## Costs Excluded from Inventory (Charged to P&L)
| Excluded Cost | Exception |
|---|---|
| Abnormal wastage (material, labour, OH) | None — always P&L |
| Storage costs (post-production) | If storage IS part of production process (e.g., ageing wine), include |
| Administrative overheads not related to production | None |
| Selling and distribution overheads | None |
| Interest / borrowing costs | None — always P&L under AS 2 |
> Interest Rule: Even if the supplier gives 1-year credit and interest is embedded in the price, the interest portion is a P&L expense, not part of inventory cost.
## Abnormal Wastage Calculation
When actual loss > normal (expected) loss, the excess = abnormal loss → P&L.
### Step-by-Step Method:
Step 1: Identify normal loss and abnormal loss
- Total loss = Normal loss + Abnormal loss
Step 2: Revised cost per unit
$$\text{Revised cost p.u.} = \frac{\text{Total cost}}{\text{Total input units} - \text{Normal loss units}}$$
Step 3: Allocate
- Actual good units × Revised cost p.u. → Inventory cost
- Abnormal loss units × Revised cost p.u. → P&L expense
> If there is NO abnormal loss (actual loss ≤ normal loss), skip the above — allocate the full cost to inventory.