What is Normal Spoilage?

Normal Spoilage

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Normal Spoilage

Normal spoilage is the inherent waste that occurs in the production process under efficient operating conditions. It’s the unavoidable waste that happens even when the process is functioning as well as it can.

Normal spoilage can occur for several reasons, such as the nature of raw materials, production process characteristics, or the need to tune up machines at the start of a production run. These are the wastes that, even with the best practices and preventive measures, cannot be eliminated without harming the effectiveness or efficiency of the overall production process.

In terms of accounting, the costs associated with normal spoilage are often included as part of the cost of goods manufactured. This means that these costs are ultimately passed on to customers as part of the selling price of the finished goods.

It’s important to differentiate normal spoilage from abnormal spoilage. Abnormal spoilage is waste that could be prevented through improved processes, more careful handling of materials, better machine maintenance, and so forth. The costs associated with abnormal spoilage are often treated as a period expense and are not included in the cost of goods manufactured.

Example of Normal Spoilage

A bakery bakes hundreds of loaves of bread every day. Despite using efficient processes and high-quality ingredients, some waste is inevitable. This could be due to:

  • Raw materials: Some portion of the flour, yeast, etc., might be lost during mixing and baking.
  • Production process: During the process of shaping the dough and baking it, some loaves may not meet quality standards due to variations in heat or handling. They might be slightly burnt or misshapen, and therefore cannot be sold.
  • Start-up and shut-down: At the start of each baking cycle, the ovens might need to be calibrated, resulting in a few loaves not baking perfectly. Similarly, the last batch of the day might not bake correctly as the oven cools down.

The waste resulting from these reasons is considered normal spoilage. The bakery would factor the costs associated with this normal spoilage into the overall cost of bread production. So, the cost of the raw materials, energy, and labor that went into the spoiled loaves would be spread over the cost of the good loaves. As a result, this cost will be passed onto customers as part of the price of each saleable loaf.

On the other hand, if a batch of loaves is burnt because a baker forgot to set a timer, or if a large amount of dough is dropped and wasted due to carelessness, that would be considered abnormal spoilage. The costs associated with this type of spoilage would not be included in the cost of goods sold but would be treated as a separate expense. This is because such events are not inherent to the baking process and could be prevented by better management or training.

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