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Chapter 9

5.2 Abnormal loss

An abnormal loss is more loss than expected – any loss above the
normal loss. This is not treated as part of normal production cost and is
separately identified and costed in the process account.

At the start of a heating process 1,000 kg of material costing $18 per kg
is input. Normal loss is expected to be 10% of input. Labour costs are
$1,800 and overheads are $900. Output was 800 kg.

Step 1 – balance the units and determine any loss/gain

Input = Output + Loss

1,000kg = 800kg + 100kg (NL) + 100kg (AL)

Step 2 – consider the costs

$18,000 + $1,800 + $900 = $20,700. (NL has no value)

Step 3 – calculate the average cost per unit

The cost per unit = net cost of inputs ÷ expected output

The cost per unit = $20,700 ÷ (1,000kg × 90%) = $23 per unit

Step 4 – value the output and complete the process account

Process account
Kg $ Kg $

Materials 1,000 18,000 Output 800 18,400
Labour 1,800 Normal loss 100 0

Overheads 900 Abnormal loss 100 2,300
––––– –––––– ––––– ––––––

1,000 20,700 1,000 20,700
––––– –––––– ––––– ––––––

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