The loss that occurs in the course of converting an input raw material into finished products is known as process loss. Such a loss may occur because of the nature of the raw materials. This type of loss occurs in terms of the difference between the input quantity and the output quantity. The difference between the input quantity and the output quantity arising on account of production operation is called process loss.
Process Loss = Normal process loss + Abnormal process loss
1. Normal loss /standard loss in process :
The loss expected or anticipated prior to production is a normal process loss. It is thus called a standard loss. A provision for such a loss is made before starting production. Weight losses, shrinkage, evaporation, rusting etc. are the examples of normal loss. Normal loss increases the cost of production of the usable goods realized.
For example, if you doing the business of timber on the basis of their weight. It is sure that after cutting of tree, weight of wood will decrease. So, this loss is normal loss. In process account’s credit side, we just show the normal loss’s units. Now, our total produced units will decrease. This will decrease our cost of production in any process. For example: If total cost of process A is Rs. 10,000. When we produce 100 units in A process, we have checked that due to natural reasons, we have just 90 units. Now, in A Process Account, we will show 100 units in debit side and 10 units of normal loss in credit side without writing its amount. Due to this our total cost of Rs. 10,000 will of 90 units. It means, cost per unit has increased from Rs. 100 per unit to Rs. 111 per unit.
2. Abnormal loss / controllable loss / avoidable loss in process :
The loss realized over the normal loss is called an abnormal loss. Abnormal loss arises because of abnormal working conditions, bad working condition, carelessness, rough handling, lack of proper knowledge, low quality raw material, machine breakdown, accident etc. Therefore an abnormal loss is an unanticipated loss. Abnormal loss is a controllable loss and thus can be avoided if corrective measures are taken. Therefore, abnormal loss is also called an avoidable loss. The value of an abnormal loss is assessed on the basis of the production cost with which the profit and loss account is charged.
Calculation of abnormal loss :
a) When there is not any normal loss :
Abnormal loss = Normal cost at normal production / normal output X units of abnormal loss
b) When there is normal loss :
Abnormal loss = {Normal cost at normal production / (Total output – normal loss units)} X Units of abnormal loss
