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Cost Accounting · Job Costing

Treatment of Spoilage, Defectives and Scrap in Job Costing

Updated 10 October 2026 · Fact-checked

In job costing, normal spoilage specific to a job is charged to that job, while normal spoilage common to all jobs is charged to factory overhead. Abnormal spoilage goes to the Costing Profit and Loss Account. Defectives are reworked, with the rework cost treated the same way. Scrap sale value reduces the job or overhead. Incomplete jobs are valued at cost to date.

Understand Work in Progress, Spoilage, Defectives and Scrap in Jobs

A job is made to a customer's order, so every loss in production must be traced to a job or to all jobs. The question is always the same: who caused the loss, and is it normal or abnormal?

Spoilage is output that is damaged beyond repair and cannot be turned into a good product by further work. It is sold as scrap or disposed of at a low value. Defectives are units that do not meet the standard but can be corrected by extra work (rework). Scrap is the residue of material with small recovery value, such as turnings or cuttings.

Spoilage and defectives are normal if they are expected in the process even under efficient conditions. They are abnormal if they arise from avoidable causes such as carelessness, poor tooling or machine breakdown. Normal losses are part of the cost of good output. Abnormal losses are not, because they would distort the cost of the job and so they are written off to the Costing Profit and Loss Account.

The second decision is about where a normal loss goes. If the loss arises because of the special specification of one job, charge it to that job. If it is a general feature of the factory, not tied to one job, charge it to factory overhead so that it is spread over all jobs through the overhead rate. If the customer's specification makes a defect likely, the job bears it. Rework follows the same logic.

Work in progress (WIP) is a job not complete at the period end. It is valued at cost to date: material, labour, direct expenses and absorbed overhead up to that stage. Do not include selling cost or profit. Completed jobs not delivered are finished goods. Jobs delivered are charged to cost of sales.

Key rules to remember

Normal spoilage, specific to a job
Net loss of normal spoilage = Cost of spoiled units − Sale value of spoiled units
This loss stays in the job, so the good units bear the total job cost less the scrap value.
Normal spoilage, common to all jobs
Debit Stores/Cash with the disposal value; Debit Factory Overhead Control with the net loss (Cost of spoiled units − Disposal value); Credit Job/WIP with the cost of the spoiled units
The net loss enters the overhead rate and is spread over all jobs.
Abnormal spoilage
Debit Stores/Cash with the disposal value; Debit Costing P&L A/c with the net loss (Cost of spoiled units − Disposal value); Credit Job/WIP with the cost of the spoiled units
The loss is removed from the job cost in full. The disposal value goes to stores or cash.
Defectives (rework)
Rework cost charged to the job if specific; to factory overhead if common; to Costing P&L A/c if abnormal
Rework cost = extra material + labour + overhead used to correct the units.
Scrap
Scrap value credited to the job or to factory overhead, as the nature of the scrap decides
Scrap of a specific job reduces that job's cost. General scrap is credited to overhead or to Costing P&L A/c.
Cost per good unit with normal spoilage
Cost per good unit = (Total job cost − Scrap value of normal spoilage) ÷ Good units
Use only when the normal spoilage belongs to the job.
Value of WIP
WIP = Material + Labour + Direct expenses + Absorbed factory overhead to date
Exclude selling and distribution cost and profit.

How to solve Work in Progress, Spoilage, Defectives and Scrap in Jobs questions

Use this order for any question on spoilage, defectives, scrap or WIP in jobs.

  1. 1Find the total cost incurred on the job, split into material, labour, direct expenses and overhead.
  2. 2Decide whether each loss is spoilage, defective (reworkable) or scrap.
  3. 3Decide whether it is normal or abnormal. Look for words such as 'inherent', 'usual' (normal) or 'due to negligence', 'machine failure' (abnormal).
  4. 4For normal loss, decide whether it is specific to the job or common to all jobs. A special specification or customer requirement means job-specific.
  5. 5Compute the net loss: cost of the lost units minus the realisable scrap value, plus rework cost for defectives.
  6. 6Charge the net loss: job (specific normal), factory overhead (common normal) or Costing P&L A/c (abnormal).
  7. 7Recompute the job cost and cost per good unit. For incomplete jobs, take cost to date as WIP.
  8. 8Show clear journal entries or a job cost sheet, and state the treatment in one line.

Quickest way: Three-question shortcut

When to use it: Use for MCQs and for the first reading of a written question when time is short.

  1. Ask: normal or abnormal? Abnormal always goes to Costing P&L A/c at net cost.
  2. If normal, ask: specific to the job or common? Specific goes to the job, common goes to factory overhead.
  3. Net everything: cost of lost or reworked units minus sale value.
  4. Divide the job's total cost by good units to get unit cost, or add the net loss to the job total.
  5. For WIP, add only production costs to date. Never add profit or selling cost.

Common mistakes in Work in Progress, Spoilage, Defectives and Scrap in Jobs

  • Charging abnormal spoilage to the job.

    Students treat all spoilage as a cost of production.

    Fix: Abnormal loss is always written off to the Costing P&L A/c. Only normal loss enters job or overhead cost.

  • Ignoring the sale value of spoiled units.

    Students charge the full cost of spoiled units.

    Fix: Always charge the net loss: cost of spoiled units minus scrap value.

  • Putting job-specific normal spoilage into overheads.

    Students do not read the word 'specific' or the customer's special specification.

    Fix: If the question says the loss is due to the nature of that job, charge the job. Use overhead only when it is common to all jobs.

  • Treating defectives as spoilage.

    Both words describe faulty output.

    Fix: Spoilage cannot be corrected economically. Defectives can be corrected, so cost the rework, not the whole unit.

  • Adding profit or selling expenses to WIP.

    Students confuse WIP with sales value.

    Fix: Value WIP at factory cost to date only.

  • Using total units instead of good units when finding unit cost.

    Students forget that the lost units give no sales.

    Fix: Divide total net cost by good units delivered.

Worked examples

Example 1

Job 101 was an order for 500 units. Costs: material ₹60,000, labour ₹40,000, factory overhead absorbed ₹20,000. During manufacture, 20 units were spoiled because of the special specification of this job, which makes such spoilage normal. The spoiled units can be sold for ₹1,000 in total. Find the net cost of the good output and the cost per good unit.

Show the solution
  1. Total cost of job = 60,000 + 40,000 + 20,000 = ₹1,20,000. This covers all 500 units, including the 20 spoiled ones.
  2. The spoilage is normal and specific to the job, so the loss stays in the job and the good units bear it.
  3. Scrap value of spoiled units = ₹1,000. This is recovered, so it reduces the cost borne by the good units.
  4. Net cost of good output = 1,20,000 − 1,000 = ₹1,19,000.
  5. Good units = 500 − 20 = 480.
  6. Cost per good unit = 1,19,000 ÷ 480 = ₹247.92 (approximately).

Answer: The net cost of good output is ₹1,19,000 (job cost ₹1,20,000 less scrap recovery ₹1,000). Cost per good unit is about ₹247.92. The net loss of spoilage is the cost of the 20 spoiled units less ₹1,000, and it stays in the job and is borne by the 480 good units.

Example 2

In a factory, Job 205 for 200 units had a cost to date of ₹80,000 up to the point of inspection. 10 units were found to be defective. They were reworked at an extra cost of ₹1,500 (material ₹500, labour ₹700, overhead ₹300). Part A: the defect is normal and common to all jobs. Part B: the defect arose from a worker's negligence. Show the treatment of the rework cost in each case.

Show the solution
  1. Rework cost = 500 + 700 + 300 = ₹1,500.
  2. Part A: the defect is normal and common to all jobs, so the cost is not charged to Job 205.
  3. Part A entry: Debit Factory Overhead Control ₹1,500; Credit Stores ₹500, Wages Control ₹700, Overhead absorbed ₹300.
  4. The cost is spread over all jobs through the overhead rate. Job 205 stays at ₹80,000 plus its normal overhead.
  5. Part B: the defect is abnormal because it arose from negligence.
  6. Part B entry: Debit Costing P&L A/c ₹1,500; Credit Stores ₹500, Wages Control ₹700, Overhead absorbed ₹300.
  7. Job 205 cost remains ₹80,000, excluding the rework.

Answer: Part A: ₹1,500 goes to factory overhead and is spread over all jobs. Part B: ₹1,500 is written off to Costing P&L A/c. In both cases Job 205 is not charged with the rework.

Exam tips

  • Underline words like 'inherent', 'normal', 'negligence', 'specific to the job' and 'all jobs'. They decide the treatment.
  • In written answers, show the journal entry and one line of reason. Step marks go to the correct debit and credit.
  • In MCQs, check whether the question asks for the cost of the job, the cost per good unit or the overhead rate. The same data gives different answers.
  • For WIP, list each cost element to date and total them. Do not add profit.
  • If scrap sale value is given, always use it. Net loss is what the examiner tests.

Practice questions from Job Costing

Work in Progress, Spoilage, Defectives and Scrap in Jobs in other exams

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

Work in Progress, Spoilage, Defectives and Scrap in Jobs: frequently asked questions

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

Spoilage is output damaged beyond repair and sold as scrap. Defectives can be corrected by rework. For spoilage you charge the net loss after scrap value. For defectives you charge the rework cost.

When is spoilage charged to the job and when to overhead?

If the spoilage is normal and arises because of the special nature or specification of a job, it is charged to that job. If it is normal and common to all jobs, it is charged to factory overhead and spread over all jobs.

How is abnormal spoilage treated in job costing?

It is removed from the job cost and written off to the Costing Profit and Loss Account at the cost of the spoiled units less their disposal value.

How is work in progress valued in job costing?

It is valued at the cost incurred to date on the incomplete job: materials, labour, direct expenses and absorbed factory overhead. Selling cost and profit are excluded.