What is Normal Loss?
Normal loss is defined as a type of loss that takes place in certain situations due to the nature of used processes and raw materials and that cannot be avoided. Normal loss takes place naturally such as spoiling, evaporation, leakage, or breakdown. Normal loss can be estimated with the help of prior experiences, technical knowledge, and required formulas. Normal losses are not being charged as they are considered the part of production cost. Normal loss occurs initially before the process starts or meanwhile when any process is executed. There are four forms of normal loss. They are:
- Normal waste: Normal waste is defined as a type of material that is discarded and has no value.
- Normal scrap: Normal scrap is defined as a type of material that is discarded and has some value.
- Normal spoilage: Normal Spoilage is defined as a type of production that does not meet quality standards and is discarded.
- Normal defectives: Normal defectives are defined as a type of production that does not meet quality standards but can be sent for preprocessing again.
Normal Loss can be calculated as:
Number of Normal Loss Units = Input × Expected Percentage of Normal Loss
Difference Between Normal Loss and Abnormal Loss
Normal loss and Abnormal loss both are a type of loss that affects the financial position and overall condition of the company. Normal Loss occurs while doing the normal course of business, and abnormal loss occurs from unexpected events. Companies take all the precautions required for preventing normal and abnormal loss.