What are spoilage rework and scrap and how are they accounte

Solution

Answer:

Spoliage: The spoilage is waste. Its the normal loss and it does not recover any amount. The same is treated as a normal loss and in the process costing the cost of spoilage is absorbed by the normal units and the cost of production is increased due to the same.

Rework: It means defect or required some more work. It involves addtional costs and it also increased the cost of production. It is part of the warranty cost.

Scrap: It means the residual value. The same is recover at the end of the useful life of the product. It is generally tretaed as a indirect income.

The treatments of these three items are different because the nauture of the item is different. One is normal loss, one is warranty expense and other one is residual value. So the nature of these items states that it requires different treatment otherwise the items are not possible to differntiate.