How to Calculate Process Losses? (With Formula, Computation and Accounting Treatment). In most of the industries which employ process costing method, process losses of the nature of wastage, scrap, spoilage, etc., occur at different stages of the manufacturing cycle.

(a) Wastage:

According to terminology of cost accounting I.C.M.A., London, “Waste is discarded substance having no value.” Charles T. Horngren says “wastage is material that either is lost, evaporates or shrinks in a manufacturing process or is a residue that has no measurable recovery value.” Thus, wastage has neither recovery value nor has any use.

(b) Scrap:

According to I.C.M. A terminology, Scrap is discarded material having some recovery value which is usually disposed of without further treatment.

Wastage and scrap receive similar accounting treatment. The cost of wastage and scrap are merged with the process cost so that the good units produced bear their cost through averaging. Recovery from scrap reduces the cost of the process.

(c) Normal Process Loss or Normal Wastage:


It is the process loss which is unavoidable and uncontrollable. It is to be expected in normal conditions of the process. As a part of cost control, management estimates such loss in advance on the basis of past experience. The normal loss should be absorbed by good units produced.

Accounting Treatment:

The quantity of normal loss is computed and credited to the process account in the unit’s column. If the material scrap has some realisable value that is also credited to the process account in the amount column.

A separate normal loss account is opened in the cost ledger. It is debited with the normal loss of different processes. Cash realised from the normal scrap and the scrap value of abnormal gain units are credited to the account. This is necessary because abnormal gain results in reduction of the normal scrap receipts. The account shows no balance.

(d) Abnormal Process Loss or Abnormal Wastage:


When process loss is in excess of predetermined loss, such additional loss is called abnormal loss or abnormal wastage. Such loss may be caused by abnormal reasons such as substandard material, faulty tools and equipment, plant breakdown, etc.

Abnormal loss should not be allowed to affect the normal cost of production. Therefore it is valued just like good units produced. The abnormal loss is controllable and not repetitive in nature. The firm should take all the necessary I steps to avoid the recurrence of abnormal loss.

Computation of Abnormal Loss:

Quantity of abnormal loss – Normal output -Actual output


Normal output = Input – Normal Loss

If actual output is less than normal output the balance is a positive figure, representing abnormal loss in units.

Normal cost of normal output- Expenditure of the process – Scrap value of normal loss


Accounting Treatment of Abnormal Loss:

The units of abnormal loss and their value are both credited to the process account concerned in the respective columns.

A separate account is opened in the cost ledger for abnormal loss. The quantities and values of abnormal loss from different processes are debited to this account. It is credited with the quantity and amount realised from sale of units of abnormal loss as scrap. To this extent, the abnormal loss is reduced. Balance in abnormal loss account represents total irrecoverable loss and is transferred to costing profit & Loss Account.

(e) Abnormal Gain or Abnormal Effectives:

When process loss is less than the predetermined normal loss, the additional output resulting therefrom is called abnormal gain or Abnormal Effectives. Abnormal gain can occur because of superior quality material, better workmanship, improved method, tools and equipment, etc. As a part of cost control process, the causes for abnormal effectives should also be investigated. Where it is warranted, the normal loss percentage can be revised for future operations.


Computation of Abnormal Gain:

Quantity of abnormal gain = Normal output – Actual output

Normal output = Input – Normal loss

If actual output is more, the balance is a negative figure, representing abnormal gain in units.

Normal cost of normal output = Expenditure of the process – Scrap value of normal loss

Accounting Treatment of Abnormal Gain:

The units of abnormal gain and their value are-both debited to the process account concerned in the respective columns.

A separate account is opened in the cost ledger for abnormal, gain. The account is credited with units and value of abnormal gains in different processes. It is debited with the loss in scrap value of normal loss which did riot materialise because of the occurrence of abnormal gain. The balance in the account is transferred to costing profit & Loss Account.