected, so good units bear its cost, net of scrap value. Abnormal loss and abnormal gain are valued at the same cost per unit as good output and shown in separate accounts. Cost per unit = (total cost − normal scrap value) ÷ (input − normal loss units).

Understand Process Loss, Wastage, Scrap and Abnormal Items

In a process, not every unit you put in comes out as good output. Some is lost through evaporation, shrinkage, spillage or rejection. This is process loss. Some losses are waste (no value) and some leave scrap (a small sale value).

A normal loss is the loss you expect even with efficient working, usually given as a percentage of input. It is unavoidable, so its cost is part of the cost of good units. The only adjustment is the scrap value of normal loss, which is credited to the process account. This lowers the cost of good output.

An abnormal loss is the loss above normal loss. It comes from avoidable causes such as poor handling or machine faults. It should not burden good units. So you value it at the same cost per unit as good output, take it out of the process account, and charge its net cost (after any scrap sale) to the Costing Profit and Loss Account.

An abnormal gain is when actual output is more than expected output, so actual loss is less than normal loss. You debit it to the process account at the same cost per unit as good units. Its net amount is credited to Costing Profit and Loss Account, after adjusting the scrap value that was not actually realised.

Keep one idea in mind: normal loss is spread over good units, abnormal items are kept apart so that the cost per unit stays fair and management can see inefficiency.

Key rules to remember

Expected (normal) output: Input units − Normal loss units; Normal loss is usually a percentage of input units, unless the question says otherwise. Read the base carefully.
Cost per unit of good output: (Total process cost − Scrap value of normal loss) ÷ (Input units − Normal loss units); Total cost includes opening WIP, materials, labour and overheads of the process. Use this when there is no closing WIP, or after equivalent units are worked out.
Abnormal loss units: Normal output expected − Actual output (when actual is less); Equivalently, actual loss units − normal loss units.
Value of abnormal loss: Abnormal loss units × Cost per unit of good output; Credit the process account, debit Abnormal Loss account. Scrap realised on these units is credited to Abnormal Loss account. Valuing abnormal loss and abnormal gain at the cost per unit of good output assumes the loss is recognised at the end of the process. If it is recognised at an earlier stage, use equivalent units instead.
Net abnormal loss to Costing P&L: Abnormal loss units × cost per unit − Scrap value realised on them; This is a loss, debited to Costing Profit and Loss Account.
Abnormal gain units: Actual output − Expected output (when actual is more); Equivalently, normal loss units − actual loss units.
Value of abnormal gain: Abnormal gain units × Cost per unit of good output; Debit the process account, credit Abnormal Gain account. As with abnormal loss, this assumes the gain is recognised at the end of the process; otherwise use equivalent units.
Net abnormal gain to Costing P&L: Abnormal gain units × (Cost per unit − Scrap rate per unit); The scrap value of these units was never received, so it is adjusted through Normal Loss account.
Normal loss account: Dr: Normal loss units × scrap rate (from the process account). Cr: Actual scrap sales of the normal loss units; and, if there is abnormal gain, the scrap value of the gain units (gain units × scrap rate).; This is a clearing account in the ledger. The Abnormal Gain account is debited with the same scrap value of the gain units that is credited here. So the Normal Loss account closes to nil. In the case of abnormal loss, the scrap on the abnormal loss units is credited to the Abnormal Loss account, not to the Normal Loss account.

How to solve Process Loss, Wastage, Scrap and Abnormal Items questions

Use the same sequence for every question on normal loss, abnormal loss, abnormal gain and scrap. Work in units first, then in rupees.

1Write the units statement: input, normal loss (as units), expected output, actual output.
2Compare actual output with expected output. If actual is less, the difference is abnormal loss. If actual is more, the difference is abnormal gain.
3Add all costs of the process (materials, labour, overheads, opening WIP and any transfer from the previous process). Subtract the scrap value of normal loss units only.
4Divide by expected output units to get cost per unit. Round only if the question says so.
5Value good output, abnormal loss or abnormal gain at that same cost per unit.
6Draw the process account. Debit side: input, costs, and abnormal gain if any. Credit side: normal loss (units and scrap value), abnormal loss, and output transferred.
7Prepare the Abnormal Loss or Abnormal Gain account and the Normal Loss account if asked. Credit actual scrap sales against abnormal loss. Transfer the net balance to Costing Profit and Loss Account.
8Check that both sides of the process account total the same, and that units balance.

Quickest way: Units first, rate once, then fill the account

When to use it: Use this for any process account question with normal loss and an actual output figure, in the written answer and in 1 or 2 mark MCQs.

For MCQs, find expected output (input − normal loss) and the rate (net cost ÷ expected output). Then multiply. Most options differ because of a missed scrap deduction or wrong divisor, so check those two things first.
Remember that abnormal loss and abnormal gain use the same rate as good units. If an option values abnormal loss at scrap rate, eliminate it.
Check direction: abnormal loss is credited in the process account. Abnormal gain is debited.
In the written answer, show the units statement and the cost per unit calculation as separate lines with labels. Examiners award step marks for each.
Draw the process account in T-form with Units, Rate or Amount columns. Total both sides to prove it balances. Then add short abnormal account workings.

Common mistakes in Process Loss, Wastage, Scrap and Abnormal Items

Dividing total cost by input units instead of expected output units.
Students forget that normal loss units produce nothing, so good units must carry that cost.
Fix: Always write the denominator as input − normal loss units before dividing.
Forgetting to deduct the scrap value of normal loss from total cost.
Scrap value appears as a side detail and gets treated as income outside the process.
Fix: Credit normal loss scrap to the process account and subtract it in the cost per unit formula.
Valuing abnormal loss or abnormal gain at scrap rate.
Students confuse the value of the units with what they would sell for.
Fix: Value both at cost per unit of good output. Scrap value is only an adjustment, credited to the Abnormal Loss account when units are actually sold.
Applying the normal loss percentage to the wrong base, such as output or input after adding a previous process transfer.
The wording 'normal loss 10%' is read without checking whether it refers to input.
Fix: Unless stated otherwise, take it on input units of the process, including units received from the previous process.
Treating abnormal loss as part of the cost of good units.
Students include the loss in the total and never separate it.
Fix: Remove it from the process account at the full rate and transfer the net amount to Costing Profit and Loss Account.
Wrong treatment of normal loss scrap when there is abnormal gain.
Students credit the full normal loss scrap sale in the Normal Loss account even though fewer units were lost.
Fix: Actual scrap sale is only for actual loss units. Credit the Normal Loss account with the scrap value of the abnormal gain units (gain units × scrap rate) and debit the Abnormal Gain account with the same amount, so the Normal Loss account closes to nil.

Worked examples

Example 1

Process A: 2,000 units are put in. Materials cost ₹1,20,000, labour ₹36,000 and overheads ₹26,000. Normal loss is 10% of input and its scrap value is ₹10 per unit. Actual output is 1,700 units. The abnormal loss units are sold at ₹10 each. Prepare the Process A account, Abnormal Loss account and find the net loss.

Show the solution

Normal loss = 10% × 2,000 = 200 units. Expected output = 2,000 − 200 = 1,800 units.
Actual output = 1,700 units. Abnormal loss = 1,800 − 1,700 = 100 units.
Total cost = 1,20,000 + 36,000 + 26,000 = ₹1,82,000.
Scrap value of normal loss = 200 × ₹10 = ₹2,000. Net cost = 1,82,000 − 2,000 = ₹1,80,000.
Cost per unit = 1,80,000 ÷ 1,800 = ₹100.
Good output = 1,700 × 100 = ₹1,70,000. Abnormal loss = 100 × 100 = ₹10,000.
Process A account. Debit: Materials 2,000 units ₹1,20,000; Labour ₹36,000; Overheads ₹26,000; total ₹1,82,000. Credit: Normal loss 200 units ₹2,000; Abnormal loss 100 units ₹10,000; Output transferred 1,700 units ₹1,70,000; total ₹1,82,000.
Abnormal Loss account. Debit: Process A ₹10,000. Credit: Cash from sale of scrap (100 × 10) ₹1,000; Costing P&L (balancing figure) ₹9,000.

Answer: Cost per unit is ₹100. Output transferred is ₹1,70,000. Abnormal loss is ₹10,000, and the net abnormal loss of ₹9,000 is transferred to Costing Profit and Loss Account.

Example 2

Process B: 1,000 units are put in. Materials cost ₹40,000, labour ₹9,000 and overheads ₹5,500. Normal loss is 10% of input and scrap sells at ₹5 per unit. Actual output is 950 units. Prepare the Process B account, Normal Loss account and Abnormal Gain account.

Show the solution

Normal loss = 10% × 1,000 = 100 units. Expected output = 900 units.
Actual output = 950 units. Abnormal gain = 950 − 900 = 50 units. Actual loss = 1,000 − 950 = 50 units.
Total cost = 40,000 + 9,000 + 5,500 = ₹54,500.
Scrap value of normal loss = 100 × ₹5 = ₹500. Net cost = 54,500 − 500 = ₹54,000.
Cost per unit = 54,000 ÷ 900 = ₹60.
Abnormal gain value = 50 × 60 = ₹3,000. Output value = 950 × 60 = ₹57,000.
Process B account. Debit: Materials ₹40,000; Labour ₹9,000; Overheads ₹5,500; Abnormal gain 50 units ₹3,000; total ₹57,500. Credit: Normal loss 100 units ₹500; Output transferred 950 units ₹57,000; total ₹57,500.
Actual scrap sale = 50 units × ₹5 = ₹250. Normal Loss account. Debit: Process B ₹500. Credit: Cash ₹250; Abnormal Gain account (50 × 5) ₹250.
Abnormal Gain account. Credit: Process B ₹3,000. Debit: Normal Loss account ₹250; Costing P&L (balancing figure) ₹2,750.

Answer: Cost per unit is ₹60. Output transferred is ₹57,000. The abnormal gain is ₹3,000, and the net abnormal gain of ₹2,750 is credited to Costing Profit and Loss Account.

Exam tips

Start every answer with the units statement. Even if the rupee figures go wrong, you still earn marks for correct units, normal loss and abnormal item.
Read whether normal loss is a percentage of input, of output, or of units passing through a stage. This changes the denominator and the whole answer.
Show the Normal Loss, Abnormal Loss or Abnormal Gain accounts when the question asks to 'prepare accounts'. A process account alone will not earn full marks.
In MCQs, test each option for the three usual errors: scrap not deducted, wrong divisor, abnormal item valued at scrap rate.
When there is opening or closing WIP, first work out equivalent units. The loss treatment in this page then applies to the cost per equivalent unit.

Practice questions from Process & Operation Costing

Process Loss, Wastage, Scrap and Abnormal Items in other exams

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

Process Loss, Wastage, Scrap and Abnormal Items: frequently asked questions

What is the difference between normal loss and abnormal loss?

Normal loss is the expected, unavoidable loss, and its cost is borne by good units after deducting scrap value. Abnormal loss is the excess over normal loss, caused by avoidable factors. It is valued at the cost per unit of good output and charged to Costing Profit and Loss Account.

How do you treat scrap in process costing?

The scrap value of normal loss is credited to the process account, which reduces the cost of good units. Scrap from abnormal loss is credited to the Abnormal Loss account when sold. Scrap from abnormal gain units is never received, so it is adjusted through the Normal Loss account.

Why is abnormal gain debited in the process account?

The process produced more than expected, so extra units are added to output at the normal cost per unit. Debiting the process account brings those units into the account, and the Abnormal Gain account is credited. The net gain then goes to Costing Profit and Loss Account.

Is the cost of abnormal loss included in the cost of good units?

No. Abnormal loss is taken out of the process account at the same rate as good units. This keeps the cost per unit of good output free from avoidable inefficiency, and the net loss is written off to Costing Profit and Loss Account.