## Treatment of Spoiled and Defective Work

### Core Definitions

Term	Meaning
Spoiled work	Production totally rejected and cannot be rectified
Defective work	Sub-standard production capable of being rectified

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### Decision Framework for Defective Work

The key question is always: Is this a foreseeable, budgeted cost or an abnormal event?

#### Circumstance 1 – Defectives Within Normal/Established Rate

Actual defectives ≤ normal limit → Normal cost
Rectification cost → charged to the entire batch (spread over total output)
Treated as a regular production cost

#### Circumstance 2 – Defect Due to Bad Workmanship

Rectification cost = Abnormal cost → written off to Costing Profit & Loss Account
Exception: If management has pre-budgeted for a proportion of bad-workmanship defects:
Cost up to the budgeted proportion → Normal cost (charged to batch)
Cost beyond the budgeted proportion → Abnormal (written off to Costing P&L)

#### Circumstance 3 – Defect from Inspection Department Accepting Poor Material

Cost of rectification → charged to the Inspection Department (not the batch)
Written off as abnormal cost in Costing Profit & Loss Account
Logic: The Inspection Department's error caused the cost; responsibility must lie there to maintain quality control incentives

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### Summary Decision Tree

```

Defective work found

├── Within normal rate? → Charge to batch (normal production cost)

├── Bad workmanship?

│ ├── Within management's pre-budget? → Normal cost (charge to batch)

│ └── Beyond pre-budget? → Abnormal loss → Costing P&L

└── Inspection dept accepted poor material? → Charge to Inspection Dept → Costing P&L

```

Worked example

### Example 1

Normal vs Abnormal Defectives: Batch of 500 units. Normal defect rate = 5% (25 units). Actual defectives = 32 units. Rectification cost per unit = ₹40.

Normal rectification (25 units): 25 × ₹40 = ₹1,000 → charged to job cost
Abnormal rectification (7 units, bad workmanship): 7 × ₹40 = ₹280 → Costing P&L A/c
Total batch cost absorbs only ₹1,000; ₹280 is a loss.

### Example 2

Inspection Department Error: Inspection accepts a sub-standard raw material batch. Product made from it is defective. Rectification cost = ₹12,000.

This ₹12,000 is NOT charged to the production batch
Charged to the Inspection Department account
Written off as abnormal loss in Costing Profit & Loss Account
The production batch cost remains unaffected.

⚠️ Common exam mistakes

Treating ALL defective rectification costs as batch/job cost — only defectives within the normal rate qualify; abnormal ones go to Costing P&L.
Forgetting the pre-budgeted provision rule for bad workmanship — if management already budgeted for some bad-workmanship defects, that portion is still a normal cost.
Charging Inspection Department errors to the production batch — the cost must follow responsibility, not the physical flow of production.
Confusing spoilage (cannot be rectified at all) with defective work (can be rectified) — spoiled units are scrapped, not repaired.

Reference:

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