# Scrap, Spoilage and Defectives

## Key Definitions at a Glance

Term	Definition	Rectifiable?
Scrap	Incidental residue with low recoverable value	N/A
Spoilage	Finished/semi-finished output that cannot be rectified; sold as-is	No
Defectives	Units that can be converted into good output by incurring rework cost	Yes

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## Spoilage

Loss includes material, labour, and overhead incurred up to the spoilage stage.

### Treatment

Type	Cost Treatment	Sale Value Treatment
Normal Spoilage	Borne by remaining good production units	Credited to the account where cost was charged
Abnormal Spoilage (faulty workmanship)	Charged to Costing P&L A/c	Credited to Costing P&L A/c

### Control

Fix normal spoilage standard → Compare actual vs standard → Prepare periodic spoilage report distinguishing normal/abnormal by department.

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## Defectives — Rectification/Rework Cost Treatment

Situation	Treatment
Normal defective — attributable to a specific job	Charge rework cost to that job
Normal defective — not attributable to any job	Charge to Production Overheads
Normal defective — due to departmental fault	Charge to that department
Normal defective — due to wrong customer instructions	Recover from customer
Abnormal defective (poor workmanship)	Charge to Costing P&L A/c

### Control

Fix standard number of defectives and standard rework cost → Compare with actual → Take corrective action.

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## Scrap Control

Fix normal scrap standard → Compare actual scrap with standard → Prepare periodic scrap reports by department responsible.

Worked example

### Example 1

A factory produces 1,000 units. 20 units (2%) are normal spoilage sold for ₹5 each. 5 units are abnormally spoiled due to a machine breakdown and sold for ₹3 each.

Normal spoilage cost → absorbed by the 980 good units; ₹100 sale value credited back to production cost account.
Abnormal spoilage cost → charged in full to Costing P&L A/c; ₹15 sale value also credited to P&L A/c.

### Example 2

Job No. 501 produces 500 units; 10 are found defective.

6 are normal defectives caused by the job's own process → rework cost charged to Job 501.
4 are defective due to wrong dimensions specified by the customer → rework cost recovered from the customer.

If 3 more units are defective due to poor workmanship by a careless operator (abnormal) → rework cost charged to Costing P&L A/c.

⚠️ Common exam mistakes

Confusing spoilage (cannot be rectified — sold as-is) with defectives (can be rectified via rework) — the distinction drives the entire treatment
Treating normal spoilage sale value as a profit/income to P&L — it must be credited back to the account where the original cost was charged
Charging all abnormal losses to overhead instead of directly to Costing P&L A/c
Forgetting that abnormal spoilage sale value is credited to P&L (not to production cost)
Applying a single 'charge to overheads' rule for all normal defectives — the correct account depends on whether the defect is job-specific, departmental, or due to customer fault

Reference:

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Scrap, Spoilage and Defectives — Treatment and Control

Worked example

⚠️ Common exam mistakes