Cost Accounting · Process Costing

Normal Loss, Abnormal Loss and Abnormal Gain in Process Costing

Updated 10 October 2026 · Fact-checked

Normal loss is the expected, unavoidable loss in a process. Its cost is absorbed by good units, and any scrap value is credited to the process account. Abnormal loss and abnormal gain are valued at the same rate per unit as good output, then moved to separate accounts and finally to Costing Profit and Loss.

Understand Normal Loss, Abnormal Loss and Abnormal Gain

Most processes lose some units. Material evaporates, shrinks or is cut away. Costing must decide who bears the cost of those lost units.

Normal loss is the loss you expect under normal operating conditions. It is unavoidable and is usually given as a percentage of input. It is not a separate cost. Its cost is spread over the good units, so the cost per good unit rises. If the lost units can be sold as scrap, the scrap value is credited to the process account and reduces the cost to be spread.

Abnormal loss is the part of actual loss that exceeds normal loss. It is avoidable and points to inefficiency. It is valued at the same cost per unit as good output. It is credited to the process account and debited to an Abnormal Loss Account. Any scrap sale on abnormal loss units is credited to that account. The balance is written off to Costing Profit and Loss Account. It must not burden good units.

Abnormal gain arises when actual loss is less than normal loss. You got more output than expected. It is valued at the same rate as normal output. It is debited to the process account. The Abnormal Gain Account is credited with this process value of the extra units. It is debited with the scrap value that was not realised on those units, and this debit goes to the Normal Loss Account (scrap foregone). The balance of the Abnormal Gain Account is transferred to Costing Profit and Loss Account as a gain.

The key idea is that the cost per unit is always found on expected good output, which is input minus normal loss. Only then do you compare actual output and see whether there is an abnormal loss or gain.

Key rules to remember

Normal loss units: Normal loss units = Normal loss % × Input units; Apply the percentage to input unless the question says otherwise, for example to good output. Read the wording carefully.
Cost per unit: Cost per unit = (Total process cost − Scrap value of normal loss) ÷ (Input units − Normal loss units); Total process cost includes opening WIP, materials, labour and overheads. The denominator is expected good output.
Abnormal loss units: Abnormal loss units = Actual loss units − Normal loss units; Applies when actual loss is more than normal loss. Actual loss = Input − Actual output (with no WIP).
Abnormal gain units: Abnormal gain units = Normal loss units − Actual loss units; Applies when actual loss is less than normal loss.
Value of abnormal loss or gain: Value = Abnormal units × Cost per unit; The same rate as good output. Scrap is not deducted in this rate.
Net abnormal loss: Net abnormal loss = Abnormal loss units × (Cost per unit − Scrap value per unit); Transferred to Costing Profit and Loss Account as a loss.
Net abnormal gain: Net abnormal gain = Abnormal gain units × (Cost per unit − Scrap value per unit); Transferred to Costing Profit and Loss Account as a gain.

How to solve Normal Loss, Abnormal Loss and Abnormal Gain questions

Follow the same order every time. Do the units first, then the rate, then the accounts.

1Write the unit reconciliation: input, normal loss, actual output, actual loss. Find abnormal loss or abnormal gain.
2Compute normal loss units and their scrap value (normal loss units × scrap rate).
3Add up the total cost to be charged: materials, labour, overheads and any opening WIP.
4Compute cost per unit = (Total cost − Scrap value of normal loss) ÷ (Input − Normal loss units).
5Value good output, abnormal loss or abnormal gain at this one rate.
6Draw the process account. Debit input units and costs, plus abnormal gain if any. Credit normal loss at scrap value, abnormal loss at cost, and output at cost.
7Draw the Abnormal Loss or Abnormal Gain Account. Include scrap realised or scrap foregone, and transfer the balance to Costing Profit and Loss Account.
8Check that both sides of the process account agree in units and in rupees.

Quickest way: Rate first, then plug the difference

When to use it: Use it when the question has no opening or closing WIP and asks for the value of output, abnormal loss or abnormal gain.

Find the net cost: Total cost − (Normal loss units × scrap rate).
Divide by expected good units (Input − Normal loss) to get the rate.
Multiply the rate by actual output, then by abnormal units.
Tally: Total cost + abnormal gain value = Scrap of normal loss + Output value. For abnormal loss: Total cost = Scrap + Abnormal loss + Output value.
If the tally fails, recheck the units before the rupees.

Common mistakes in Normal Loss, Abnormal Loss and Abnormal Gain

Charging abnormal loss to good units by dividing cost by actual output.
Students treat all lost units like normal loss.
Fix: Divide by input minus normal loss only. Abnormal loss is valued at that rate and moved out of the process.
Deducting scrap value of abnormal loss when finding the cost per unit.
Students deduct all scrap, not only the scrap on normal loss.
Fix: Only the scrap of normal loss goes into the rate. Scrap on abnormal loss is credited to the Abnormal Loss Account.
Valuing normal loss units at cost in the process account.
Students confuse units with value.
Fix: Show normal loss units at their scrap value, which may be nil. They carry no cost.
Treating abnormal gain as a credit in the process account.
Students remember that loss is credited and apply it to gain.
Fix: Abnormal gain is a debit in the process account, as extra units come in. The credit goes to the Abnormal Gain Account.
Applying normal loss percentage to the wrong base.
Students skip the wording of the question.
Fix: Normal loss is on input unless the question says otherwise. Underline the base before you calculate.
Forgetting the scrap foregone on abnormal gain units.
Students stop after valuing the gain at the process rate.
Fix: Debit the Abnormal Gain Account with scrap value that you did not get on the extra units, so the net gain is correct.

Worked examples

Example 1

In Process I, 10,000 units were put in. Costs were materials ₹1,40,000, labour ₹50,000 and overheads ₹40,000. Normal loss is 10% of input, and loss units sell at ₹5 each. Actual output was 8,600 units. Prepare the Process I Account and the Abnormal Loss Account.

Show the solution

Normal loss = 10% × 10,000 = 1,000 units. Actual loss = 10,000 − 8,600 = 1,400 units. Abnormal loss = 1,400 − 1,000 = 400 units.
Scrap value of normal loss = 1,000 × ₹5 = ₹5,000.
Total cost = ₹1,40,000 + ₹50,000 + ₹40,000 = ₹2,30,000.
Cost per unit = (₹2,30,000 − ₹5,000) ÷ (10,000 − 1,000) = ₹2,25,000 ÷ 9,000 = ₹25.
Output value = 8,600 × ₹25 = ₹2,15,000. Abnormal loss value = 400 × ₹25 = ₹10,000.
Process I Account. Debit: 10,000 units, materials ₹1,40,000, labour ₹50,000, overheads ₹40,000, total ₹2,30,000. Credit: normal loss 1,000 units ₹5,000; abnormal loss 400 units ₹10,000; output 8,600 units ₹2,15,000. Total ₹2,30,000. The two sides agree.
Abnormal Loss Account. Debit: Process I Account ₹10,000. Credit: sale proceeds of the 400 abnormal loss units, 400 × ₹5 = ₹2,000 (Cash or Bank is debited for this receipt, and the Abnormal Loss Account is credited); Costing Profit and Loss Account ₹8,000 (balance written off as the net loss). Both sides total ₹10,000.

Answer: Cost per unit ₹25. Output valued at ₹2,15,000. Abnormal loss ₹10,000, of which ₹2,000 is recovered from scrap and ₹8,000 is written off to Costing Profit and Loss Account.

Example 2

In a process, 5,000 units were introduced at a total cost of ₹1,80,000. Normal loss is 20% of input, and loss units sell at ₹4 each. Actual output was 4,200 units. Find the value of abnormal gain and the value of output, and show the Abnormal Gain Account.

Show the solution

Normal loss = 20% × 5,000 = 1,000 units. Actual loss = 5,000 − 4,200 = 800 units. Abnormal gain = 1,000 − 800 = 200 units.
Scrap value of normal loss = 1,000 × ₹4 = ₹4,000.
Cost per unit = (₹1,80,000 − ₹4,000) ÷ (5,000 − 1,000) = ₹1,76,000 ÷ 4,000 = ₹44.
Value of abnormal gain = 200 × ₹44 = ₹8,800. Value of output = 4,200 × ₹44 = ₹1,84,800.
Process Account. Debit: cost ₹1,80,000 and abnormal gain ₹8,800, total ₹1,88,800. Credit: normal loss ₹4,000 and output ₹1,84,800, total ₹1,88,800. The two sides agree.
Scrap foregone on the abnormal gain units = 200 × ₹4 = ₹800. Abnormal Gain Account. Credit side: Process Account ₹8,800. Debit side: Normal Loss Account ₹800 (scrap foregone) and Costing Profit and Loss Account ₹8,000 (balance transferred as the net gain). Both sides total ₹8,800. Costing Profit and Loss Account is credited with the ₹8,000 gain.
Check: net gain = 200 × (₹44 − ₹4) = ₹8,000.

Answer: Abnormal gain is 200 units valued at ₹8,800. Output is valued at ₹1,84,800. Net abnormal gain of ₹8,000 goes to Costing Profit and Loss Account.

Exam tips

Always start with the unit statement. Many step marks go for correct abnormal units, even if later figures slip.
Show the cost per unit calculation separately, with the numerator and denominator visible.
Draw the Abnormal Loss or Gain Account in full. The scrap entry and the transfer to Costing Profit and Loss Account are marked.
In MCQs, check whether the question asks for the gross value at cost or the net value after scrap. Compute both and pick the one asked.
Match your totals on both sides of the process account before moving on. A mismatch tells you where to look.

Practice questions from Process Costing

Normal Loss, Abnormal Loss and Abnormal Gain in other exams

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

Normal Loss, Abnormal Loss and Abnormal Gain: frequently asked questions

What is the difference between normal loss and abnormal loss?

Normal loss is expected and unavoidable. Its cost is borne by good units. Abnormal loss is the excess over normal loss. It is valued at the same rate as good units, but it is charged to Costing Profit and Loss Account instead of the product.

How do you calculate abnormal gain in process costing?

Abnormal gain units are normal loss units minus actual loss units. Multiply them by the cost per unit, which is found on expected good output. Debit this to the process account and credit it to the Abnormal Gain Account.

How is scrap value treated in a process account?

Scrap value of normal loss is credited to the process account. It reduces the cost spread over good units. Scrap on abnormal loss goes to the Abnormal Loss Account, not the process account.

Is abnormal loss included in the cost of the product?

No. It is avoidable and shows inefficiency, so it is not loaded on good units. It is credited out of the process account and written off to Costing Profit and Loss Account after setting off any scrap value.