What is a normal loss?

Normal loss is the classification of the loss that takes place during the routine course of business operation. Losses of this type are expected and often arise from the use of specific methods or strategies within the production process. Because normal loss is expected and sometimes inevitable, they are allowed for this type of loss within the total cost of surgery.

Identifying expenses associated with normal loss often evolve using historical data. Businesses will understand that some factors may be their own production process, such as the evaporation of fluids used in the process, changes in the composition of chemicals during storage, or even the production of goods that are not entirely at the level. Breaking is also a common example of the normal loss that occurs during the production goods, and productivity calculations usually allow a certain amount during the routine production time.

There are many examples of normal loss that can occur during the ongoing operation of business. With extensive productionThere is an opportunity for a textile plant, that the defects crawl into a part of the produced goods. If this happens, these goods cannot be sold as first quality items at the usual prices. Similarly, plastic companies can find that a small part of pre -defined or formed goods does not meet certain standards and cannot be sold as first -line goods. Both of these situations represent a loss because inferior goods have been produced by the same sources as the goods that meet the quality of the company's quality.

In some cases, it is possible to reduce the impact of normal loss by selling inferior goods as a second or third quality offer. For example, a textile plant that produces bedding products can sell the second quality of the blanket or bed with minor defects for a fraction of the standard purchase price. Similarly, the plastic manufacturer can be able to sell slightly defective plastic goods with a discount provided that defects do not interfere with the ability of consumers actually use these goods for their intendedof the purposes. This approach helps at least get a part of the investment made in the production of these goods. Depending on the nature of the defect, the purchase price for second quality goods may approach the cost of coverage, but rarely will bring a small amount of profit from the sale.