SPOILAGE
Financial Dictionary — Cost Accounting
Definition
Spoilage, scrap, evaporation, etc. in the manufacture of products. Natural corruption is inevitable and is part of the cost of producing high-quality output. Abnormal damage is avoidable and is not part of the cost of producing good output. Abnormal damage should be charged when it occurs.
Use cases, Example & Why it matters
Use cases
- Used in product/service costing, budgeting, and variance analysis.
- Used to support pricing decisions and profitability analysis by cost behavior and drivers.
- Used to support pricing decisions and profitability analysis by cost behavior and drivers.
Example
- Example: The costing team uses **SPOILAGE** to allocate costs and analyze margins by product line.
Why it matters
- Why it matters: Improves cost accuracy, supports better pricing and budgeting, and strengthens performance measurement.