Losses and gains

In this lesson

1. 0:00 Understanding normal loss in production
2. 2:01 Normal loss with no scrap value
3. 4:56 Normal loss with scrap proceeds
4. 8:37 Abnormal loss concept and calculation
5. 11:20 Abnormal loss worked example
6. 16:12 Abnormal gain with scrap value
7. 21:29 Process account entries for abnormal gain
8. 24:25 Scrap and abnormal gain T accounts

About this lesson

You'll discover the difference between normal losses (expected wastage) and abnormal losses or gains (when actual losses differ from expectations), and how to value each using the cost per unit formula. This is essential exam knowledge for handling real-world production inefficiencies and calculating accurate product costs. The video covers normal losses first, explaining that wastage is an expected part of most production processes. When normal losses have no scrap value, input costs are simply spread across the good output units. When they can be sold for scrap, you'll learn how to reduce net input costs and create a separate scrap account to track the proceeds. This approach ensures your product costs reflect only the costs of units you actually produce. You'll then explore abnormal losses—the costly reality when actual losses exceed expectations. These are valued using the same cost per unit as good output, then recorded in a separate abnormal loss account and charged to profit and loss as an expense. The lesson also covers abnormal gains, where production is more efficient than expected. Here you'll see how to value the bonus units, adjust for lower-than-expected scrap proceeds, and reflect the net benefit in your accounts. Throughout, worked examples with materials, labour, and overhead costs show exactly how to complete process accounts and balance the supporting T accounts for scrap and abnormal items.

Duration: 28m