Spoilage definition

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What is Spoilage?

Spoilage is waste or scrap arising from the production process. It may also be caused by improper materials handling and storage, which render goods unusable. The term is most commonly applied to raw materials that have a short life span, such as food used in the restaurant industry.

Examples of Spoilage

Here are several examples of spoilage that may be encountered in a range of business activities:

  • Production spoilage. Stamping parts out of a sheet of metal will inevitably result in some of the metal being rendered unusable. The amount of spoilage can be reduced by altering the methodology used to position parts to be stamped from the sheet of metal.

  • Grocery store spoilage. Another example of spoilage is when vegetables are kept in storage past their normal usage date; once this date arrives, the vegetables must be thrown out, since there is no alternative use for them.

  • Commodities trading spoilage. A trader purchases 100 metric tons of wheat and stores it in a warehouse while awaiting a favorable market price. However, due to improper storage conditions, such as high humidity and insufficient pest control, a significant portion of the wheat becomes infested with insects and mold.

Accounting for Spoilage

In accounting, normal spoilage is included in the standard cost of goods, while abnormal spoilage is charged to expense as incurred. This means that the cost of normal spoilage may initially be recorded as an asset and then charged to expense in a later period.

Spoilage FAQs

How does normal spoilage differ from abnormal spoilage?

Normal spoilage is expected under efficient production conditions and is treated as part of the cost of producing good units. Abnormal spoilage exceeds expected levels, results from avoidable problems such as errors or equipment failures, and is usually charged to expense when identified rather than included in inventory cost.

What is the difference between spoilage and scrap?

Spoilage refers to defective, damaged, expired, or unusable units arising from production, handling, or storage. Scrap refers to residual material left over from production, such as trimmings, shavings, or offcuts. Scrap may have recoverable value, while spoilage often requires write-off, rework, disposal, or separate valuation.