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What is the difference between normal spoilage and abnormal spoilage?

A company that sells a product that is subject to spoilage or expiration must determine whether the spoilage occurred in the normal course of business or if the spoilage was considered unusual (abnormal).

Normal spoilage should be capitalized into inventory since it is an inventoriable cost and is incurred in the normal course of business. Abnormal spoilage is considered unusual and should not be capitalized into inventory. Abnormal spoilage should be expensed in the period incurred.

As a rule of thumb, to determine if the spoilage is abnormal, ask yourself how likely it is to occur again within the current year. If its high unlikely and there is little history of the a similar scenario, then the spoilage can be considered abnormal.

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