Abnormal Spoilage

Abnormal spoilage is the amount of waste or destruction of inventory beyond what is expected in normal business processes. Abnormal spoilage can be the result of broken machinery or from inefficient operations, and is considered to be at least partially preventable. In accounting, abnormal spoilage, an expense item, is recorded separately from normal spoilage on internal books.

Material spoilage is often discovered during the inspection and quality control process. In job costing, spoilage can be assigned to specific jobs or units, or can be assigned to all jobs associated with production as part of the overall overhead. Normal spoilage is just that — normal — and is expected in the ordinary course of manufacturing or business operations, especially for companies that make or handle perishable products (i.e. food and beverage). Spoilage beyond what is historically standard or expected is considered abnormal spoilage. Insurance companies that specialize in underwriting policies for firms with spoilage risks can help mitigate losses incurred from spoilage, but typically up to certain limits, which means that abnormal spoilage will probably not be covered.

Suppose a yogurt maker is running a production batch over a four-hour continuous shift before the line is shut down for quick cleaning of some equipment. A very minor portion of the yogurt in mid-production sits at temperatures above the quality control cut-off temperature and must be eliminated from the batch. This is the normal spoilage amount. However, due to delays in restarting the production line after cleaning, additional portions are exposed to higher-than-acceptable temperatures for too long, resulting in abnormal spoilage.

A hamburger and fries joint, to prepare for the busy lunch crowd, grills dozens of hamburgers ahead of time and places them under six sets of heat lamps to keep them at 140 degrees Fahrenheit to prevent the growth of bacteria as they sit. However, two heat lamps fail, causing a number of burgers to cool below 120 degrees by lunchtime. Food poisoning is a risk, so these burgers cannot be sold. The restaurant discards them and records a loss from abnormal spoilage.