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Cost Accounting · Batch Costing

Treatment of Spoilage, Defectives and Set-up Cost in Batch Costing

Updated 10 October 2026 · Fact-checked

In batch costing, normal spoilage and normal defectives are part of the batch cost, net of any sale value. Abnormal ones are charged to the Costing Profit and Loss Account. Rework cost is charged to the batch if normal, otherwise to the P&L. Set-up cost is a batch cost, spread over the units in the batch.

Understand Treatment of Spoilage, Defectives and Other Batch Issues

A batch is a group of identical units produced together. Costs are collected for the whole batch and then divided by the good units to get a unit cost. Things go wrong inside a batch, so you must decide who bears the cost of the loss.

Spoilage means units that fail quality standards and cannot be corrected economically. They are sold as they are, usually at a low price. Defectives are units that fail standards but can be corrected by extra work, which is called rework. The key question is always the same: is the loss normal or abnormal?

Normal loss is expected even with efficient working. Its cost is a cost of making good units, so it is absorbed by the good units of the batch. Abnormal loss comes from avoidable causes such as poor handling or machine faults. It is not a cost of good output, so it goes to the Costing Profit and Loss Account.

The treatment also depends on whether the loss is due to the nature of the batch. If a defect arises because of a particular job's special needs, charge the rework to that batch. If it is a general feature of the process, charge it to factory overhead and absorb it across all batches through the overhead rate.

Set-up cost is incurred once per batch to prepare machines, tools and settings. It does not change with the number of units in the batch. So it is added to the batch cost and divided by the batch quantity. A larger batch means a lower set-up cost per unit.

Key rules to remember

Cost per good unit with normal spoilage
(Total batch cost − Cost of abnormal units − Sale value of normal spoilage) ÷ Good units
Use when spoilage is partly normal. The sale value of normal spoilage reduces the batch cost. Abnormal units are removed at cost, and their sale value is credited against the abnormal loss in Costing P&L.
Abnormal spoilage charged to Costing P&L
Cost of abnormal spoiled units − Their sale value
Cost is taken per unit up to the point of rejection. If spoilage is detected at the end of the batch, use the average cost per unit. Only the net loss goes to Costing P&L. The sale value of abnormal spoilage is credited against the abnormal loss there, while the sale value of normal spoilage reduces the batch cost.
Rework cost, normal and specific to batch
Charged to the batch
Add to batch cost before dividing by good units.
Rework cost, normal and general to the process
Charged to factory overhead
It is then absorbed in all batches through the overhead rate.
Rework cost, abnormal
Charged to Costing Profit and Loss Account
Never loads good output.
Set-up cost per unit
Set-up cost per batch ÷ Units in the batch
Use good units if the question says to spread over good output.

How to solve Treatment of Spoilage, Defectives and Other Batch Issues questions

Use this order for any question on spoilage, defectives or set-up in a batch.

  1. 1List all costs of the batch: material, labour, direct expenses, set-up cost and absorbed overheads.
  2. 2Identify the units that failed. Separate spoiled units (not corrected) from defective units (reworked).
  3. 3Decide whether each loss is normal or abnormal. Use the normal allowance given in the question.
  4. 4Work out the sale value of spoiled or scrap units. Deduct it from the cost that is being charged.
  5. 5Charge normal loss to the batch, or to overheads if the question says it is general to the process. Charge abnormal loss to Costing P&L.
  6. 6Add the rework cost to the batch, to overheads or to Costing P&L, as per the rule in the question.
  7. 7Divide the final batch cost by good units to get the cost per unit. Add profit if a selling price is asked.

Quickest way: Normal in, abnormal out

When to use it: Use for any numerical question where the normal allowance is stated and you need the batch cost or unit cost.

  1. Start with total batch cost including set-up.
  2. Take out the abnormal units at their cost (abnormal units × cost per unit up to the point of rejection, or the average cost per unit if spoilage is detected at the end).
  3. Subtract the sale value of normal spoilage. This reduces the batch cost. Do not deduct the sale value of abnormal units from the batch cost.
  4. Credit the sale value of the abnormal units against their cost, and charge the net loss to Costing P&L.
  5. Add any normal rework cost that belongs to the batch.
  6. Divide what remains by good units.

Common mistakes in Treatment of Spoilage, Defectives and Other Batch Issues

  • Charging abnormal spoilage to the batch.

    Students assume every loss in a batch belongs to that batch.

    Fix: Only normal loss loads the good units. Send abnormal loss, net of sale value, to Costing P&L.

  • Ignoring the sale value of spoiled units.

    The sale value appears as a small detail in the question.

    Fix: Always deduct the sale value from the loss before charging it anywhere.

  • Dividing batch cost by total units instead of good units.

    Habit from simple batch problems with no loss.

    Fix: After removing the spoilage cost, divide by good units only.

  • Treating set-up cost as a per-unit cost that rises with output.

    Students confuse it with variable cost.

    Fix: Set-up cost is fixed per batch. Divide it by the batch size to get the per-unit figure.

  • Mixing up spoilage and defectives.

    Both are units that fail inspection.

    Fix: Spoilage is not corrected and is sold. Defectives are reworked at extra cost.

  • Putting rework of a general defect in the batch cost.

    Students do not read whether the cause is specific to the batch.

    Fix: If the defect is general to the process, charge rework to factory overhead. If specific to the batch, charge the batch.

Worked examples

Example 1

A batch of 1,000 units has a total cost of ₹2,40,000, including set-up cost of ₹20,000. Spoilage is detected at the end of the batch, and set-up cost is spread over all 1,000 units, so each unit is costed at the average cost. Inspection finds 50 units spoiled. Normal spoilage is 3% of the batch, which is 30 units. The spoiled units can be sold at ₹40 each. Find the cost per good unit and the abnormal loss charged to Costing P&L.

Show the solution
  1. Average cost per unit = ₹2,40,000 ÷ 1,000 = ₹240.
  2. Normal spoilage = 30 units. Abnormal spoilage = 50 − 30 = 20 units.
  3. Good units = 1,000 − 50 = 950.
  4. Cost of abnormal units = 20 × ₹240 = ₹4,800. Sale value = 20 × ₹40 = ₹800. Net abnormal loss to Costing P&L = ₹4,800 − ₹800 = ₹4,000.
  5. Sale value of normal spoilage = 30 × ₹40 = ₹1,200. This reduces the batch cost.
  6. Cost to be borne by good units = Total cost − abnormal units at cost − sale value of normal spoilage = ₹2,40,000 − ₹4,800 − ₹1,200 = ₹2,34,000. This includes the cost of the 30 normal spoilage units, less their sale value.
  7. Cost per good unit = ₹2,34,000 ÷ 950 = ₹246.32 (approx).
  8. Check: 950 × ₹240 = ₹2,28,000, plus normal spoilage cost 30 × ₹240 = ₹7,200 less sale value ₹1,200, which is ₹6,000. ₹2,28,000 + ₹6,000 = ₹2,34,000.

Answer: Cost per good unit is about ₹246.32. The abnormal loss of ₹4,000 goes to Costing P&L.

Example 2

A batch of 500 units costs ₹1,50,000 before rework. Of these, 40 units are defective. The defects are normal and specific to this batch. Rework costs ₹30 per defective unit. Set-up cost of ₹10,000 is not included in the ₹1,50,000. Find the total batch cost and cost per unit.

Show the solution
  1. Rework cost = 40 × ₹30 = ₹1,200.
  2. The defects are normal and specific to the batch, so rework is charged to the batch.
  3. Total batch cost = ₹1,50,000 + ₹10,000 set-up + ₹1,200 rework = ₹1,61,200.
  4. After rework all 500 units are good.
  5. Cost per unit = ₹1,61,200 ÷ 500 = ₹322.40.

Answer: Total batch cost is ₹1,61,200 and cost per unit is ₹322.40.

Exam tips

  • Read the question for the words normal, abnormal, specific to the batch and general to the process. They decide where each cost goes.
  • Show the split of the loss: cost, sale value, net loss. Step marks come from this layout.
  • In MCQs, check whether the question asks for cost per good unit or per unit produced. Many wrong options use the wrong divisor.
  • State in one line the account to which each loss is charged. ICMAI expects the treatment, not only the number.

Practice questions from Batch Costing

Treatment of Spoilage, Defectives and Other Batch Issues in other exams

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

Treatment of Spoilage, Defectives and Other Batch Issues: frequently asked questions

What is the difference between spoilage and defectives in batch costing?

Spoilage refers to units that cannot be corrected and are sold at a low price. Defectives can be corrected by extra work called rework. The cost treatment follows from this difference.

How do you treat set-up cost in batch costing?

Set-up cost is incurred once per batch. You add it to the batch cost and divide by the number of units in the batch. A larger batch gives a lower set-up cost per unit.

Where is abnormal spoilage charged?

Abnormal spoilage is charged to the Costing Profit and Loss Account, net of any sale value. It is not loaded on good units because it is avoidable.

Is rework cost always charged to the batch?

No. If the defect is normal and specific to the batch, charge the batch. If it is normal but general to the process, charge factory overhead. If abnormal, charge Costing P&L.