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.
Back To All Questions
You might also be interested in...
-
What is an inventoriable cost?
An inventoriable cost means that it’s a cost that company incurs in relation to producing goods or services to be sold. If the cost is inventoriable, it means the cost should be capitalized into the inventory balance and only expensed through cost of goods sold when the product/service is sold. Another way to phrase inventoriable...
-
What is included in manufacturing costs?
Manufacturing costs includes all costs necessary to create a product to be sold. Manufacturing costs can be grouped into prime costs and conversion costs. Prime costs include direct material and direct labor, while conversion costs include direct labor and manufacturing overhead.
-
What are cost of goods sold?
Cost of goods sold represents the total amount of expenses that is incurred to produce the product or service that the company sells to its customers. There is a level of subjectivity involved when determining whether a cost is a cost of good sold or an operating expense. Cost of goods sold generally includes direct...
What is an inventoriable cost?
An inventoriable cost means that it’s a cost that company incurs in relation to producing goods or services to be sold. If the cost is inventoriable, it means the cost should be capitalized into the inventory balance and only expensed through cost of goods sold when the product/service is sold. Another way to phrase inventoriable...
What is included in manufacturing costs?
Manufacturing costs includes all costs necessary to create a product to be sold. Manufacturing costs can be grouped into prime costs and conversion costs. Prime costs include direct material and direct labor, while conversion costs include direct labor and manufacturing overhead.
What are cost of goods sold?
Cost of goods sold represents the total amount of expenses that is incurred to produce the product or service that the company sells to its customers. There is a level of subjectivity involved when determining whether a cost is a cost of good sold or an operating expense. Cost of goods sold generally includes direct...
